One Coin to Rule Them All: The Best Proof of Stake Coins To Watch in 2022

One Coin to Rule Them All: The Best Proof of Stake Coins To Watch in 2022

Not all protocols are created equal, and this is especially true regarding proof of stake. Here are the best proof of stake cryptos and why you should know about them.

One Coin to Rule Them All: The Best Proof of Stake Coins To Watch in 2022
Guy Ovadia

Published Feb 9, 2022Updated Apr 14, 2022

Crypto

Crypto

Technology

Technology

Passive Income

Passive Income

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What makes money valuable? Ask 10 different people and you'll get 11 different answers. They might all be subjective, but no one in their right mind would refute the premise that money is valuable. So, what about cryptocurrencies? Like Bitcoin? A skeptic might say, "It isn't backed by anything," but the same could be said about the U.S. dollar. Currencies, fiat, and crypto alike have no intrinsic value because they depend on the integrity of an underlying structure.

Bitcoin, for instance, has its value derived from its proof of work system. Proof of work is a mechanism that facilitates transactions and secures a decentralized ledger on a network like Bitcoin. Despite proof of work's effectiveness, Bitcoin is plagued by inefficiencies like high energy consumption and slow transactions. As a result, blockchain developers are no longer using proof of work, instead opting for the more eco-friendly proof of stake (PoS). As PoS grows in popularity, here are some of the best proof of stake coins to place your bets on.

What's proof of stake?

Proof of stake is a mechanism for validating transactions in a decentralized network. This is done using a system of computer nodes known as validators that are responsible for confirming blocks of transactions and corroborating the work of other validators. To turn a computer into a validator, one must stake a minimum number of tokens. 

Active validators earn rewards proportional to how many tokens they have staked. Validators with larger stakes are most likely to be selected to propose new blocks in exchange for newly minted tokens. All active validators receive periodic rewards composed of transaction fees paid by the network's users. Most blockchains have measures that debit the stake balance of validators as a punishment for breaching protocol or misbehaving.

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Best proof of stake coins

In comparing proof of work vs proof of stake, it becomes apparent that there's no simple solution to the security, decentralization, and scalability trilemma which keeps blockchain developers up at night. However, proof of stake has been gaining popularity, and the best proof of stake coins are growing right along with it.

With so many different ways of solving the trilemma, proof of stake can no longer be just one thing. PoS encompasses many similar approaches and no two proof of stake protocols are alike. It's the crucial yet nuanced differences that set these best proof of stake coins apart from the rest.

 

Cardano (ADA)

Cardano is an open-source smart contract-enabled blockchain created by Ethereum co-founder Charles Hoskinson. Unlike the rest of the coins on this list, Cardano doesn't have a whitepaper and was developed by academia through peer-reviewed research. The goal of Cardano is to create a proof of stake smart-contract platform that can fulfill real-life use cases, like supply chain management. 

Ouroboros is a delegated proof of stake protocol developed specifically for Cardano. Delegated proof of stake enables holders to stake their ADA with a validator in exchange for part of their rewards. Because there is no minimum staking requirement for delegators, delegated proof of stake makes participating in the network more widely accessible. Most proof of stake protocols have incorporated delegators in some shape or form.  

Solana (SOL)

Solana is arguably the most powerful proof of stake blockchain out there. What makes the Solana network so speedy is its proof of history protocol. Rather than relying on an outside source for time data, Solana's proof of stake blockchain uses a built-in variable delay function to timestamp each SOL transaction. Solana claims proof of history makes it more efficient and decentralized than either proof of work or proof of stake competitors.

Solana's proof of history works just fine, but the innovation is spoiled by other issues. For one, the network experienced several periods of congestion recently, which have been getting worse as Solana's popularity grows. The platform is still in beta, to be fair, so perhaps the congestion will be sorted out once the Solana mainnet launches sometime this year.

Polkadot (DOT)

Polkadot is a blockchain network founded by Ethereum co-founder Gavin Wood that uses a nominated proof of stake protocol, which is virtually identical to delegated proof of stake. Polkadot is unique because it isn't just a blockchain, but a network of several application-specific parallel blockchains known as parachains. Each parachain can be a fully-fledged blockchain with its own protocol and smart contracts, but they must report back to the central relay chain.

The only function of the relay chain is to coordinate the Polkadot ecosystem. Transactions on the parachain are validated by collators, who then report a state of the parachain to the relay chain. Meanwhile, the relay chain is where validators propose new blocks as well as stake DOT along with their respective nominators. While Polkadot's proof of stake system is scalable and decentralized, the parachains can be vulnerable because Polkadot relies on the relay chain for security. 

Binance Smart Chain (BNB)

Since it may take a while for Ethereum to upgrade to proof of stake, many have taken it upon themselves to release their own suite of upgrades to the Ethereum protocol. Binance Smart Chain (BSC) is an Ethereum-compatible blockchain created to make transacting faster and cheaper. BSC hosts more decentralized applications than any other PoS platform, and its native coin BNB is currently the fourth-largest cryptocurrency by market cap.

BSC combines the Binance Chain's delegated proof of stake protocol with proof of authority—where only authorized parties are permitted to validate transactions. The BSC protocol selects the 21 highest BNB stakers to validate transactions every 24 hours, with the highest priority given to the largest stakers. BSC's pay-to-win system achieves higher throughput than other proof of stake protocols by sacrificing decentralization.

Avalanche (AVAX)

Avalanche is an open-source decentralized finance (DeFi) platform that consists of three primary blockchains: the X-Chain for exchanges and transfers, the C-Chain for Ethereum-compatible smart contracts, and the P-Chain for validators and staking. They are all secured using a proof of stake protocol called the Avalanche Consensus. 

The Avalanche Consensus is probabilistic, meaning that not all validators must be certain about a transaction for it to be validated. This probabilistic approach is similar to that used by Bitcoin, except Avalanche leverages the speed and energy efficiency of proof of stake without compromising security. Avalanche does all this while maintaining a network of tens of thousands of active validators, making AVAX one of the most decentralized proof of stake coins.

Polygon (MATIC)

Polygon is a proof of stake sidechain built on Ethereum. Polygon's native coin is MATIC, but other tokens must be transferred from Ethereum either using the proof of stake bridge or the Plasma bridge, which is faster and more secure. Polygon is more akin to a scaling solution than a standalone blockchain because it must stay in sync with its base layer Ethereum.

While MATIC staking occurs only on the Ethereum blockchain, Polygon is composed of two additional layers called Bor and Heimdall. Bor is the main layer where blocks are validated and smart contracts are deployed, while Heimdall is the checkpointing layer that reports back to Ethereum. Although Polygon technically isn't its own blockchain, it made the list of top proof of stake coins because it has one of the largest DeFi ecosystems of any PoS platform, second only to BSC.

Tezos (XTZ)

Tezos is a self-amending smart contract-enabled blockchain that emphasizes governance as a way to empower XTZ holders. Tezos is a delegated proof of stake blockchain, except they call their validators "bakers" and staking is termed "baking." Bakers must have 8000 XTZ to vote on amendments and earn rewards for validating blocks—with more XTZ equalling a higher chance of earning rewards. Delegators can stake any amount with a baker to receive a share of their rewards.

Tezos has a mechanism that encourages XTZ holders to vote on changes to the protocol called amendments. The emphasis on collective decision-making as a form of governance (along with the Tezos Foundation's radical transparency) is what makes Tezos both decentralized and adaptable to innovation. XTZ is still a baby in the crypto world, so it may be a while until Tezos matures and reaches its full potential, but it's promising enough to be considered one of the top proof of stake coins.

Terra (LUNA)

Terra is a delegated proof of stake protocol for minting decentralized stablecoins. Validators must stake LUNA to earn rewards while anyone can delegate LUNA to another validator and earn part of their rewards. Terra's unique protocol allows users to create algorithmic stablecoins that are artificially pegged to a fiat currency.

Unlike regular stablecoins that are physically backed by fiat, algorithmic stablecoins are created by burning LUNA, meaning it's permanently removed from circulation. Users destroy LUNA to create stablecoins like TerraUSD (UST) or TerraEUR which are equal to the U.S. dollar and the Euro, respectively. Terra also features community governance, making it the best platform for accessing a decentralized alternative to USDC or USDT.

Where can I buy the best PoS coins?

The top proof of stake coins can be traded on major crypto exchanges. For example, Gemini currently supports Tezos (XTZ), Terra (LUNA), and Polygon (MATIC), among dozens of other cryptocurrencies such as Cosmos (ATOM). Cosmos didn't make this list, but it's an honorable mention that's worth a gander. 

gemini
Gemini

Crypto

Some exchanges even offer on-platform staking as a bonus. For instance, you can stake your Tezos directly with Coinbase or Kraken without having to withdraw your XTZ from the exchange. This is a great option for crypto newbs because it's the fastest and easiest way to earn from staking.

coinbase
Coinbase

4.4

Crypto

One protocol to bring them all, and in the darkness stake them.

Why has proof of stake become so popular?

One protocol to bring them all, and in the darkness stake them.

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