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30 Nov 2021

Cold Staking and PoS Staking Comparison

Introduction

The Blockchain is without a doubt an ingenious technology, which is clearly emphasized by the elegance of the idea and the scale of its application. Indeed it is brilliant to tie together the distributed ledger technology, a sequence of blocks of information, and the ability to generate internal accounting units that can be freely transferred.

However, human thought usually doesn't stop once steps are taken, and new ideas emerge, such as encouraging funds accumulation and locking, to obtain additional benefits. In this case, we are talking about staking.

We will not talk about earnings questions, as these values can vary considerably depending on various factors. This article will highlight the technical and practical aspects of using Cold Staking and PoS staking and cover their differences.

Coins and Tokens

Briefly and in general terms, we will describe what coins and tokens are and what they are used for.

Coins are the currency of networks using the blockchain. In addition to the usual address-to-address transferts, coins can be used to maintain the network's operation, such as paying transaction fees, monitoring and accounting, verifying the legitimacy of actions, and on-chain governance.

Tokens are assets that are often issued on top of the existing blockchain. This is clearly seen in the example of Ethereum, Ethereum Classic, Callisto Network, and Tron blockchains. Along with the network's main currency, tokens of different standards, interchangeable and non-interchangeable, are also issued on these blockchains. These tokens can be used to transfer value, and the most striking examples are USDT and various NFT tokens, which have led to a real boom and the ability to confirm ownership rights, for example, of any painting.

However, not everything is so clear. Some companies have developed and launched their blockchains, where the native currency is called tokens, as governance tokens, for example.

What Are The Ways To Get Coins?

The networks' native currency can be obtained in several ways:

         - By buying it or, of course, by receiving it from someone as a gift, for example.

         - By mining it.

         - As staking reward.

What is Crypto Staking?

The term staking refers to the detention of funds at a specific address on the blockchain. A reward is provided for the detention of these funds. In most cases, staking is used by proof-of-stake (POS) based blockchains. In such a network, nodes seek to accumulate coins from users to become validators. The more coins a node has, the more likely it will become a block validator, and the more likely it will generate a block and receive a reward.

Users must send their coins to the specific smart contract address to participate in staking, where coins are frozen for a period of time. The freezing of funds contributes to greater stability in the price of coins and greater attractiveness over the long term.

What is Cold Staking?

Cold Staking is a unique feature of Callisto Network. The idea behind Cold Staking is similar to that used by Proof of Stake-based blockchains. Users also send the Callisto Network's native currency, named CLO, to a smart contract. However, there is a fundamental difference between PoS-staking and Cold Staking, and that is because Callisto Network is based on Proof of Work (POW). In other words, miners validate the transactions, and no nodes are competing for users' funds.

Cold Staking allows CLO coins holders to earn passive income. Coins can be locked for a period ranging from 27 days to one year. At the end of the staking period, a reward is accumulated in CLO coins.

Cold Staking is supported by: Callisto Network Wallet, Coinomi, Guarda Wallet, and Trust Wallet. The current version of Cold Staking 2.0 was launched in May 2021.

Differences Between Cold Staking and PoS Staking

Let's talk a bit about the differences between Cold Staking and PoS Staking from a technical and user experience perspective. When designing Cold Staking, the Callisto Network team aimed to create a service that can be achieved without complications in three steps:

         - Send funds to the smart contract address.

         - Wait for the staking to complete.

         - Receive funds.

Cold Staking is funded by a share of the rewards from blocks created by miners. Cold Staking users receive their earnings in CLO coins. Everything is simple enough.

This approach allows miners to simultaneously produce new coins due to mining, which is a requirement of proof-of-work, and to limit the supply of coins in the market.

Things are a bit more complicated with PoS staking. Let's take an example of one of the common types of PoS staking using a government token and an action token. Government tokens are directly involved in staking, and nodes try to attract them by offering the token holders a share of their revenue.

However, to send governance tokens to the smart contract address or any other address on the blockchain, it is necessary to have a certain amount of action tokens.  Both tokens are therefore required. The staking process runs in cycles, the duration of which depends on the block creation speed. A cycle ends after the creation of a given number of blocks. The rate of block creation depends on the number of transactions on the network. In other words, the cycle can end in two days or three weeks. Funds can be withdrawn only after the completion of the process.

Under certain circumstances, a node may not pay the rewards, the reputation of the node will suffer, but this does not prevent evil nodes. Considering the previous points, before starting with PoS staking, it is essential to take into account: the price of the governance token, the price of the action token, the cycle time, the nodes' reputation, as well as the need to constantly monitor the staking in case a node is removed from the network.

Conclusions

In the three years since its launch, Cold Staking has proven to be a reliable source of passive income for CLO holders. Not only does Cold Staking not require monitoring during the staking period, but it also does not require extensive knowledge about blockchain, making it one of the easiest ways to earn passive income with cryptocurrencies. However, there is no need to oppose PoS staking and Cold Staking, both technologies have different goals, and each has proven effective.

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About Hashrate and Shares

Hashrate & Shares is a blog specialized in articles inspired by the possibilities of blockchain technology.

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