In the cryptocurrency world, token staking has become increasingly popular in recent years. Cryptocurrencies that operate on a proof of stake (PoS) network allow for picketing opportunities. Some examples of PoS networks are Avalanche and Cardano. This is in contrast to proof of work (PoW) networks such as Ethereum (before the 2.0 update) and, more famously, Bitcoin.
In a PoS network, tokens can be pointed at the network in order to improve various network functions, such as blockchain security and maintenance.
Stakers are rewarded for their efforts in the form of newly minted coins. Tokens are often wagered for an agreed period of time. Staking periods vary between blockchains, so shop around for a staking commitment that suits your needs. To compare traditional finance, staking with a PoS network is similar to investing in securities or bonds since staking coins generates a return in the form of new coins deposited in your portfolio.
Some blockchains require certain accumulations of wagered currencies before the benefits come to full. Although most of the time, the minimums are quite low. Just like any other investment, it’s important to do your research before diving into staking. When you bet on a platform, some platforms offer benefits if you also sign up for their service. It might be worth investigating this if you plan to bet large amounts of cryptocurrency on a single platform.
To bet or not to bet
When it comes to investing in a PoS cryptocurrency, there is a question to answer about whether or not to bet tokens on the network. One of the key differences between a PoS network and a PoW network is where the tokens come from. In a PoW system, tokens are mined by miners using computing power to solve equations and are rewarded for their investment in computing power with cryptocurrency payment.
In a PoS network, coins are minted by randomly selecting a staker to produce the next block. Stakers have a proportional chance to produce the next block based on the amount of tokens they have wagered. For a simple example, if there are 10 tokens pointed on the network and you have bet 1, you have a 10% chance of producing each block. Proof of interest replaces the process of running energy-intensive computers to produce blocks, which is faster and more scalable, but not necessarily better than proof-of-work blockchains.
A bet cannot be moved or traded while it is wagered, as it is used to validate and record transactions. There are a variety of different ways to aim, however, and liquid staking is one of the easiest ways for beginners. Using a liquid staking model, users can withdraw their participation at any time and even use it in DeFi.
Of course the fact that many stakers have to lock down their tokens can actually be a good thing for PoS networks that lead to greater stability and potentially price growth. In addition, there are some critics of PoW systems who believe that PoS systems scale better than PoWs and are better for the environment than PoW systems. On the other hand, PoW is considered more secure, but this is also the subject of heated debate. Although this is a topic of debate, making an informed decision is a good part of a sound investment strategy.
To answer the question of whether or not to bet: it is better to bet on PoS networks than not to bet. If you hold tokens that can be wagered, you can also put them to work.
Conclusions on the test
The decision to choose between PoS and PoW is the subject of much debate these days. To make a good decision, you want to be informed about the value scheme of both systems. If you are a more active investor and want an active role in governance and earning on cryptocurrencies wagered, then PoS might be the right choice for you. Before you dive in and invest in a PoS cryptocurrency, do your homework on the right network for you. Some PoS networks have higher requirements than others before all the benefits of staking are assigned.
If you are a less active investor and are looking for a store of value in the face of rising inflation and other market variables, then a PoW network like Bitcoin may be your best bet. PoW systems lend themselves to a HODLer mindset and are more simplified. Buy low, sell high. Don’t worry about picketing.
If your goal is to escape inflation, then a PoS network is certainly not the right move. PoS networks are constantly minted since it is the minting and staking cycle that creates its value, so most PoS networks are constantly on the hunt for inflation. If you don’t put your pointable tokens on a PoS network like Avalanche or Cardano into play, then you’re leaving money on the table. There is no cost for staking, and the rewards are somewhere between 2-15% APY depending on the PoS network. Of course if you do NOT bet, you are essentially losing 2-15% APY due to inflation while other users benefit. This is an important consideration.
