Over the last year, more and more blockchains have started embracing the Proof-of-Stake consensus algorithm. That means that staking among crypto holders is on the rise. This year alone, Tezos has experienced a 27% hike in staked XTZ and other blockchains are reportedly affected too.
What is Staking?
Staking is essentially when crypto users hold their digital assets in a wallet, rather than transacting with them.
This supports the operations of the blockchain, like Tezos, and is a way for crypto holders to earn rewards. You can kind of think of it as similar to earning interest from a bank, except that with staking you earn passive income for supporting a network.
Staking is on the rise
Now, let’s take a look at how passive income is the next step in crypto: Lennix Lai, a prominent figure in the crypto community, argues that crypto staking can be an excellent way to earn passive income. As the keynote speaker at Blockchain Economy 2020 in Turkey, he outlined why he believes that staking is the future of passive income earning.
Speaking to Lai said:
“The combination of cryptocurrency and DeFi creates an alternative way for users to earn passive interest that was not possible before. Because traditionally, you may need to deposit to the bank or reserve a depository for saving interest. You can buy bonds, and you can lend to somebody with some interest. But that’s a limited way, and it involves many evaluation criteria. Sometimes, it’s challenging to secure a loan, especially for small and medium enterprises.
“Crypto, first of all, introduces a permissionless way for passive interest. Everyone can securely borrow and lend within the protocol according to the design of a smart contract. You can have borrowing and lending without the bank sitting in between.”
How he explains it, makes staking almost sound like a decentralized loan system. However, it’s slightly more interesting than that. When you stake your tokens, you’re essentially holding them to support the function of the network. From that, you earn passive income in the form of the cryptocurrency that you have staked. The interest rate for most cryptocurrencies is much higher than banks, so you do earn substantially better.
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So why is staking the next big thing?
According to Lai, crypto substantially drives down the barrier of entry to financial services, particularly for those who live in rural areas and don’t have a bank account:
“But right now, we are talking about a protocol that can serve even rural populations around the globe, without a bank. That is very exciting because we can now create a vision that says your mobile phone will be your bank. Without any bank accounts. You can do anything that usually a bank enables you to do via your mobile phone with a cryptocurrency wallet. You can pay, receive money, earn interest and make an investment — all executed in a decentralized manner.”
#Staking Is Gradually Replacing Mining and Opens up New Ways of Making #Moneyhttps://t.co/Kqtj9au1Rk#TheCapital #crypto #cryptocurrency #bitcoin #btc #finance #fintech #DeFi #banking #trading #portfolio #investment pic.twitter.com/rc7VN8GUcf
— The Capital (@thecapital_io) March 24, 2020
Moving towards decentralized “banking”
When we look at how passive income is the next step in crypto, it’s clear that Lai is envisioning a future with decentralized banking services acting as the norm. Right now, that’s not the case. But for the 1.7 billion adults sitting without a bank account, crypto could very well make a huge impact. With staking on the rise, passive income earning through crypto is growing. Now’s the time to get into it.