What is Cosmos?
Cosmos is an ambitious project dubbed “the internet of blockchains” as it is designed to connect all the different blockchains. I won’t go into the technical details, but its security and incentive model is a new implementation of POS (Proof of Stake). Except, this implementation is a bit more aggressive than others with slashing (loss of proof of stake due to poor node performance).
Terminology: Cosmos Hub
The Cosmos Hub is the first blockchain of the Cosmos Network. The hub will connect to many other blockchains, effectively functioning as a light client of those chains. This will allow token transfers across different chains to be routed via the hub.
Cosmos Hub 1 was the mainnet launch that enabled staking, and voting. Cosmos Hub 2 is the network which finally allowed transfers of atoms along with staking and voting.
Now Cosmos Hub 3 is ready!
The ATOM is the token of the Cosmos Hub. It is the staking coin, and coin you pay your transaction fees in like ETH. It is also the governance token as its used for voting on proposals. This is important as Cosmos is arguably more democratic than other blockchains, as even its launch and token transfer-ability had to be voted on by ATOM holders.
For more on how weighted voting for validators works, read this blog post. In return for bonding(staking) atoms with their chosen validator, an atom holder, who has delegated (see below) becomes eligible for block rewards paid in atoms as well as transaction fees.
Validators secure the Cosmos Hub by validating and relaying transactions, proposing, verifying and finalizing blocks. Validators can stake their own atoms or be delegated tokens from other atom holders. This makes the system a bit like DPOS (delegated proof of stake).
However, unlike DPOS validators are expected and compete to share staking rewards with their delegators. They only make a % of staking rewards, where as with DPOS block producers receive 100% of staking rewards.
Delegators of the Cosmos Hub are holders ATOMs and regular users. There is no minimum amount of atoms required in order to stake atoms. They do so by selecting one or more validators and delegating their voting power to them by putting up atoms as collateral. In the case of misbehavior by the validator (for example, signing two different blocks at the same block height), part of the collateral deposited by both the errant validator and delegator will get slashed. In return, delegators can earn a proportion of the transaction fees as well as block rewards.
New atoms are created every block and distributed to validators (similar to miners) like most all blockchain systems. Validators then pass this reward on to their delegates and only keep their validator fee called a commission. This fee will be determined by the free market, but the commission rate seems likely to end up somewhere between 0–25% of staking rewards.
The target rate of atoms staking is ⅔ of the total atom supply. If less atoms are staked, the block rewards increases up to a ceiling of 20% annualized inflation. If more than ⅔ are being staked, atom block rewards decrease gradually down low of 7% APR. At the time of writing ATOM staking ROI is around 9%
How to stake
So now let’s get to the meat and potatoes, how do you get atoms and stake them to earn the 9% rewards of this promising new coin? It’s actually quite an easy process, especially if you have a Ledger wallet. But, the Cosmosstation mobile app has worked excellent as well and is very easy to use.
Step 1 get a wallet
If you have a Ledger Wallet, I recommend https://lunie.io/#/. Its similar to using MyEtherWallet with Ethereum and the most secure way for a regular users to interact and stake their atoms.
If you don’t have a ledger wallet, the Cosmostation mobile app has worked great. Interacting with the mobile wallet is very intuitive and similar to using any other kind of cryptocurrency wallet. If best practices are used, this is also a plenty secure way to use and stake your atoms.
Step 2 back up your wallet
Always backup your wallets and make sure you have your seed phrase written down and stored in a safe place.
Step 3 Delegate
Delegating is not a complicated process at all. Both wallets have a very easy to use delegation process.
For lunie wallet simply go to staking tab, then validators. Here a list of all the cosmos hub validators will show up. I recommend going with more than 1 validators for supporting decentralization. Try also the bottom validators not only the top ones .Lunie if you click the sort feature you can sort by voting power.
For Cosmos station the process is similar. All of the validators are listed and you can click through and select the best one.
Our Validator :
Picking a Validator:
While you are free to do however you please with your atoms, I recommend delegating your atoms to a couple of validators to diversify. You can choose what percentages, and if you have strong feelings towards one or the other go ahead.
Delegating for both wallets is easy as a normal transaction. Select delegate and amount and submit the transaction. Do node that once delegated those atoms are locked and cannot be transferred for minimum of 20 days.
Step 4 Claim staking rewards
Staking rewards are not automatically deposited into your wallet. I am not sure all of the details of this, but I recommend always claiming your staking rewards in a transaction before unbonding. Also claiming staking rewards regularly could be a good idea and help increase the compounding effect for your atoms.
Step 5 Unbonding period
Delegating, or unboding is another simple transaction. After you claimed your rewards go to unbond and select amount. Once you send this transaction these atoms will remain locked and not staking for 20 days. So keep that in mind always and also you dont get reward for the unbonding amount.