Crypto Academy / Season 3 / Week 1 - Homework Post for @imagen

It is amazing to be part of this new season of cryptoacademy. Special thanks to @imagen for the wonderful lecture.

Research and choose 2 platforms where you can do Staking, explain them, compare them and indicate which one is more profitable according to your opinion. (Binance is not allowed)

Staking simply means participating in a transaction validation on a Proof-of-Stake (PoS) blockchain while meeting the minimum required balance of a given cryptocurrency to earn rewards.

After extensive research, I have decided to discuss Coinbase and Poloniex as platforms where staking can be done.

COINBASE

Source

Coinbase is notably the leading fully regulated and licensed cryptocurrency exchange in the United States. It offers a wide variety of services such as investing in cryptocurrency, trading platforms, accounts for institutions, and wallets for retail investors. It is worthy to note that it has its own U.S stable coin and trades up to 50 different cryptocurrencies. It can also be used to convert one cryptocurrency to another, as well as to transfer and receive cryptocurrency between people.

History of coinbase

Brian Armstrong founded Coinbase in the year 2012. He enrolled in the Y combinator startup incubator and received funding. Later on, Fred Ehrsam joined him as a co-founder. British programmer Ben Reeves was originally supposed to join the team but parted ways due to differing opinions with Armstrong on the issue of how the Coinbase wallet should operate.

The company originally started off with the trading of bitcoins but grew into trading other cryptocurrencies that met its decentralized criteria. It is a fully regulated and approved cryptocurrency exchange that accepts customers from every state in the United States. The company has products for retail users, institutional users and other cryptocurrencies-related products.

POLONIEX

Source

This is one of the most established exchanges in the world. It offers exchange staking asides its features for both novice and advanced traders. It has various stackable assets such as Tron (TRX), Cosmos (ATOM), BitTorrent (BTT), WINk (WIN), Tendies (TEND), and has a staking fee of 0% – 25%.

History of Poloniex

Poloniex is an exchange platform that has succeeded in thriving despite all odds. It was founded in 2013 and hacked in the next year thereby losing over 12% of its customers’ bitcoin holdings. In the following years, a lot of issues began to occur, rumors had it that customers experienced insolvency and at least one user experienced a significant financial loss from the hacking which didn’t come as a surprise.

Furthermore, issues such as frozen accounts and disabled withdrawals added to the panic. In 2018, it was reportedly experiencing users’ issues related to account balances. In the same vein, it stopped offering margin trading due to the laws of the United States.

Comparison for Coinbase and Poloniex

Coinbase	Poloniex
Coinbase is a company located in the United States (US) that was founded in 2012 with the sole purpose of providing crypto exchange services to US traders. It is a beginner-friendly cryptocurrency exchange. Users can trade fiat currencies for four popular cryptocurrencies which are Bitcoin, Litecoin, Ethereum, and Bitcoin Cash	Poloniex is a cryptocurrency only exchange launched in 2014, based in Wilmington, Delaware with its primary purpose as trading among a wide range of alternative coins with platforms like Binance and Bittrex.
Coinbase is actually a very secured platform and 98% of customers’ cryptocurrency funds are stored in secure offline cold storage. It fully complies with U.S. regulations like The Bank Secrecy Act and The USA Patriot Act	Poloniex has a bad record as regards security. Users have actually reported issues such as missing funds, frozen accounts, and pending withdrawals for a long period of time without any response from customer service.
It was designed with beginners in mind. The exchange interface is straightforward and makes deposits and withdrawals really easy	The user interface is not very easy. It feels more cluttered than competing platforms and may be difficult for beginners to navigate.
Users can make deposits using bank wires, bank transfers, and debit cards although trading fees are quite expensive	It is a cryptocurrency-only exchange which means that users can only make deposits and withdrawals in cryptocurrencies. All traders must first convert their fiat currency to cryptocurrency on an exchange with fiat support before transferring that cryptocurrency to Poloniex. The trading fee is significantly low.

Similarities

• Both Coinbase and Poloniex are cryptocurrency exchanges where staking can be done.
• They both use a proof-of-stake consensus process that explicitly allows users to stake their assets and get rewards in addition to ownership of certain blocks on the blockchain.

Coinbase vs Poloniex Comparison Result Analysis

Coinbase can be said to be the preferred over Poloniex because

• It is easy to good due to good user interface
• It has a higher value for money quality
• It has a higher number of acceptable cryptocurrencies

What is Impermanent Loss?

Impermanent loss refers to the temporary loss of funds that happens when you provide liquidity to a liquidity pool. The price of your deposited assets changes compared to when you deposited them due to the volatility of the cryptocurrency market. It can also be said to be how much more money someone would have if they had simply kept their assets rather than giving liquidity hence the bigger this change is, the more you are exposed to impermanent loss.

What is Delegated Proof of Stake (DPoS)?

Delegated proof of stake (DPoS) is simply a blockchain verification and consensus mechanism. It verifies transactions and promotes blockchain organization by competing with proof-of-work and proof-of-stake models. DPoS aims to speed up transactions and the creation of blocks, while not compromising the decentralized incentive structure of the blockchain.

How does it work

Blockchains that operate with DPoS achieve consensus by relying on a reputation-based voting system. Users that hold these coins have the ability to vote on nodes they think should be allowed to validate transactions on the network.

The number of coins a user stake determines his voting power and users who stake more coins have more influence in determining which nodes are elected. It is useful to note that the elected nodes are commonly known as delegates.
Delegates are not exactly required to have a big stake in the network, unlike in PoS, but they must compete for token holders' votes.

The number of elected delegates varies greatly in each blockchain network and it is assumed that the elected delegates are honest. Generally, delegates want to keep their network secure and will not attempt any fraudulent transactions.
It uses real-time reputation scores to show voters the honesty level of present and previously-elected delegates.
By limiting who is authorized to validate blocks of transactions, DPoS systems forfeit some decentralization but gain efficiency since less work is necessary to attain network consensus.

Conclusion

For crypto investors, staking has become a popular way to earn "interest income" on their digital asset holdings. Participants that stake their coins earn a piece of the block reward in the form of newly created coins in exchange for helping to secure the network. A lot of cryptocurrency investors have taken on staking as a medium to earn rewards on their assets. Users earn block rewards from newly formed coins in a bid of securing the network. Impermanent loss is actually real and occurs more to users who trade volatile coins hence traders are advised to stick more to stable coin pairs.

cc @imagen