Developers behind Ethereum—a major Bitcoin competitor—are preparing for a milestone called the “Merge.”
The Merge, which will be activated in September, will fully introduce staking on Ethereum. It will reduce energy consumption while also providing users with a new way to earn rewards.
Staking Will Offer Rewards, Reduce Energy
The main selling point of staking is the promise of block rewards to those who stake funds on Ethereum. Participants are expected to earn about 5% annually on their staked Ether tokens.
Behind the scenes, the introduction of staking will see Ethereum transition away from its previous consensus mechanism and reward system: proof-of-work (aka “mining”).
Though mining is still used by major blockchains such as Bitcoin, it has become controversial in recent years due to its high energy consumption. Collectively, large mining facilities around the world consume as much electricity as small nations to mine Bitcoin and Ethereum.
Companies that invest in Bitcoin, such as Tesla and Microstrategy, have committed to solving the power consumption problem by promoting sustainable energy.
However, Ethereum will solve the issue differently. Instead of promoting sustainable energy, Ethereum will rely on proof-of-stake, which uses very little energy to begin with. Ethereum’s proof-of-stake model semi-randomly awards the right to validate transactions to those who deposit, lock, or “stake” their cryptocurrency on the Ethereum network.
Though various other blockchains have used proof-of-stake in the past, Ethereum is the highest-ranking blockchain to do so. The upgrade is the next step to helping Ethereum increase its transaction throughput and scale up to meet increasing demand from cryptocurrency users.
Other Ways to Earn Rewards
Traditional financial services do not have any functions that resemble staking, as there is no need for users to help those services process transactions.
However, there are a few ways in which users of traditional finance can earn rewards on their money. Though these options are not the same as staking, many banks offer interest-bearing accounts, while some payment cards offer cashback rewards or points programs.
At Payset, we offer a partner program that allows promoters to earn rewards on referrals. Participants can earn up to 20% on the deposits of merchants that they successfully refer to Payset. To find out more, visit our partner program page.
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