Cryptocurrency has made a lot of money for a lot of people in the last few years.
Many people have lost money, too.
It’s important to figure out what the next big thing is that will make both your cryptocurrency holdings and your real-world money, or “hard cash,” more valuable.
As Bitwise Asset Management’s director of research, David Lawant keeps an eye out for the next big thing. It’s a good thing that staking will become a big business for the whole industry. Lawant, who co-wrote a book on crypto for the CFA Institute Research Foundation, says that. His company has $1.3 billion worth of assets under its care.
Some crypto investors are already making more than 1,000 percent a year by “staking,” and they’re also making a lot of money that way.
So what is staking, and why is Lawant so sure that it will become a big deal? And what does it have to do with the much-anticipated “merge” of Ethereum that is also coming soon?
Staking is called that because it can only be done with cryptocurrencies that run on proof-of-stake blockchains, so it has that name.
Cryptocurrencies like Bitcoin and Ether use the proof-of-work model, which means that miners have to solve complicated puzzles to make sure transactions and new coins are correct and to make more coins. Process: This one takes a lot of computer power, and people aren’t happy about it because it’s bad for the environment
The greener option is proof-of-stake, and Lawant thinks that staking is going to be a big part of the crypto world’s next wave.
Proof-of-stake is a way for people to verify transactions based on how many coins they put in, or stake. Users who stake more coins have a better chance of being chosen to validate transactions on the network and get paid. This is because they have more coins to stake.
In this reward, you can get a percentage of your money back each year. The exact percentage depends on which blockchain is used.
People who want to stake Ether on the Ethereum blockchain, which is used by the cryptocurrency, will be able to get money back in return for their support when the blockchain changes to a proof of stake model this year. People who use Ether are excited about this “merge.” The more Ether a validator stakes, the better their chances of getting a reward.
It’s now possible to run both a proof of work chain and a proof of stake one at the same time on Ethereum. People who agree to be on both chains are called “validators,” but so far only the proof-of-work chain has been processing transactions for people. It will be done when the merge is done, and Ethereum’s blockchain will be completely on the proof-of-stake chain, called the Beacon Chain. Proof-of-work mining will be done away with, making it pointless to do it.
The Beacon Chain already lets people who want to stake Ether to help the network and make money, “which today are at around 4% to 5%,” Lawant said. These yields are expected to rise significantly when the merge is done, because stakers will start getting more money.
Some think that after the merger, people will get back 7 to 12 percent of their money.
Other blockchains, like Solana and Cardano, are already running on proof-of-stake, like they did in the beginning. Solana’s SOL token can be staked for an estimated 5.8% return per year, while Polygon’s MATIC token can be staked for an estimated 19.5 percent return per year, which is a lot.
Each blockchain has different rules about how much money you can put into it, and there are also different risks that come with that.
A lot of risk is involved in this process because it bets on the cryptocurrency being staked. As the Business of Business said, “These rewards often come in the form of tokens of the cryptocurrency itself, and if the underlying coin loses value, your staking rewards lose value as well.”
Sometimes, there are rules about how soon you can get your cryptocurrency back after staking, penalties for not validating transactions, a minimum amount you need to stake, and more.
Investors, on the other hand, are still giving it a try. This is why.
Some cryptocurrency exchanges have also said that staking has made them money.
If you look at the profits of companies like Coinbase, which say that staking is one of their best-selling products, you can already see a little bit of this trend.