Bitcoin holders will be able to earn passive income thanks to BTC staking. This became possible due to changes in the decentralized financial (DeFi) apps sector. Who stands to benefit?
1. Why does Bitcoin need staking?
Bitcoin staking is an attempt to expand the functionality and attractiveness of the main cryptocurrency. Traditionally, Bitcoin runs on the Proof-of-Work algorithm and does not support staking.
The new Babylon protocol is attempting to implement a mechanism similar to staking:
- To provide BTC holders with the opportunity to earn passive income
- To increase the security of other blockchains based on Proof-of-Stake
- To expand the use of bitcoin in the DeFi sector
2. Who will it affect?
Staking will potentially affect:
- Bitcoin holders who want to earn passive income
- Crypto industry service providers (e.g. Allnodes, Figment, Galaxy Digital)
- DeFi project developers
- Investors interested in new opportunities in the BTC ecosystem
3. What is needed for staking?
To participate in staking via the Babylon protocol, you will need:
- Ownership of bitcoins (from 0.005 to 0.05 BTC at the initial stage)
- Willingness to lock your BTC in the protocol
- Understanding the risks associated with the new technology
4. Efficiency as a passive investment
The efficiency of bitcoin staking is difficult to assess at the moment, since:
- The project is just getting started
- Exact ROI indicators have not been disclosed
- There are risks associated with the novelty of this technology
5. System stability and bubbles
Many will also be concerned about the stability of the system after the innovations. Adding new layers and functionality can:
- Increase the complexity of the system
- Create new areas of vulnerability
- Potentially lead to the formation of bubbles due to speculative interest.
However, on the other hand, developing new features can:
- Increase the usefulness and adoption of bitcoin
- Attract new users and investors
- Stimulate innovation in the crypto industry