How To Earn Tezos Staking Rewards Using A Ledger

What is Tezos?:

Tezos is a cryptocurrency that runs on a Proof of Stake consensus, which means that coins are not brought into the ecosystem through mining, but rather holders are paid as a reward for locking their tokens up. Tezos quite literally means “smart contract” in ancient Greek, and they use smart contracts in the language Michelson to build on its platform like that of Ethereum. Tezos’ primary goal in differentiation from Ethereum is the ability to control the network while being an active user. Tezos wants the users within the system to have a direct connection to how the network is running. Any person that is holding the currency can vote, and a fork does not need to occur when any underlying upgrades are made. Development teams are typically required to push proposals and evolve the network, but Tezos has built-in options for users to take direct control. Developers can attach invoices to their network updates, in which if they accepted then the developer would be paid making the system for upgrades economically feasible. Mathematical proofs are used on the Tezos network to make sure that the building properties are verified, and they allow the network to stay decentralized. Tezos calls this security function “Formal verification” and uses it to help reduce exploits and other vulnerabilities that would be dangerous to the Tezos network.
Updates can be made to the network every 131,072 blocks, which occurs every three months or so. An 80% vote is required in order to push government proposals into activation.
In the early days of Tezos, there were many problems as the Foundation and ICO had to fight ongoing lawsuits, but the end was successful as Tezos was able to raise over $232,000,000 and be one of the most successful ICO’s ever.

What is Staking?

Staking is the act of which cryptocurrency holders put funds in a cryptocurrency wallet in order to help the blockchain network operate. In simplest terms, staking is when a digital asset owner decides to “lock” up their cryptocurrency in a smart contract to receive token rewards for their contribution. Staking conducts on the Proof of Stake consensus mechanism; however, it can be seen on Hybrid consensuses as well. Since staking allows users to validate new blocks and keep the network secure, they have to have some sort of economic backing in order to make the ecosystem competitive, so these validators need to stake coins and are given rewards proportionally based on the number of coins that are staked. The more coins staked, the better the odds are that the user will be able to validate the next block. (In proof of work, miners must pool computational power to be picked.)

Bonding Period:

Some coins will force holders to keep the coins in a smart contract for a fixed duration, in which assets cannot be withdrawn during the selected period. The term at which the coins must be staked to receive funds must be understood completely. Some coins and pools might allow different transactional periods.

Inflation:

Inflation places a significant role in token economics since the reward for staking is based on a fixed percentage of the total inflation rate. So token holders are pushed to use their tokens as they have amortized operational costs.

Staking Pools:

Pools are commonly seen in Proof of Work, where miners use their computational power to help find blocks. When a block is found, the miners can be paid for their work, which they would not have been able to do on their own. In Proof of Stake, users can pool together their coins, so if they don’t have the minimum required amount to stake, they are still able to participate. As the price of the asset increases in fiat value, it can make it even harder to enter without having pooled assets. Pools typically charge fees and percentages of rewards since they have a lot of maintenance work on the back end. The pools must set up the stake, work on any development and coding updates, along with setting up security measures, so they must charge a small fee that is typically 1%.

Cold storage staking:

It’s possible to stake on a cold wallet such as a Ledger, or other hardware. Cold wallets are some of the most secure ways to hold cryptocurrency as the device isn’t connected to the internet. This method allows “whales” to stake and still have security comfort. If the staked currency gets traded off the hardware, then the rewards will stop flowing, and the staking will end.

How is staking performed on the Tezos Network?

The Tezos network uses proof of work but has a different spin on how coins get staked. Tezos can get staked in the form of “baking” or holders can “endorse” their currencies.

Tezos Baking:

Baking is the process of signing and publishing new blocks to the public decentralized distributed ledger. A minimum of 10,000 coins is needed to start the baking process. Any coins outside of the 10,000 that are needed can be used in order to significantly increase the chances of being selected as a Baker or an Endorser. Bakers can earn 16 XTZ for each block that gets baked along with transaction fees, which happens on a fixed cycle of 4096 blocks. If Bakers act maliciously, the coins that they staked will be forfeited. Malicious activity can include double baking a single block. To successfully bake a block 512, XTZ must be held in a contract. This helps fight against malicious intent since the baker will only get 16 XTZ for verifying the block.

Tezos Endorsers:

The endorser is the second available option for holders who want to stake their coins, and an Endorser can earn 2 XTZ after checking the block that was recently verified by a Baker. 32 Endorsers get picked randomly to aid in this process. If Endorsers act maliciously, the coins that they staked will be forfeited. Malicious activity can include double endorsing a single block. To successfully endorse a block, 64 XTZ must be locked in a contract. This helps fight against malicious intent since the baker will only get 16 XTZ for verifying the block. If a Tezos wallet got hacked, and the fraudster didn’t care about the financial gain from stealing the coins, the hacker could just maliciously “burn” the coins by double endorsing to try and screw the network up and not caring about the financial loss.

Delegates:

Delegates on the Tezos network can be classified as either Active or Passive. An active delegate can participate in the staking and earn rewards, while the passive delegate will not acquire any staking rewards. If a delegate doesn’t bake or endorse a block with five cycles, then the delegate runs the risk of becoming passive.

Tezos Staking Rewards:

Tezos staking gets calculated in an annualized yield, which is dynamic to the percentage of total tokens to delegated ones. So, for example, if every single token gets delegated, then an annual yield reward would be 5.5%.

While looking at the above figure, $150.95 is the potential annualized earnings that Tezos staking earns with an investment of $2,640.

In the above picture, the delegated and baked Tezos are being compared. If the Tezos got baked on their own, the annual fee would be 0.63% higher, but a lock-up period of 14 days and a minimum of 8,000 XTZ would have to be staked. (This investment is ~$21,120.)

• The annualized staking reward frequently fluctuates, since it’s on the total percentage of coins staked to the total supply.

Earning Staking Rewards:

Staking rewards can be earned in two easy ways. Either you are starting up a baking node, which will cost 8,000 Tezos to start off or by delegating your baking rights. Delegating your baking rights will allow staking to occur on a hardware platform like the Ledger and is the most secure way to stake as the coins are not connected via the internet and susceptible to hacking. Your rights will be taken off the hardware wallet, but your Tezos will stay safe and sound.

How can investors stake Tezos on a Ledger?

Staking Tezos with Ledger has never been easier. Here is a 10 step guide to successfully staking Tezos and earning those rewards!

Update your Ledger Live application

Ledger Live
Ledger Wallet
Step 1: First visit the official site and download the live application.

Step 2: Connect the Ledger device and select “initialize as new device” or “Use an initialized device.” If you don’t have the ledger hardware wallet, you will need to purchase on in the official store.

Step 3: You will be asked by Ledger to set up some passwords and verify the security checklist, along with adding an optional password lock. The lock will help you reset the local password that you create on the screen before.

Step 4: You will now need to download the Tezos app and have it connected to your Ledger so that you can officially start staking on the hardware wallet. On the Ledger Live, we will want to scroll down to the accounts tab and “Open Manager”.

Step 5: Since we are looking to stake Tezos, we will want to look for it in the search bar. If the ledger device has an update, then it is strongly recommended that you click “Update Firmware” on the right-hand side in the blue box.

Step 6: After searching for Tezos, you will want to install the application to the device, which might take a few minutes to download and install.

Step 7: Once the installation is complete, we can now click the “Add Tezos account” button.

Step 8: Now you will need to make some final edits to the Tezos account by naming it etc. Then we can click “add account” in the blue box to the bottom right.

**Step 9: **Now that Tezos has been added to the Ledger Live, you can select “Earn Rewards,” which is at the bottom right in the blue box.

Step 10: We can now select the last confirmation window “Delegate to earn rewards” button in the blue at the bottom. This confirmation screen will explain some of the basics of the delegation process with a link to learn more, but since we have explained it, we can move forward.

Step 11: We will want to verify that all the information about the stake is accurate. So, make sure you are staking the right amount of Tezos that you were planning on, and select the validator that you would like to stake the coins on. If you don’t choose one, the Tezos will automatically staked with the randomly chosen validator. Verify that the network fees are reasonable, and if you agree to everything, click “Continue,” which is in the blue box on the bottom right.

• When clicking “select’ to change the validator, you will be asked to put the validator address into a form. The address is on the official website of the validator that you are interested in using. After entering the custom address, you can select “Confirm Validator” on the blue button at the bottom right of the popup window.
  
  
  Step 12: Congratulations🎉, you are now staking Tezos! On the main screen, you will now be able to see the Validator, Transaction ID, Amount, Value, and Duration of the staking transaction.
  

Conclusion:

Tezos staking can be extremely profitable as the coin increases in value due to the high return of staked rewards. If ten coins get staked that cost $1 each, at 5.5% a year, that will give a return of 0.55 coins or 55 cents at the year prior value. However, if the currency can increase from $1 to $2, then the value is now $1.10, which, compared to a standard 5.5% annualized yield, is exponentially more. A trusted validator must be chosen to stake with since delegated coin rewards are not guaranteed to be paid out. Using the Ledger Live application is a great way to stake while keeping your coins secured as they aren’t connected to the internet and susceptible to hacking.