What is staking, the system that will make us forget about cryptocurrency mining?
Ethereum 2.0', the new version of this cryptocurrency, is expected to arrive in a few months, and it will do so with radical changes. Those changes will probably make us start talking much less about 'mining' and more about 'staking,' a reward system that is a 2.0 version of our old checking accounts (when they were decently profitable). The era of 'Proof-of-Work' is fading. Both bitcoin and Ethereum have relied on the PoW mechanism since their inception. If you solved a particular computational problem with your work (time and processing power), you were rewarded with those cryptocurrencies. Mining was accessible to everyone initially, but in recent years it has become a segment dominated by large miners.
Large mining farms have been created that consume a lot of energy and are based on specialized computers (ASIcs) in the case of bitcoin or graphics cards (GPUs) in the case of Ethereum. The latter has caused, for example, the options to get the latest versions of NVIDIA or AMD has been almost impossible. The era of 'Proof-of-Stake' is approaching. Some cryptocurrencies have already moved to another mechanism where rewards are based on something else. Users are no longer rewarded for their work but for the cryptocurrencies tied up to support that ecosystem. 'Ethereum 2.0' will precisely make use of a PoS mechanism that will make ETH mining disappear -which also helps to reduce the environmental impact of mining notably-, and that will make mining with your graphics card a thing of the past for this and other cryptocurrencies that derive from it. That's when we'll start talking about staking.
What is staking? This system no longer validates transactions by solving those complex mathematical puzzles. Instead, users validate transactions according to the number of cryptocurrencies they have in the system. That stake is immobilized or locked for some time 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 therefore get higher rewards. The more you contribute (participate), the more you earn.
But is this going to make money? It is. Solana and its SOL token use this system, and the return is around 5.8% per year. Things are even better for Polygon and its MATIC token, whose annual return is currently 27.18%. However, other cryptocurrencies use this system, and the returns oscillate wildly. The reason? As always, volatility is still present in the cryptocurrency market. At the moment, for example, the OHM (Olympus) cryptocurrency has an estimated annual return of 240.58%. Still, these numbers are not a guarantee (and much less an investment recommendation, as we always say maximum caution). Advantages of staking. Beyond the environmental benefits -and the fact that theoretically, the charts will be able to be repurchased at the regular prices-the potential of staking is clear when it comes to achieving attractive profitability for cryptocurrencies. It is like those stocks that increase in value and give us dividends. Those who participate in these projects can also be satisfied with contributing to them, becoming an essential part of the (new?) financial system. Still, the attraction lies in this passive income format: I have money tied up, but I know (well, not really) that it will be giving me some income.
We were taking risks. We have talked in the past about the volatility of cryptocurrencies. Prices can go up, yes, but they can also collapse. Having a stake in crypto on the downside will be unprofitable (or not). Some platforms have "permanence," like mobile operator contracts, and you will not be able to move your cryptos. Those investments are less flexible than what we would do if we were to buy cryptocurrencies and then exchange them for others. The analogy with the financial world is clear: staking would be like having an investment fund that pays dividends and has certain permanence (and penalties if you do not comply with them). The other would be to operate with shares that we can sell.
Current accounts 2.0. To a certain extent, staking is very reminiscent of the existing accounts. In the past, you used to go to the bank, keep your savings there, and they would generate interest that was very attractive at a particular time. Having the money in the bank was profitable, but we have moved on to a time when it costs money even to have an account. With staking, we have a similar model. However, profitability is not guaranteed, nor is the value of the cryptocurrency we are staking, which could plummet and leave us at zero and without the desired profitability.
Once again, we insist: these products continue to have extreme volatility, so experts always advise that you always do it with money you are willing to lose if you "invest." It is always good to remember that there have been many personal misfortunes -not only because of losing cryptocurrencies- but caution and common sense are more important than ever.