- The process of staking involves locking up a certain amount of Ethers in the wallet. This is to participate in the operation of blockchain in return for rewards.
- Before, Ethereum also used to operate on the PoW consensus model.
- The most undeniable perk of staking is the opportunity to generate revenue.
The new version of Ethereum seems to have PoS ( Proof of Stake) blockchain. It is set to be in the market later this year.
Ethereum 2.0 Staking
Plainly put, staking means holding of Ethers to take part in a network and achieve a reward in return. The process of staking involves locking up a certain amount of Ethers in the wallet to participate in the operation of blockchain in return for rewards. Participation in staking is open to all but the staking of blockchain has to be operating on a Proof of Stake consensus. The new upgrade involves a re-engineering of the Ethereum (ETH) platform and scaling it up.
What is PoS?
In layman’s terms, PoS or Proof of Staking is a consensus mechanism used by a number of blockchains. The job of PoS is to provide the right to earn rewards for validating blockchains to those with a stake of network tokens. Bitcoin uses a contrasting model, called the Proof of Work (PoW) consensus model. The job of PoW is to provide the right to earn rewards to those who show the largest amount of computing power.
Why is Ethereum 2.0 Implementing PoS?
The main objective of this upgrade is to speed up the network and also facilitate in decentralizing. Before, ETH also used to operate on the PoW consensus model. It shifted to the PoS consensus model because the latter is considered more energy efficient than the former. A reason to shift to PoS would be that the core developers of Ethereum are highly in favor of decentralization. Another reason is that anyone can operate a PoS validator without the need for any specialist hardware.
Risks and Benefits of Staking
The most undeniable perk of staking is the opportunity to generate revenue. Along with that, it provides an opportunity for active involvement in your favorite blockchain projects. However, on the other hand, people are always at a risk. Since people have to hoard the cryptocurrencies for a certain period of time, there is always a chance of the market crashing. If that happens then people will not be able to withdraw any of the currencies and sell them to absorb any losses. Not only that, even if there is a small decline in the market value of the currency then there is no certainty that the rewards will not fall more than the value. Hence, they are always at risk that the value of the reward may not compensate for the fall in the value of the currency.
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