Sunday, March 26

What is staking, the cryptocurrency mining replacement | Digital Trends Spanish

It is speculated that Ethereum 2.0, the new version of the renowned cryptocurrency platform, will arrive in June 2022 and will bring with it a series of changes that will revolutionize the industry. Thus, we will talk less about “mining” and more about the concept of “staking”, a system in which cryptocurrencies are left locked in deposit to receive rewards.

In that way, Ethereum 2.0 will see ether (ETH), the world’s second-largest cryptocurrency after bitcoin, move from energy-hungry proof-of-work (PoW) consensus to proof-of-stake mechanism ( proof-of-stake, PoS), which is more efficient and environmentally friendly.

Both bitcoin and ether have been based on the PoW mechanism since their inception, which means that if a person solves a certain computational problem with their work (time and processing power), they are rewarded with the aforementioned cryptocurrencies.

With this operation, before mining was accessible to everyone, but in recent years this segment has been dominated by experts in the field.

That is why large mining farms have been created that consume excessive energy, which, in the case of bitcoin, are based on specialized computers (ASIC) or graphics cards (GPU) in the case of ETH. As a result, it has been difficult to get, for example, the latest versions of NVIDIA or AMD cards on the market.

An image of the price of the Ether cryptocurrency

It is these problems that cause the era of proof of participation (PoS) to approach. In fact, some cryptocurrencies have already left behind the PoW mechanism: they no longer reward people for their work in solving complex mathematical puzzles, but rather for the amount of virtual currencies that they have “immobilized” to keep this ecosystem afloat.

With the arrival of Ethereum 2.0, the mining of this cryptocurrency will disappear and thus its environmental impact will be reduced. This is because it will arrive with a PoS mechanism, that is, a staking model. In a blockchain, staking is the process of actively participating in the validation of transactions (similar to mining).

This means that anyone with the necessary minimum cryptocurrency balance can validate transactions according to the number of cryptocurrencies they have and get rewards for “staking” in these blockchains. Ethereum can be staked on cryptocurrency exchanges like Coinbase, Binance, and Kraken.

That participation is blocked for a while and contributes to the overall value of the ecosystem and the PoS consensus system used. Users with higher participation have more options to validate transactions and, consequently, get higher rewards. The more you participate in cryptocurrencies, the more you earn.

An image of a wallet to buy Ether

Now, will this model be effective in making money? Apparently yes. This is the case of Solana and its SOL cryptocurrency, and Polygon with MATIC, two companies that use the staking mechanism. The annual return Solana is around 5.8 percent per year, while in the case of Polygon the figure is 27.18 percent.

As you can see, the potential of staking is evident if you want to achieve an attractive return on your cryptocurrencies. With this passive income format, you can have an immobilized amount that can increase your wealth in the long run. In addition, if you participate in it, you can also have the satisfaction that you contribute to the new mechanism.

However, it must be considered that with staking, profitability is not guaranteed, nor is the value of the cryptocurrency with which it is played. The risk is in the volatility of cryptocurrencies, prices can shoot up, but they can also collapse.

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