For a tech that was supposed to be democratic and distributed in order to free financial systems from the grip of government-influenced banks and return control of the money supply to the people, cryptocurrencies have turned out to be pretty concentrated.
Some 66% of all Bitcoin (BTC) mining now takes place in China, with 54% located in the southwest province of Sichuan, as a recent study revealed. Three Chinese mining pools alone are responsible for nearly half of Bitcoin’s hashrate. The days when a single Bitcoin enthusiast could crunch numbers on their home computer and land a Bitcoin reward for helping to group transactions into blocks are long over.
That is a problem, and not just because it centralizes a vital part of the Bitcoin infrastructure in a single location under the control of an authoritarian government. It’s also a problem because the reason Sichuan is such an attractive site is because it has cheap hydroelectric power. Mining might be a useful way to control the release of new coins, but it’s a huge waste of electric power at a time when the world is trying to become more energy efficient.
So the cryptocurrency world is looking for solutions. It’s experimenting with new ways of building blocks and new ways to reward people who commit resources that maintain the cryptocurrency infrastructure.
One solution has come in the form of staking. Mining rewards people who are willing to commit computational power to the blockchain. The more computing resources a mining pool commits, the greater the chances that it will be able to provide the proof-of-work — the solution to a mathematical puzzle — that lets them add blocks to the blockchain and claim their reward.
Staking rewards people who are willing to commit cryptocurrencies, rather than computer power, to the blockchain. In return for…