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Although a relatively new practice on decentralized blockchains, staking has a rich history of practicality. Many economists have used this model for centuries with positive results. In this article, we will try to correlate its role in cryptocurrency trading and why it is useful.

 

Contents:

Overview of Crypto Staking

Historical proof of the Importance of Stakes

What Is at Stake?

Reasons Why Staking Is Efficient

Final Thoughts

 

Overview of Crypto Staking

Staking is basically the practice of procuring tokens and using them to represent a particular value, which can be further used to conduct any transaction. These actions take place per the rules of the PoS protocol which determines the value of the nodes within the blockchain network.

 

Tx fees are always provided to compliant nodes while nodes that break the rules of the protocol get their stakes completely wiped. In short, staking enables nodes to focus on complying with the rules and if more compliant nodes are selected, they earn more value on the blockchain.

 

Historical Proof of the Importance of Stakes

To understand the significance of staking, let's try to analyze a real-world situation where its implication was useful. 1930’s New York was very different from what it is today. The Great Depression has led to the collapse of many industries and one of its casualties was city transportation like Taxis.

 

Because the number of taxis severely outweighed the demand, many taxi drivers resorted to other means of making money without having to change their profession. Taxis were then used for prostitution and other illegal trade which eventually compromised the safety of anyone using them.

 

This state of turmoil led to the establishment of the medallion system. In this, the number of taxis on the roads was controlled by the number of medallions available. Every taxi driver was required to own one for $10. Once purchased, they were required to abide by a set of rules and regulations that ensured that taxis would become safer for the public again. Any violations would lead to loss of the medallion and confiscation of the taxi.

 

The high stakes introduced motivated many taxi drivers to avoid fines which directly impacted their business’ growth. This model is still being used today and can be applied across a wide spectrum of industries including online trading.

 

What Is at Stake?

Decentralized blockchain platforms have always been compared and contrasted to their centralized platforms. Using stakes, one can further divide the two and understand which one could be more profitable. By adding stakes to a business model, you created an incentive system that rewards a business that works by the book and punishes one that doesn’t.

 

Centralized markets have a higher probability of being non-compliant. This is supported by the fact that they run on a long feedback loop that has a multitude of components. Each of these features has its own probability of failure and the sum increases the chance of breaking the rules set by governing corporations.

 

On the other hand, decentralized systems have fewer components. They work in a shorter loop and use Tx fees as incentives or by devaluating a node in cases of noncompliance. These functions are applied before the point where a user can access their funds. Blockchain networks are also fair for all participants. Large corporations can’t modify the rules to suit them on such platforms, which is not the case for a centralized ecosystem.

 

Reasons Why Staking Is Efficient

Efficient crypto trading heavily relies on accurate, up-to-date data. One must be able to see the accurate pricing taken at any given time. This is one of the several benefits of crypto staking. You will be able to see the precise pressing of any token available on a network.  

 

Another important aspect of staking is that it stimulates traders to make a network worth more. This is done by making tokens available for purchase and with so many cryptocurrencies to choose from, it forces users to become small-scale network owners.

 

Thanks to crypto staking, a reliable incentive system can be put in place on blockchain platforms. This serves to reward all the individuals making the right decisions and following a set of predetermined principles and fine any rule breakers.

 

As a result, a fair system that favors individuals that follow the model is created. This means more individuals can do business in a decentralized network with high hopes of being successful.

 

Final Thoughts

As we have seen here, staking has an important place in the crypto marketing industry. It sets a comfortable environment that supports growth by providing rewards to networks that follow a particular set of rules.

 

It also leads to stake slashing for any nodes that are not functioning accordingly. The value of staking is obvious and it seems it will gain more acceptance and be implemented across various networks in the times to come.

 

If you are looking for the service to start your crypto staking experience, see the Finage offers and enjoy trading!