Still in the context of articles on cryptocurrencies, we will discuss here the differences between mining, masternodes and staking. The opportunity to take stock of these three methods for generating passive income in cryptocurrencies.
This article is part of the file “Cryptocurrencies, the big folder”
This is probably the best known of the three methods. You’ve probably heard the term “mining bitcoin”. Mining consists of carrying out operations to validate a block of transactions within the framework of proof-of-work blockchains . To do mining, it is therefore necessary to deploy great computing power. This is possible through the GPUs of the graphics cards, more rarely through the CPUs, and even now with machines completely dedicated to the ASICs .
If you want to get started in mining, I recommend this video to guide your choice of equipment:
In any case, there will be a significant initial investment, not to mention the power consumption which can soar depending on the equipment. Especially in this period when energy prices are soaring, this is a significant element to take into account.
If you want to calculate your possible profitability, you can rely on this video, still from Monsieur-tk :
Attention, the video dates from the beginning of 2021, and necessarily each change in price changes the situation on profitability. But at least you will have the process to do your calculations.
A masternode is a master node on a network. It holds a full copy of the blockchain and is used to validate transactions. They are used in particular in proof-of-stake blockchains .
To open a masternode, you will not need a very advanced configuration. Little investment to plan, nor electricity consumption which flies away. On the other hand, you will need to have a large number of local tokens for which you install a masternode. The bulk of the investment is there. And for some coins, this represents sums that are difficult to reach for everyone. To overcome this point, you can turn to shared masternodes. You then buy a share in a masternode.
The network then rewards masternodes that validate transactions. In the case of a shared masternode, the reward thus received will be shared between the owners.
If you choose to embark on a masternode, choose the corner well by doing your research. Because the risk here is that the corner chosen will eventually no longer have any value or that the project will stop. The initial investment is then lost.
I put you a very complete explanation video on the subject of masternodes. Note that it dates from 2018.
And if you want to have a more recent video, with profitability studies, I advise you to go see this one:
The basic principle of staking is to block a coin to obtain it in exchange for interest on it. It’s a bit like placing your money on your savings account or on life insurance.
Be careful, when we say “block”, it is relative. It is possible to release the funds, and to obtain them in a fairly short time (usually 24 hours, it can be a little longer on some coins). So a little longer than if the funds were on a passbook. And a little shorter than if they were on life insurance. And the unlocking process is usually very simple.
Staking works on platforms that offer it, and on coins that are based on the principle of “ proof-of-stake ”. It is a win-win principle. On your side you earn interest, on the other the platform offering staking has significant funds in this corner which allows it to be chosen more often to validate transactions, and therefore to generate income.
If you have decided to “hodl” a coin (i.e. keep it for a long time hoping that its value increases), this can be a very good plan because while keeping the token, it allows you in return to have interests. Be careful, because to do stalking you often have to block the funds on a third-party platform or an exchange. According to the principle of “not your keys, not your coins”, since the private keys are managed by the site, you are dependent on the latter. If the site gets hacked, or if it closes and the designers leave with the cash, you have a risk of losing your coins.
There are possibilities for “cold-staking”, i.e. staking using funds stored on a cold wallet. A cold wallet is a “wallet” storing your private keys and which is not connected to the Internet. This is the most secure way to store your funds, because you remain the owners of your private keys. We can cite for example the cold wallet Ledger which offers the possibility of staking while keeping the funds warm.
A video presentation of staking, still at Monsieur-TK: