It’s hard to imagine that the crypto markets are only a little over ten years old and have been known to a wider audience for a much shorter time. Many changes have taken place, and life-changing amounts of money have been won and, in some cases, lost again. One development which reflects the changing nature of the sector is staking. This straightforward technique of locking crypto up for a period could be the answer to two obstacles standing in the way of cryptos achieving their aim of being the global currency of the future.
What is Staking
Crypto blockchains rely on the trading positions of all participants in the ecosystem being shared publicly. That way, the ‘crowd’ can ensure each account is accurately reported. Bitcoin and other first-generation coins use a Proof of Work (PoW) methodology to keep their books and records up to date and accurate. An alternative approach using Proof of Stake (PoS) has been adopted by second-generation coins, including some of the most significant Altcoins in the sector that are even members of the top-10 cryptos by market capitalisation.
Bitcoin – Daily Price Chart –2021 – May 2022
The PoW blockchains such as Bitcoin rely on ‘miners’ carrying out complex calculations for which they receive rewards, usually more coins. This process is massively energy-intensive and explains why Bitcoin uses as much energy as the whole of Argentina, Malaysia or Sweden. Even Bitcoin bulls have winced at how this carbon footprint poses a challenge for the coin’s aim of becoming more widely used. PoW offers an answer as it uses a lot less electricity.
Why Staking Could Lead to a Crypto Bull Market
Holders of PoS coins such as Polkadot and Cardano can ‘stake’ their coin, which ties them up for a period and helps the accounting process. In return, they receive rewards. The size of the rewards is determined by several variables, such as which platform is used. Current estimates suggest the annual return for staked Cardano is somewhere between 5-6%; for Polkadot, it can be above 10%.
The morphing of crypto into an asset which offers a return in the same way as cash in a savings account opens the door to more investors making long-term bets on the coins. Staking can entail coins being unable to be sold immediately, with notice periods typically being in a few days. But for those with a buy-and-hold approach, that won’t be too much of a concern. The upside staking offer is about the annual yield and the way it starts to answer the question of how to curtail Bitcoin being such a drain on the world’s resources.
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