In just one year, staking has grown from an academic exercise to a dominant force in crypto.
The biggest staking story of 2020 is, of course, the launch of Ethereum 2.0. But beyond that, the past year has seen a tremendous flowering of Proof of Stake (PoS) networks. Four of the top nine crypto assets by market cap are on their way to proof of stake. In January, the number was zero – and more are expected to follow.
This article is part of CoinDesk’s 2020 Year in Review – a collection of opinion pieces, essays, and interviews on the year in crypto and beyond. Tim Ogilvie is the CEO of Staked, which manages a staking infrastructure for institutional investors, exchanges, custodians and portfolios.
Proof of Stake now accounts for around 15% of the total crypto market cap. Much of the acceleration in crypto development that we have seen this year can be attributed to proof of stake blockchains including Ethereum as well as Polkadot, Cardano, NEAR, Solana and others.
As proof of stake dominance in developer engagement continues to grow over the coming year, we will see an explosion of projects and applications aimed at users.
A persistent criticism of proof of stake is that it is only theoretical. Many speculated that a PoS blockchain would fall into practice, like an academic building a bridge out of books. Successful launches of PoS blockchains like Tezos and Cosmos haven’t done much to silence critics.
The frequent delays and apparent setbacks of Ethereum 2.0 no doubt added to this skepticism, with the project becoming something of a punchline in the crypto world until its successful launch last month. And with that, the proof of stake moved to the main stage.
Ethereum is second after Bitcoin in terms of total market capitalization and has the largest community of developers of any blockchain. The fact that he’s finally moving on to proof of stake sends a clear signal that the concept is here to stay. Ethereum 2.0 is now poised to be the best staking chain – but exactly when is anyone guessing.
While Ethereum 2.0 represents a night out for proof of stake, focusing solely on the successful upgrade of Ethereum is missing out on a much bigger picture. Many PoS networks are successful and are adopted this year.
Polkadot, currently the largest chain of outlets, now has more than $ 3 billion at stake. Chainlink, the fifth largest crypto asset by market capitalization, has announced that it also plans to move to PoS. Others will follow. By the end of 2021, most top chains will be upgraded to varying degrees of staking systems.
To be sure, bitcoin will retain its crown as the largest crypto asset. It was the first, it’s the best known, and it has a clear and easily understandable use case. But it is less a counter-argument than the exception that proves an emerging rule. Bitcoin is a great foundation as a store of value, but those looking to build applications and institutions for a decentralized economy will continue to migrate to proof of stake.
Adoption will continue to increase due to the pull and developer activity that we are seeing in proof-of-stake blockchains, which sets them apart from Bitcoin, stablecoins, and “meme coins”. The multiple Bitcoin bridges currently entering the market reflect this: The vast wealth held in bitcoin is thirsty for new ways to make returns… on PoS blockchains.
Proof of stake has always been the destination of Ethereum and many other crypto projects. Some cynicism was inevitable along the way – and certainly, the progress of PoS networks has not been without setbacks. But in 2020, the theory became reality.