Staking or Stacking? Key differences

Trading is not the only way to make a profit. You can earn passive income while HODLing as well. Then you face the question: which method should I choose? Let’s have a look at key differences between staking (on ETH) and Stacking (on STX).

STX vs ETH (part of an image comes from ethereum.org)

When you are staking your funds, it means you are holding them in a smart contract to support the security and operations of a blockchain network.

If you decide to do so on the Ethereum blockchain, you have to deposit 32 ETH to activate the validator software. Your “work” will keep Ethereum secure so you should earn new ETH in the process. Beware you can lose funds for malicious actions, going offline, or failing to validate and you won’t be able to withdraw your stake until future upgrades are deployed. It’s not sure when will it happened. Having 32 ETH allows you to stake solo and run a validator. If you have less than 32 ETH you can add a smaller stake to staking pools. Some companies can do it on your behalf.

This process is based on Proof of Stake (PoS). It’s a consensus mechanism in which participants can lock funds, and at particular intervals, the protocol randomly assigns the right to one of them to validate the next block. Validators don’t need energy-intensive computers in order to participate in a proof-of-stake system, which makes Ethereum better for the environment. There is over 5,2kk ETH staked right now.

Is there any other option to let your funds work? Of course. Here comes the Stacks ecosystem which is based on Proof of transfer (PoX). This consensus mechanism uses the proof-of-work cryptocurrency of an established blockchain to secure a new blockchain. Miners transfer the committed cryptocurrency to some other participants in the network who earn a reward in a base cryptocurrency which is Bitcoin. It means they make passive income by actively participating in the consensus algorithm. Basically, Stacking allows holders to earn a reserve currency (BTC) in return for holding a different currency which is STX — a native asset on the Stacks blockchain used as fuel for transactions. As a result, STX capital markets are not impacted as they might be in traditional Proof of Stake systems.

All you need to do is temporarily lock your STX in your wallet. You can do it by yourself or in a pool with others if you don’t meet the minimum (which is 90k STX). If you do not have enough STX token you can start Stacking on exchanges (earn tab on OKEx or OKCoin) or non-custodial Friedger’s pool for example.

To participate in a reward cycle (that typically lasts for about 15 days), you’ll have to start stacking before the beginning of the preparation phase. Stackers have locked over $351kk for PoX. Those who participated in the last cycle earned an average of 12.7% APY.

If you want to become a STX hodler, I’d recommend joining Freehold, its a community of hodlers like me working to educate others on this technology.

Join us at https://joinfreehold.com/

==Marek