Anywhere from the supply chain to IoT, the blockchain is gaining a foothold. Many enterprises are experimenting with the blockchain to envision their business scenarios, developing pilots to validate the technology capabilities to provide real value to their organizations. As it continues to extreme utilization and testing, there is an ongoing debate among subject matter experts on how it can be most effectively utilized. The utilization of resources is one of them.
If you know Bitcoin, you may also be familiar with the concept of Proof-of-work consensus and the role of miners and their operating expenses. It is estimated that mining of Bitcoin uses around 7 gigawatts of electricity, equal to 0.21% of the world's supply. That is as much power as would be generated by seven Dungeness nuclear power plants at once. In a year's time, this will equate to roughly the same power consumption as Switzerland. Source: BBC and Cambridge University.
The rise in Proof-Of-Stake protocols:
Proof-Of-Stake is an alternative to the Proof-Of-Work system. In Proof-Of-Stake protocols, miners are replaced with validators. Validators maintain network nodes and vote on the truthfulness of the new block discovered.
For validators not to manipulate their vote, the process is made expensive by asking them to lock their assets in a wallet and place a bet on their proposal. If found dishonest during the validation process, they are penalized by smashing their stakes. If validators are honest, they are awarded proportionally to their stakes.
The attractiveness of running PoS node:
Given that Proof-Of-Stake protocols don’t require much computation power (environmentally friendly), many popular blockchain protocols are considering Proof-Of-Stake as the underlying mechanism for consensus. Examples – Cosmos, NEAR, PolkaDot, Solana, etc.
Speaking to one of the validators in the NEAR protocol and operator of Stardust pool, Denysk highlights the - “Current world economic situation wherein the traditional financial institutions are offering zero if not negative interest rates. People are looking for a way out. Staking is one such opportunity to earn passive income from your idle funds”.
The exact annual reward for staking varies from protocol to protocol. Usually, validators earn up to 5% to 30% passive income from staking. Annualized staking reward for top blockchain protocol:
Note: The rate varies. Snapshot on 16th Oct from StakingRewards.com
It is estimated that approx. 60% of Proof-Of-Stake protocol’s market capitalization is locked in staking nodes i.e. more than $16.8 billion. Source: StakingRewards. Data for August 2020. Though there are no established industry standards for how much of the PoS tokens circulating supply should be locked in the staking nodes, the current level of $16.8 Billion shows the growing confidence of crypto users towards Proof-Of-Stake blockchain protocols.
The popularity of Staking pools as a service:
In the Proof-Of-Stake protocol, validators are randomly selected at every epoch (fixed internals) and are required to propose and validate the block. The selection is based on the amount of tokens validators have staked in the smart contracts.
Similar to miners who pool their resources in order to increase their chances of solving the puzzle fast and winning a block reward, validators also pool their stakes to increase their chances of selection. Validators develop pools wherein anyone can participate to stake their funds. This way validators are able to increase the stakes and as a united force increase their chances of earning the block rewards.
Though running a node is not as costly as compared to a mining rig, participants interested in setting up a validator node need to have software know-how and fulfill the hardware requirements. The setup may be too complicated for non-tech crypto users. Instead, they can stake their tokens with staking pools and earn rewards. The pools maintain the validator node and any rewards generated are distributed among the participants based on the amount they stake. For their service, they charge a commission which is deducted from the reward the pool generated.
If rewards are shared, so are the risks. In case the pool owner's node goes offline, their amount staked gets slashed. This penalty is distributed among the participants. Therefore, it is important to stake with a reputable validator’s staking pool. For example, In Staking.Dokia.Cloud interested users can look for available pools for any leading Proof-Of-Stake (PoS) based blockchain protocols - such as NEAR Protocol, select and delegate your tokens to the pool, and start earning rewards.
Final remarks:
With Ethereum moving from PoW to PoS by 2021 and a growing number of new blockchain entrants such as NEAR Protocol using Proof-Of-Stake to govern their network security, experts believe that the total value locked in the staking nodes will grow to $75 Billion by 2023. Today TVL in staking pools stands at $16.8 Billion (August 2020 figures. Source: StakingRewards).
With the ease of using services from staking providers (be that decentralized or centralized), the staking pools will be the major contributor in setting new trends in the coming years.
