Staking and the future of blockchain for smart contracts

In this second of two articles, we discuss two more uses of cryptocurrency and blockchain technology that are relevant for New Zealand businesses.

As SBA’s cryptocurrency platform CoinHQ develops, we are here to keep you informed of developments in the rapidly evolving crypto and blockchain space. We invite you to sign-up as a CoinHQ Beta Tester and follow us on facebook or other social media to hear from us regularly.

Staking and the ability to earn a yield on your crypto investment

A significant feature of crypto for business is the ability to ‘stake’ certain cryptocurrencies, which is a little like putting them on term deposit to earn ‘interest’. Whether or not a cryptocurrency can be staked depends on the underlying blockchain on which it is built and whether it uses the proof-of-stake method of validating transactions or proof-of-work.

Bitcoin cannot be staked as it operates on the proof-of-work method, which involves Bitcoin miners competing to validate transactions. However, most stablecoins and many other currencies such as Cardano and Solana operate on the proof-of-work method which means that those with the largest amounts of the coin vie to be selected to complete the work of verifying blockchain transactions.

To develop large pools that can win validation rights, staking pools are created to which you may delegate currency you are not likely to use for a period of time. Successful staking pools are rewarded with additional currency which is then split between the members of the pool, resulting in a yield that typically outperforms conventional term deposits.

The Future of Blockchain for Smart Contracts 1 SBA Small Business Accounting e1701291976384

The future of blockchain for smart contracts

The blockchain and distributed ledger technology underpin cryptocurrencies, however they enable much broader business applications. The fundamental principle is that the requirement for a third-party intermediary to settle a transaction is removed. Instead of placing trust in a bank or a lawyer to settle a contract when they deem the conditions to have been met, an electronic system based on cryptographic proof allows two willing parties to transact directly with each other, with the contract executed once conditions are met.

Think about how much more cost effective and efficient it could be to execute a loan, a mortgage or a will, and transfer property ownership rights without requiring the involvement of a bank or lawyer. Benefits go beyond speed and cost reduction; accuracy is improved as there’s no paperwork to process, and no time spent resolving errors. With no third party involved and because encrypted records of transactions are shared across participants, there’s no scope for alteration for personal benefit, and by its very nature the blockchain is almost impossible to hack.

Globally, large organisations are actively working on applications that use smart contracts for decentralised transactions in areas of finance, legal, property and supply chain management.

You can expect to see and hear a lot about this in the coming years.

Stay Informed

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