What is the Return of Investment that Reddcoin Staking Offers?
Reddcoin uses a Proof of Stake algorithm that uses proof of coin ownership to allow network users to sign blocks of transactions on its blockchain. You can read more about what such an algorithm entails in another blog post.
Staking your Reddcoin is easy to do and possible for anyone who owns any Reddcoin. Staking your Reddcoin can earn you up to 6% annually on your investment. Of course, this return on investment is independent of any fluctuations in the price of Reddcoin and only affects the amount of Reddcoin in your wallet. Because any Reddcoin that you earned can also be staked, the laws of compound interest also apply here and your earnings will increase over time as long as you do not sell or otherwise reduce the number of coins that you are using to stake.
How is the Return of Investment on Reddcoin Staking Calculated?
With Proof of Stake, you are using your coins to earn you interest as you help secure the network by signing blocks of transactions. Whether or not you get to sign a transaction is decided randomly. This means that the number of coins you have will influence how often you get to sign a transaction. If you own more coins, you will have a higher chance that you will get to sign the next transaction.
However, another factor is taken into account to alleviate the randomness of signing on the network. This is the concept of “coin age”. Rather than purely looking at the number of coins being staked, it is also important how long those coins have been held onto without being spent, moved, or used in staking. Coins that have been in the same wallet for 10 days, for example, will have a coin age of 10 days. Similarly, coins that have been held for 2 years will have a coin age of 2 years. After moving, spending, or signing a transaction with your coins, your coin age will be reset.
The reward of staking is calculated through the number of coin years that you own, rather than the number of coins. The chance that you will get to sign the next transaction is similarly calculated based on the coin age that you have gathered. This means that the longer you have not signed a transaction, the higher the chance will be that you will be asked to sign the next one and the higher the reward will be. You do not need to be actively staking for your coins to acquire coin age.
As an example, if Reddcoin advertises a 6% yearly interest rate and you have 10 coins which you have held for 2 years, you will have accumulated 20 years of coin age. This means that you will earn 20 * 0.06 = 0.12 coins the next time you stake.
With Reddcoin, however, the system works slightly different. While classic Proof of Stake has linearly accumulating coin age, as in the previous example, Reddcoin introduces Proof of Stake Velocity. In this system, coin age is not accumulated linearly. Rather, coin age accumulates more rapidly in the first 14 days, and then more slowly in the days following. While the average interest rate of Reddcoin is 5%, the coin holders that get to sign transactions within those 2 weeks will see a higher return on investment of 6% annually. This reward structure encourages ongoing staking. In classic Proof of Stake, there is no difference in the reward that someone earns when only staking once in a while versus staking continuously. At the same time, those staking continuously are spending more of their resources to keep a staking system running. However, continuous staking is much more valuable to the security of the network than intermittent staking. Because of this, ongoing staking is incentivised through increased rewards.
At OmniStaker, we have developed an easy-to-use staking device that can efficiently stake your coins continuously so that you can guarantee the highest return on investment on your staked coins. You can find it here.