In our last blog, we discussed Ethereum’s transition from proof-of-work to proof-of-stake and the difference between the two consensus mechanisms. Today, we want to take a closer look at what it means to be a token holder in a proof-of-stake system. Proof-of-stake takes advantage of peer-to-peer transactions. Tello gave the examples of Napster and LimeWire if you’re old enough to remember. In both of these examples, the people participating in the system are working together on a chain-like structure.
A good example that Tello gave to easily understand staking is banking. In both instances, you are lending your money to a third party and in return, you are given interest back in the same currency of your initial investment. Another example would be the functionality of a savings account. The bank lends the money in your savings account to others and you earn a percentage of the interest the bank is paid back. However, when staking tokens in a proof-of-stake system, instead of lending your tokens out, your tokens are used to validate transactions and add new blocks to the chain.
As Tello put it, “You're really just allowing your token to say that you are going to validate transactions in this node.” The network rewards you for supporting the blockchain with more crypto. Generally, participants receive a higher percentage yield when staking. Because of this, staking can be a good way to earn passive crypto income; however, any profits and losses are contingent on the volatility of the market.
When it comes to staking tokens in a proof-of-stake system there are many benefits to the individual and the network as a whole. For individuals, there is the opportunity to earn back some of the crypto that was originally staked. Staking also gives you the opportunity to quickly and easily give palpable support to a blockchain project that you endorse.
THE CHAIN ONLY GETS STRONGER
-- <cite>Tim Tello, COO</cite>
Utilizing a proof-of-stake system with token holders that stake for a given period of time benefits new blockchain projects considerably. According to Tello, “What the staking process allows is for transaction speeds to theoretically be sped up indefinitely.” In addition to increased processing speeds, utilizing this consensus mechanism lowers costs, raises security, lessens environmental damage, and most importantly gives everyone in the community a chance to participate in propelling the project forward. Tello told us, “As more people join and more coin holders stake, that chain only gets stronger, and more resistant to fraud.”
POQ & Staking
POQ is currently working with multiple networks utilizing staking to its full potential. Tello mentions that, “Pocketful of Quarters is closely involved with EVM-compatible chains. We currently work with many of these chains to help build SDKs that integrate our tokens into videogames.” A proof-of-stake consensus mechanism is what allows POQ to build our SDK and help game developers make the transition from Web2 to Web3.
IT ALL COMES BACK TO PROOF-OF-STAKE
-- <cite>Tim Tello, COO</cite>
POQ aims to fully bring blockchain transactions to every part of every game. Considering that just under half the world sees themselves as gamers, it’s hard to fathom the transaction speeds needed to securely validate every time a coin is picked up, a race is won, a goal is scored, an attack is landed, etc. Without proof-of-stake and the support of token holders staking their coins, it would be impossible for us to remove paywalls, make monetization a part of gameplay, and create a better world for players and developers. Tim said it best: “We want to make games fun again.” From a blockchain perspective, proof-of-stake is vital.
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