How to profit from Cryptos without trading – Creed Capital Crypto News
In earlier articles, we explored how blockchains like Bitcoin use a system called Proof of Work (PoW) to maintain security and consensus. We explained how miners use powerful machines to solve complex puzzles and get rewarded in Bitcoin for validating transactions. We also discussed the high energy cost of mining and the criticism it faces for its environmental impact article.
The miners’ total energy consumption to secure the Bitcoin blockchain is significantly greater than what many smaller countries require for their yearly consumption. Energy is wasted on solving a useless puzzle in a brute-force manner to get the Bitcoin rewards. Computer scientists and researchers went through extensive research and designs in cryptocurrency field to come up with other solutions that did not require so much energy to secure the blockchain. Ethereum started off a Proof of Work blockchain. The founders and the community wanted to change the sybil resistance mechanism from proof of work to proof of stake so that energy consumption could be drastically reduced.
The concept of Proof of Stake was proposed as early as 2011, and the first practical implementations appeared shortly after. Peercoin(2102), Nxt(2013), Blackcoin(2014) were examples of very early non mining implementations for sybil resistance. There were problem like nothing at stake and long range attacks. In PoW systems you really need to spend energy and the cost for it to build a chain. You cannot fake that piece. But these issues were fixed in newer systems.
In a proof of stake blockchain like Ethereum, Solana, Cardano or Tezos, the block producer is called a validator and the validator must put up or stake Ethereum on the protocol to become the validator. If the validator does anything malicious or does not do his part correctly to secure the network his staked Ethereum will be slashed or forfeited as a punishment. The cost of forging an identity is putting up Ethereum which has a high price in the market.
In Proof of Work blockchains miners invested capital to buy ASIC machines and spent money on electricity daily to keep the machine running. To be a validator on Ethereum, the validator has to stake a minimum of 32 Ether. Validators get picked in a round robin fashion based on the amount of Ether staked or statistically they get a chance to become the block producer and they know ahead of time when they get to do it. Every validator is upfronting capital in Ethereum.
Validators vote on the authenticity of a new block of transactions, ensuring the new block is valid before adding to the blockchain. One of the nodes is selected as the block proposer that is responsible for building the block and broadcasting it to the other nodes. The validator selection is based on the node’s stake in the network. The more they have staked, the more likely they will be chosen to add a new block to the blockchain and get the fees associated with adding the transactions into a block.
In proof of work, the more hashing power they have, the more likely they will solve the puzzle and get the chance to create the block and secure the rewards and fees associated with the transactions. Both Proof-Of-Work (POW) miner and Proof-Of-Stake (POS) mechanisms cost money and keep the cost of forging an identity significant enough. The difference is that the minimum you need to spend to be a block producer on bitcoin is relatively much lesser than being a validator on Ethereum. The higher the minimum, the lesser the number of small participants will be involved and hence the greater chance of becoming centralized and being attacked or being censored by the larger players.
You don’t need to be a computer genius to participate in PoS.
Many blockchains allow delegated staking where you can simply lend your coins to someone else who runs a validator. You still earn a portion of the rewards, and your coins stay safe in the system. It’s like earning interest on your savings—but instead of a bank paying you, the blockchain does.
For example: On Ethereum, the minimum to run a validator is 32 ETH or you need 32 multiplied by 2000(price of Ethereum) that is 64,000$ to become a validator today. But if you have less, you can stake through services like Lido, Coinbase, or Rocket Pool. This makes PoS more inclusive. More people can join and support the network without needing to own and run complicated hardware and making sure you have electricity and good internet running without any failure.
Proof of Stake (PoS) is like holding a lottery—but you need to buy a ticket to enter, and the more tickets you hold, the more chances you have to win. Instead of using energy to solve math puzzles, PoS selects someone (called a validator) to create the next block based on how many coins they’ve “staked”—or locked up—as collateral. Let’s walk through how it works in simple terms:
How PoS Works—Step by Step
- Stake your coins: Lock up your crypto (e.g., ETH) in the network.
- Validator selection: The system chooses a validator, often at random but weighted by stake size.
- Block proposal and validation: If selected, the validator proposes a new block. Other validators confirm it.
- Reward or penalty: Honest validators earn rewards. Dishonest or offline validators can lose part of their stake.
You’re essentially putting your money where your mouth is. If you act in bad faith, you stand to lose your stake.
What Are the Risks?
PoS is not risk-free. Both direct staking and delegated staking carry potential downsides.
1. Slashing Risk
If a validator goes offline or approves invalid transactions, they can be penalized. In Ethereum, a validator can lose up to the full 32 ETH stake.
2. Technical Risk
Running your own validator requires strong uptime, a secure setup, and technical expertise. If your system goes down or is hacked, you may miss out on rewards or get slashed.
3. Lock-up Period
Staked tokens are usually locked for a certain period. On Ethereum, it can take several days to unstake and withdraw your funds. During volatile markets, this delay may limit your ability to exit positions quickly.
4. Delegated Staking Risks
Delegated staking adds another layer of trust:
- You’re relying on a third-party validator or staking pool.
- If they misbehave or get slashed, you might share the penalty.
- Some platforms (like Lido) use smart contracts, which carry code risk—bugs or exploits can cause losses.
5. Market Volatility
Even if you earn rewards in ETH, the price of ETH could fall, reducing your dollar-denominated returns. Crypto is still a volatile asset class.
Final Thoughts
Proof of Stake is a major innovation in blockchain technology. It reduces energy consumption, lowers the barrier to participation, and allows users to earn passive income by helping secure the network. But staking is not free money. Like any investment, it carries technical, custodial, and market risks.
Understanding these risks—and choosing reliable validators or platforms—is critical. As Ethereum and other blockchains continue to evolve, staking will likely become one of the main ways individuals interact with decentralized networks. Whether you’re a beginner or an experienced crypto holder, it’s worth learning how PoS works—because your coins could be doing more than just sitting in a wallet.
Nithin Eapen is a technologist and entrepreneur with a deep passion for finance, cryptocurrencies, prediction markets and technology. You can write to him at neapen@gmail.com
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