CRYPTO

How Proof Of Stake Is Expanding The Crypto World For Investors

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After a massive rally over the last couple of years, no one is doubting the fact that cryptocurrency is a legitimate contender in the financial markets. Taken as a whole, the crypto concept isn’t just a fad or a pump and dump scheme.

The IRS is taking crypto income seriously (albeit delaying taking any action on that income.) And, of course, the latest example of crypto’s usefulness has come during the financial collapse precipitated by the Russian invasion of Ukraine as investors turn to crypto’s relative stability over crashing fiat money.

While crypto’s value is clear, though, it doesn’t change the fact that it’s a complex system to invest in. Fortunately, one new development in the crypto world is making it easier for common investors to tap into the growing wealth that the crypto world holds.

Crypto Is Evolving

Cryptocurrency has been covered in a shroud of complexity since the beginning. Savvy investors who could pull back the curtain were able to get in on a variety of complex money-making options, while most others were left on the outside looking in.

When asked about the biggest logistical challenges that the average crypto investor facesEric Parker, the CEO of the first one-touch staking platform Giddy.co, summarized the struggle, saying, “Sophisticated crypto investors are using the blockchain to turn their crypto into a productive asset while the average investor can only speculate on the tokens available in centralized exchanges. While the average investor buys Bitcoin hoping that someone else pays more than they did for it, sophisticated investors are yield farming, lending crypto in DeFi protocols, providing liquidity to exchanges, and collecting NFTs.”

In other words, up until now, the crypto world has been largely focused around two groups: experienced investors exploiting the system at every turn and common investors hoping for a random stroke of luck. However, that luck has finally changed for the better, thanks to a new concept that is sweeping the crypto world: staking.

How Can Non-Wall Street Investors Use Staking?

In a decentralized network, it’s difficult to validate things. This is why many early cryptocurrencies used a Proof of Work concept. This, in a nutshell, required a massive amount of mathematical computations and problem solving, done by individuals referred to as “miners,” to validate transactions.

The problem with this aggregate approach is that when transactions increased, particularly on more sophisticated blockchains, it could clog the network and raise fees. In other words, it wasn’t scalable.

Recently, this complex and overcrowded approach has given way to the concept of Proof of Stake. This allows individuals to, in essence, “lock up” their crypto in exchange for a reward. The idea here is for an owner to commit a portion of their crypto holdings to a network, which, in effect, takes the place of the need for “miners” to validate transactions.

Without going into the mind-numbing minutiae, this has several key benefits:

  • It provides validity and legitimacy to a crypto network.
  • It reduces the cost to execute transactions.
  • It allows active owners to tap into the rewards originally given to miners.

While Proof of Stake is an effective evolution of the crypto world, the computers or “nodes” that connect these networks require large amounts of a token to validate transactions (and thus earn monetary rewards.) This means they usually focus on those with the largest and oldest stakes.

Fortunately, a node doesn’t require a single person staking their crypto. Some nodes gather money in any quantity from those willing to lock up their tokens for an extended period of time. This is referred to as a “staking pool,” which crypto giant Coinbase compare to having “an interest-bearing savings account.”

Mining crypto has been a complex proposition from the beginning. So has serious investing in early crypto and NFT projects. But the development and decentralization of Proof of Stake nodes have allowed common investors to do more than watch their crypto collect dust in their wallets. They can now stake their investments with increasing simplicity — and actively cultivate their wealth in the process. It’s also allowed for investors in the retirement space to enter the crypto market.

If someone has limited time but wants to grow their crypto portfolio (or start one in the first place,) Proof of Stake is an excellent option. The fact that there are so many Proof of Stake projects out there also makes it an easy mode of entry into the growing crypto world.

So, research a handful of the best options, like Algorand and Tezos, and consider which project you want to invest in. As you research, review their staking requirements so that you understand how “frozen” your funds will be while they’re staked. If you want to have your funds available fairly easily, look for a project that allows you to come and go with ease.

If you can’t make up your mind which one to choose, select some of the best ones and spread your money out. Either way, get some of your investments outside of that minimal interest bank account and staking as soon as possible so that you can watch your crypto wealth grow outside of the uncontrollable market valuations.

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