A Cheeky Guide to Delegating your ATOM and Generating Passive Income with Cosmos
Everyone has that friend whose dad made millions mining Bitcoin all the way back in 2011. We hear the stories of how Alberto’s dad hooked up an Antminer to a cheap electricity source and 9 months later, it gave birth to a lavish sports car he was able to buy with the profits. Those of us who were sleeping back then have woken up to a world where Proof-of-Work mining is dominated by a handful of large mining pools and manufacturers of high-end mining equipment. No real opportunity for the lads over there. Thankfully, Proof of Stake coins present us with an alternative.
A Quick Peek into PoS
Instead of burning mental amounts of energy in order to achieve consensus on a new block, Proof of Stake systems give token holders the power to participate in validating the chain. This they do by means of staking — locking up their coins in a smart contract. The more coins they lock, the larger their say in the validation process. Cosmos runs a variation of PoS known as Tendermint BFT — which itself resembles the Delegated Proof of Stake (dPoS) system used in such blockchains as EOS and STEEM. The Tendermint BFT system splits token holders into two groups: Validators and Delegators.
Validators: The big dogs responsible for producing blocks and securing the network, Validators maintain a server with Cosmos code and take turns verifying transactions and adding them to the ledger. Cosmos launched with 100 validator slots, given to those who have the most ATOM token ‘bonded’, or staked, to them. Validators can get elected either by bonding tokens to themselves (‘self-bonding’) or by having delegators bond to them.
Delegators: That’s me and you guys. We, the indomitable hodlers of ATOM, who believe in the immense potential of the Cosmos infrastructure yet lack the technical nous, or the time, to set up validator nodes. Instead, we can delegate our tokens to trustworthy validators to do the job for us and still get a piece of the token inflation pie. Too much sauce
Both validators and delegators are rewarded by ATOM token inflation. The inflation rate of ATOM is dynamically adjusted to ensure that 66.6% of all tokens are bonded at any given time. If less than 66.6% tokens are bonded, the inflation rate will rise up until a maximum of 21% in order to incentive bonding. Validators charge delegators a commission for their service, each validator setting its own commission rate.
What About Risk, Timmy?
It’s not all fun and games though. If validators misbehave and get a little too cheeky, their bonded ATOMs can get slashed, as can the bonded ATOMs of those suckers delegating to them. Be careful to delegate to reputable validators only.
Stake & Bake Baby
Now that the quick intro is out the way, let’s get to business.
First, you’ll need a Ledger hardware wallet. If you don’t have one yet, make the investment. Your kids will thank you.
Once you have the latest version of Ledger firmware and the Cosmos app installed, navigate over to https://lunie.io/.
Now for the validators I’m going for. Being a stingy MF, I want to pay as little commission as possible. I’m also not that keen on paying penalties, so validators with no reputation are out of the question. Finally, validators that may lose their spot tomorrow are also less than appealing. Also important to keep each validator’s performance in Game of Stakes — a simulation game that assesses node performance in adverse conditions — in mind. Lets go through some top suggestions
Sikka: Sunny Aggrawal is quite an impressive lad. Co-Founder of Blockchain@Berkley, core developer at the Tendermint Team and a cheerful-sounding name to boot — the bloke has it all. Yet he was still first to reply to yours truly when I sought out advice on validators. He runs Sikka Tech together with Dev Ojha, who is also a core developer on the Tendermint team. 0% commission is music to ears, as is the fact that the team are experienced Cosmos pros. It makes sense that the control 4.61% of the network’s voting power. They solid, they free and they get most my tokens.
Certus One: Another two-man show run by some young guns, Certus One charges 12.5% commission but that’s a small price to pay for the world-class service they provide. These lads dominated the Game of Stakes and control 6.55% of the voting power on the network. Throwing them a little bone.
Ztake.org: It’s time to deviate from the two-man shows and feature a lady in the list. Mira Nugumanova is the fearless leader of Ztake.org, a validator who managed to secure its place on the ‘Never been jailed list’ during the Game of Stakes. If you’re good enough to avoid the clink you’re good enough for my tokens. They have a small commission rate of 4%, and are making an active effort to educate the community. You have my coins.
JackZampolin: From cook to code, JZ is the epitome of ‘started from the bottom now we here.’ He serves as a Product Manager on the Tendermint/Cosmos team and as a very welcoming admin in the telegram chats. Jack takes 10% commission, which he deserves because at the end of the day, he is making Cosmos great again.
Forbole: I went looking for a validator with more than 1% voting power, no commission and 100% uptime and instead I found an inspirational quote worthy of an insta meme. “Too many friends. Too few relationships. Let’s change our social network.” reads their Google Search blurb. I’m hooked.
If you read this list and it helped you make some decisions, why not throw a little tip my way?