Staking our Future – Dividend Paying Bearing Digital Assets

One of the major criticisms of Bitcoin is in its mining as it uses the electricity of a small nation state. Even if this is renewable energy, the inconvenient truth in our nascent blockchain industry is that it is part of the problem, not the solution. There is however a better way for blockchain technologies to use less energy and at the same time provide investors in the space with an exciting new form of investment. It’s slowly changing the game for digital assets and it’s called Proof of Stake, a major new opportunity for investors.

Proof of Stake solves the problem of the energy issue resulting from Bitcoin’s Proof of Work consensus mechanism. Proof of Stake is not only a major efficiency upgrade to blockchain technology, but it can provide a consistent level of yield to give investors a new income stream. Imagine investing in oil and gas, knowing there is a well with an unlimited supply and no environmental footprint! Proof of Stake works by reinvesting your tokens as collateral and in return you earn more tokens. In other words, it’s not dissimilar to buying a share in Company XYZ. By buying a share, you are giving your money to Company XYZ, in return for which they aim to provide not only an appreciation in the share price, but a dividend every so often.

Some digital assets have similar characteristics to shares in terms of dividend yield, one of which is called Cosmos, a recently launched Proof of Stake blockchain network that is operating at a global scale. Cosmos does this by connecting a group of computers around the world running its Open Source software to agree consensus on its transactions. Think of this as Company XYZ putting your investment to good use by building products and selling them, only in the digital world, your money is being used to support the computing network. Without it the blockchain will not be able to function, just like Company XYZ will not be able to build new products without your investment.

The clever thing about Cosmos is that it does this for any blockchain. This makes Cosmos the glue that binds all blockchains together and stops each blockchain, including Bitcoin, being siloed. A good analogy is ‘http’ to the World Wide Web which allows all websites to be viewable through an HTML web browser. Cosmos means more utility for all crypto platforms at global scale, with lower overhead for developers to build new decentralised services.

On the investor side Cosmos’ Proof of Stake network is now delivering a yield of 10%+ return with monthly compounding. The token is also currently trading at $5 which is a stellar return for initial seed investors who bought in at 10 cents, and there is arguably plenty of room for growth as there are already national scale projects building on Cosmos including Thailand’s national ID system and Terra Networks a $4.5billion South East Asian payment network. This will all drive usage and value of the native token and growth of the Cosmos ecosystem.

Whilst some of these Proof of Stake tokens can yield over 10%, this may sound too good to be true, so as with any investment it is important to note that there comes a risk. Staked digital assets in Proof of Stake networks carry certain unique risks, specifically something called ‘slashing’. Slashing occurs when certain network participants are automatically penalised by the network if the network’s health is compromised by major technical issues, internal attacks or cyber-attacks. In some networks, slashing carries a penalty of between 0.01% and 5% of anyone’s staked tokens.

At KR1, we were so convinced by the opportunity we seed funded large scale Proof of Stake networks such as Cosmos, Polkadot, and Dfinity to name a few. These ‘crypto network’ blockchains will replace many of the old legacy internet systems, and as such, their associated Proof of Stake tokens will be highly desirable. As well as the vital function of the token in the network, tokens will accrue value as they grow in adoption and potential double digit income streams. There is plenty of growing investor demand in liquid, 24/7 and global markets for Proof of Stake tokens. These tokens have real utility and real value and are critical in these new crypto networks that will power future industries. The daddy of Proof of Stake networks is Ethereum, having launched in 2014 it is the oldest and most established. Its staking network will go live in the next year or two. Ethereum has tens of thousands of developers on it building all types of new financial and consumer applications. And … it’s still early days.

So, if you are reading this and are thinking you’ve missed the opportunity, don’t worry, you haven’t missed the boat. Look for the Proof of Stake models mentioned, or ones which offer a large network with good security and an engaged community. The rewards of Proof of Stake crypto economics will be substantial for investors as we are entering a new golden era of blockchain and crypto as it starts to get global adoption.