Stuck on choice? Stacking or Staking
The world is slowly moving towards cryptocurrency adoption, which will be largely seen as a way of investment by future generations. Lately, with the introduction of $STX, there has been so much noise around its Stacking mechanism which has drawn the attention of many. What would one opt for? Stacking $STX or Staking $ETH, which the second-largest cryptocurrency in the world. Here we are going to explore the options available for one to participate in both or choose either of the two.
A little about Stacks ($STX), formerly known as Blockstacks. Stacks is an open-source network of decentralized apps (DApps) and smart contracts built on Bitcoin. It aims to expand the functionalities of Bitcoin serving, as a second layer protocol, capable of improving the benefits of this cryptocurrency, offering advanced smart contract capabilities and an entire infrastructure designed to deploy DApps in a massive way is another cryptocurrency; its major use is to provide transaction fees for smart contracts and DApps.
What is the main difference between Stacking and Staking? Is it the ‘c’ in Stacking that is a game-changer or there is more to it? $STX offers Stacking, which is different from what any other cryptocurrencies offer. Stacking is an innovative mechanism that rewards $STX token holders for participating in the Stacks blockchain’s consensus process, called Proof-of-Transfer (PoX). $STX holders who participate in Stacking are called Stackers. Every time a new block is mined on the Stacks blockchain, the protocol sends $BTC committed by miners to Stackers as a reward for adding value to the network. All eligible Stackers are rewarded with $BTC approximately once per Stacking cycle (e.g. 14 days, though the exact duration is prone to change).
On the other hand, Ethereum is open access to digital money and data-friendly services for everyone — no matter your background or location. It’s a community-built technology behind the cryptocurrency ether ($ETH) and thousands of applications you can use today. It is scarce digital money that you can use on the internet — similar to Bitcoin. Staking is an act of securing cryptocurrencies to receive rewards. When you stake your $ETH you’ll be able to help secure Ethereum and earn rewards. In this system, the threat of losing your $ETH disincentivizes attacks. For one to participate in $ETH staking they should deposit 32 ETH to activate validator software. Another requirement is that one will also need to run an ‘ETH 1’ or mainnet client. According to Binance Academy (2019), Staking involves validators who lock up their coins so they can be randomly selected by the protocol at specific intervals to create a block. Because these are randomly selected, larger amounts have more chance of selection — the more you plant, and the more you reap. Rewards are given for actions that help the network reach a consensus.
The outstanding difference between Ethereum and Stacks is their underlying technology. Stacks uses PoX, also known as Proof-of-transfer, while Ethereum uses PoS (Proof-of-Stake). Proof-of-transfer (PoX) is a new mining mechanism that generalizes the concept of proof-of-burn. PoX uses the proof-of-work cryptocurrency of an established blockchain to secure a new blockchain. Here, miners transfer the committed cryptocurrency to some other participants in the network; this allows network participants who are adding value to the new cryptocurrency network to earn a reward in a base cryptocurrency by actively participating in the consensus algorithm.
On the other hand, blockchain networks use the Proof-of-stake (PoS) mechanism to achieve distributed consensus. It requires users to Stake their $ETH to become a validator in the network. Validators are responsible for the same thing as miners in proof-of-work: ordering transactions and creating new blocks so that all nodes can agree on the state of the network. Validators are chosen at random to create blocks and are responsible for checking and confirming blocks they do not create. A user’s Stake is also used as a way to incentivize good validator behavior. For example, a user can lose a portion of their Stake for things like going offline (failing to validate) or their entire Stake for deliberate collusion. For $ETH, this is an upgrade from the traditionally used PoW (Proof-of-Work).
Below are highlighted differences between the two protocols:
1. Staking has high risks of loss of investments, can lose ETH for malicious actions, going offline, and failing to validate. Stacking has less risk of losing funds. The funds remain in one’s wallet during a Stacking cycle. Stacking services are safer when using hardware wallets like Hiro Stacks Desktop App.
2. Staking requires special hardware to run nodes compared to Stacking which does not require any special hardware; STX holders can stack using their STX wallets, or explore other providers.
3. Stacking $STX yields $BTC rewards while Staking $ETH yields $ETH rewards.
4. The minimum amount to participate in Stacking rewards via the Stacks wallet is 70k $STX while Staking $ETH requires a minimum of 32 $ETH to activate validator software. Or just like with Stacks you can pool with others.
NB: You can delegate stacking so that you can enjoy lower minimum requirements. Some pools require as low as 50 STX (Okcoin Stacking Pool).
Sometimes in differences comes strength, just because a system seems more complicated does not mean it is less effective. A system works according to one’s goals. If the goals align with Stacking then opt for it: if the goals align with Staking and the hardware is available, then go for it. The problem in this industry is that people fear risks, whereas it is all about perspective.
In conclusion, one can simply say Staking requires hardware, while stacking requires one to have a wallet. With Staking comes risks of losing investments — yet Stacking protects that loss. Both yield results, which is a great thing after all. The results are different, but all require an investment.
