“For over a year cryptocurrency prices have been falling gradually. To survive the so-called bear market, some investors engage in a process called staking. It makes it possible to generate a profit even when prices are at a deadlock,” writes Bartosz Grejner, Conotoxia Analyst.
Bitcoin’s value currently fluctuates around 3,500 dollars, with a very low (for cryptocurrencies) range of variability. The adoption of cryptocurrencies to both the financial system and everyday life did not take place the way many thought it would. The current state of prices is a good example of that. It is a slight wonder that people or companies engaged in virtual currency business are looking for alternative ways to generate profit.
Sometimes it is worthwhile keeping currency in your wallet
One way is staking. The alternative to cryptocurrency mining involves putting your cryptocurrency in special digital wallets, which help to confirm transactions and create new blocks that are added to the blockchain. As a reward, new coins are given. This process, which uses the Proof-of-Stake protocol, is nothing new, but its main advantage over mining (which utilized the Proof-of-Work protocol as in the case of bitcoin) is that no special hardware is needed.
Due to several factors, such as the type of cryptocurrency and the amount dedicated to this process, the return should range from a fraction to even several hundred per cent, according to Poslist.org data. Slightly over 100 cryptocurrencies currently support the PoS protocol and soon Ethereum is to join this group. If someone buys one of these cryptocurrencies with the intention of reselling it at a higher price, staking is the optimal solution, which may increase the return on investment (or to some extent limit potential losses). This can be compared to a dividend one can get from stocks.
Myriad of possibilities, but still no rules
This particular strategy would work at its best, if cryptocurrency prices were to rise. Although it may be profitable, even without such market conditions, there is also some risk involved. Apart from the fact that you have to trust the service provider with your digital currency, price changes can significantly reduce the profitability of the whole process. Staking usually takes a few or even many days. If during this time the price of a given currency decreases, one could lose more on staking comparing to selling the currency before. These are probably the two main disadvantages of the whole process compared to traditional cryptocurrency mining and the Proof-of-Work protocol.
The diversity of options for using cryptocurrencies depicts their great potential, but most of all the blockchain technology, on which most of them are based. However, as long as we do not observe a greater level of regulation, which could substantially increase consumers’ and financial institutions’ confidence in them, staking will probably remain relatively niche.
