Introduction
The world of crypto assets or cryptocurrencies is an ever-changing process
that, like many others, is looking for the next big trend to continue
generating digital and real value. This new trend could be Staking, the
method that rewards users based on the number of coins they back the
blockchain with. Staking comes from the Proof-Of-Stake, the consensus
mechanism used in some of the crypto currency networks. Through
proof-to-stake, some investors are already earning quite considerable
annual percentage return while generating substantial passive income
without efforts.
PoW vs PoS
Currently, both bitcoin and ether rely on miners to complete complex puzzles to validate transactions and create new coins. This process is known as proof-of-work (PoW) and requires an enormous amount of energy, having negative consequences in the environment. The reason is that for this validation process, the PoW consumes a high number of fossil fuels. Other cryptos, such as Solana or Algorand, already operate with proof-of-stake (PoS), with also quite reasonable returns.
Specifically, the PoS process allows users to validate transactions based on the number of coins they contribute or wager. The more coins they wager, the higher the probability of validation. This reward can include an annual percentage return, and the exact amount depends on the blockchain technology used. In addition, Proof of Stake is considered the most environmentally friendly option nowadays.
So far, we can distinguish between the following validation mechanisms for which the most known tokens are included below:
Proof of Work
- Bitcoin
- Ethereum
- Dogecoin
- Litecoin
Proof of Stake
- Solana
- Cardano
- Algorand
- Tezos
Ethereum Merge
Ethereum, the blockchain behind ether, could soon launch its long-awaited Merge update. The EIP will mean the end of Proof of Work for the Ethereum network, transitioning completely to Proof of Stake. Although the final schedule for this update is unknown, it is known that it will render cryptocurrency mining, based on proof-to-work, obsolete. This process, called Beacon, allows users to stake ether to support the blockchain and earn returns around 4% to 5%, Some industry experts predict that rewards with Merge will range from 7% to 12%.
However, like everything else, staking has some side effects. Proof-to-stake essentially bets on the viability of the cryptocurrency being staked, so it is subject to the volatility of those digital assets. Added to this are potential restrictions on how quickly a cryptocurrency can be withdrawn after wagering, certain penalties for not actively validating transactions, or minimum amounts required to wager, among other issues.
Some myths related to this upgrade are that the high fees of Ethereum will be reduced. This is not true and how gas works in Ethereum will not be changed. Another misconception was that a new token would be created with Ethereum Merge. This is also not true, and Ethereum’s cryptocurrency – ETH – will remain the same. In general, the main goal of the Ethereum Merge update is making Ethereum cryptographic mining obsolete, reducing its environmental impact, together with enhanced security against potential attacks.
The main ideas of Ethereum Merge are shown above
What’s next for Ethereum?
Having seen that Ethereum is evolving, this can have interesting benefits for investors and users. In the past years, the rise of NFTs is also thanks to Ethereum. Some astonishing figures have been seen in the news in 2021 and 2022. However, this is completely another topic
Ethereum co-founder Vitalik Buterin has been very concerned about the future of the blockchain and the use of NFTs (non-fungible tokens). According to him, cryptocurrencies were not created "to play with million-dollar monkeys, but to do meaningful things in the real world."
In the face of the somewhat uncontrolled boom in non-fungible tokens, Buterin believes that many people are not taking advantage of the true potential of ether and its blockchain. In particular, he refers to the NFT Bored Ape Yacht Club NFTs, the collection of primate cartoons that have become a status symbol in the digital age and for which more than $1 million has been paid.
In Buterin's view, Ethereum's potential should be harnessed to change the world for the better: from fairer voting systems to urban planning and public works projects. In particular, he believes the platform could serve as a counterweight to authoritarian governments and even end Silicon Valley's stranglehold on the digital lives of millions of people.
Conclusion
There are several interesting projects out there and you may participate on those while generating passive income without many efforts. In this post, we have briefly introduced what Ethereum Merge will mean. However, in future posts we will describe other cryptocurrencies such as Algorand, which already use the PoS validation method.
In general, via Staking, we can benefit of diversification, growing our income without big efforts. There are different platforms offering different APY for several coins, giving us the possibility of some juicy returns without doing nothing. Some of these platforms are Nexo or BlockFi. Nonetheless, as promised, we will get into details and see on how we can start with this.
If you are interested on learning more about this, you may look for additional information in the following website or books.
