The Staking process consists of acquiring cryptocurrencies and keeping them “locked” in a wallet to obtain profits or rewards. This process is similar to HODL (hold on for dear life), a term that describes the act of buying, collecting coins, and not spending them for them to increase their value in the long term. Unlike HODL, in Staking, the balances remain “locked” and cannot be used freely, thus contributing to the cryptocurrency blockchain network’s operability and functioning.

As the Ethereum 2.0 update approaches, its users have shown interest in the Staking process, as it would allow them to obtain a “passive income” by validating the new network. This can be evidenced by the growing number of Ether (ETH) wallets and Ethereum deposits on the different cryptocurrency exchanges.

Ether continues to rise in value

In the first months of 2021, Ether reached all-time highs in its price above $ 1,500, making Ethereum 2.0 the third largest network by capitalization (which Staking does); only 2.09% of Ethereum is “locked” on Ethereum 2.0.

Number of Ethers in Staking

There are currently almost 2.5 million Ethers locked, making the Staking capitalization of Ethereum 2.0 equivalent to $ 3.6 billion. It is important to note that the time in which an Ethereum 2.0 fund remains “locked” to Staking is approximately 2 years; that is, the user will not directly sell said committed Ethers during that period of time.

An alternative to mining

Many see Staking as an alternative to mining, as it requires fewer resources. The proof of work (PoW) used, for example, in Bitcoin, has proven to be very effective as a consensus facilitating mechanism in a decentralized way. The problem is that this process requires a large number of computational resources. The “problem or test” that miners compete to solve serves no purpose other than to keep the network secure. You might think that such “excess” computing would be justified; however, many experts wonder if there are other ways to maintain a decentralized consensus without incurring high computational costs or resources in general.

It is at this point where Proof of Stake (Proof of Work) comes in, where the main idea is that participants can leave their cryptocurrencies “locked” (in deposit). At specific intervals, the protocol will randomly assign one of them the right to “validate” the next block. In general, the probability of being chosen is proportional to the number of cryptocurrencies held; the more cryptocurrencies are in deposit “blocked,” the greater the probability of being chosen.

Follow the growth

Ethereum 2.0 deposits continue to grow steadily, since the birth of the new version, in the first days of December 2020. In January 2021, almost a million additional Ethers were «blocked» for their Staking, while the number of Ethereum 2.0 validators also increased by 55%, from 49,200 to 76,200 validators.

What do you think about this topic? What do you think about the staking process?

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