Proof-of-Stake Could Lead to Crypto Banking

Last week, Ethereum had to postpone its Constantinople update which would have helped it to transform from proof-of-work algorithm to proof-of-stake. The market was so busy paying attention to this update and deciding other things related to the market accordingly, that it forgot the fact that everywhere else in the crypto world, POS is already a thing.

A very less-discussed factor which would follow the implementation POS programming is that POS will push new business to go for cryptocurrencies, and this will consequently increase new regulatory and security challenges.

If one looks at the consensus model through the prism of traditional finance, their holdings to vote on ledger validation starts appearing like an interest-earning function.

On the other hand, when third parties start providing staking as an exclusive service and perform it on behalf of token-holders (who trust third parties with the token custody and trading operations), it is more like a banking role. This evaluation would wake up crypto traditionalists.

And hence, some crypto experts are against improving the POW model (where bitcoin is founded). These crypto experts argue that POS will affect security and would take the system in the direction of centralization.

Though the second layer solutions like the Lightning Network may help bitcoin and other POW coins solve scalability and cost issues, POW faces problems in computational efficiency and its public image as a threat.

However, it would be wrong to say that there won’t be any support for platforms using proof of stake and delegated proof of stake (DPoS). It is based on the concept of representative democracy.  Which means, it would focus on boosting efficiency by compromising centralization.

As per the evaluation is done by one known crypto platform, out of the 19 leading blockchain projects three are using POS and another three use DPOS. Four of these six blockchain platforms come under the top 15 ranked cryptocurrencies, which collaboratively account for $6 billion.

If we added ethereum to this list, along with Tezos, ( who uses a variation of POS), the total market accountability of these top POS chains would be around $18.8 billion. This is three times lesser than BItcoin’s valuation ($64 billion). Be that as it may, this impact and importance of future and present POS chains can’t be sidelined.

Israel-based blockchain entrepreneur Maya Zehavi shared a post on Twitter in which she mentioned pointers of a new report (European Securities and Markets Authority) on regulating crypto assets.

While ESMA is stating that crypto exchanges at present operate systems of segregated accounts, in the future a need might arise for transfers to inform clients whether their funds are used for staking purposes.

There is no evidence that anybody is doing this with crypto tokens (which are in their custody); and if at all it is happening without users’ knowledge, it has to stop.

Roxanne Williams

Roxanne Williams has recently joined as a market reporter for CryptoNewsZ - the 24/7 crypto news site, where she produces recent stories, technical analysis and price updates on world's leading cryptocurrencies.

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