Why Staking May Be The Future of Crypto – CRUXPay
The May 2020 bitcoin halving is arguably the most highly anticipated event in the crypto ecosystem. Simply put, this event will involve the Bitcoin network performing a bitcoin “halving”, meaning that miners will receive 50% fewer BTC for verifying transactions on the network. This event was pre-scheduled into the Bitcoin network since its creation.
What happens when the amount of newly minted bitcoin reduces by 50%? Will crypto prices rise? How will individuals benefit from the halving? Such questions are fundamentally re-shaping bitcoin’s future. One way bitcoin enthusiasts are keeping up with these market developments is by moving from Proof of Work (PoW) or Proof of Stake (PoS) consensus mechanisms, in order to control their funds and earn rewards.
An integral part of PoS, staking is based on a random set of “validators” who are incentivized with rewards to validate the blockchain transactions through staking their tokens. In this sense, staking offers a return on investment to validate. This provides an unconventional, unique method of generating blocks, as opposed to traditional “Proof of Work” methodology, which involves mining bitcoin for rewards. PoS is fundamentally rooted in incentivization, as crypto owners can earn rewards for both holding the coin and participating or delegating their stake to a validator.
With the bitcoin halving just around the corner, staking is likely to increase in prominence, as rewards for bitcoin mining will be reduced to half. This will impact the breakeven price of bitcoin mining. The lower number of bitcoin earning per block and an increasing hash rare may lead many miners to switch from bitcoin mining to validating POS coins which will help to boost the adoption of staking in the crypto ecosystem.
As noted above, staking is rooted in the PoS consensus mechanism and is used on networks that adopt PoS. Minting bitcoin through PoW mechanisms is energy-intensive as it requires the mining of hardware and software, as well as the creation of mining pools. With more mining needed for fewer rewards, the May 2020 halving will make PoW more energy-intensive than ever before. By comparison, staking is far more energy-efficient and environment-friendly as it removes the need for mining hardware or software.
In some ways, staking can be considered more straightforward for users to get to grips with, as it removes the need for miners to crack cryptographic puzzles in order to verify transactions, which is needed for the PoW mechanism. Instead, PoS validators are simply selected based on the number of coins they are committing to stake. This means POS doesn’t require mining to make new nodes on the network, but rather new nodes are created by the amount of crypto at stake.
The validation system under PoS can also make a network far more secure. Under PoS systems, a hacker would need to stake over 51% of the network in order to attempt an attack, making any hacking attempt highly expensive and extremely time-consuming — a strong deterrent for cybercriminals.
PoW’s shortcomings are putting the staking front and center of the crypto universe. As staking enables users to delegate their earned income and voting rights to a trusted party, it is redefining the ecosystem to ensure a more trust-based exchange of value that empowers wider projects and networks.
Ethereum’s transition from PoW to PoS has given staking industry validation, grabbing the attention of the wider blockchain universe. Ethereum’s co-founder Vitalik Buterin gave his endorsement of staking with the launch of ETH 2.0, indicating that it will be the driving force behind Ethereum’s next phase of development, solving major hurdles such as scalability and speed. The next chapter of PoS awaits us, and will likely commence when users can take part in the ETH blockchain and earn rewards without any barriers.
Ultimately, the growth of staking in the crypto economy will lie in the industry reaction to bitcoin halving, as well as in the rising number of projects and networks that adopt PoS mechanisms. If we see the current status it seems very positive as we saw many crypto projects like Cosmos, Tezos, Tron adopted POS instead of POW as their consensus mechanism. There are already signs of strong growth and market fundamentals — even excluding Ethereum, the cumulative staking market capitalization is thought to have grown to $6.4bn. Time, and promising events coming around the corner, will tell whether this number goes up or down, and by how much.
CRUXPay enables users to interact with blockchain-based systems with ease, by allowing them to create human-readable IDs (CRUX ID) linked to their wallets. These IDs act as users’ identities in the crypto ecosystem, enabling them to send and receive funds, request and authorize payments, and link dApps with their wallets securely and seamlessly. CRUX aims to bridge the gap between the wallets and the applications by establishing the ownership of a private key to a human-readable name.