Ethereum, Binance Coin, Cardano: Is this common factor a reason for these alts pumping?
Numbers have done all the talking in 2021. Here are some Year-to-Date rises: Ethereum 434%, Binance Coin 1486%, Cardano 1309%, Polkadot 467%, and Solana 2992%. While the coins on this list look cherry-picked and considering that other assets have outperformed these coins as well (Dogecoin come to mind?), the aforementioned assets fall under a specific consensus algorithm, which is Proof-of-Stake.
Why Proof-of-Stake coins are pumping?
PoS tokens have legitimately made a home in the top-20 rankings. While Ethereum is not completely PoS consensus yet, its staking protocol has been live since December 2020. Other assets such as Cardano, Polkadot, and Solana have followed a PoS consensus model from the get-go and their market valuation is presently impressive.
It is important to note that these assets are not rallying just because of Proof-of-Stake. Ethereum is currently home to so many projects based on DeFi or dApps that its inherent value had to compound, sooner or later. Cardano is finally getting the attention of the larger market in the bull run, as 100% of its hodlers are presently profitable. Its price surge has only highlighted its fundamentals. Binance Coin represents the largest exchange in the world, while Solana is being deemed as the first web-scale blockchain, and the rise of FTX exchange hasn’t hurt its stock.
The long heated debate: Proof-of-Work or Proof-of-Stake?
If PoS tokens are touted against PoW assets at the moment, PoS has overall blown PoW projects out of the water. However, the king coin i.e Bitcoin remains the largest flagbearer of PoW. Although, its working model came under criticism recently after Elon Musk criticized BTC’s mining energy consumption.
Musk implied that some cryptocurrencies succeed at a ‘great cost’ to the environment, and even stated that they were looking to add other crypto assets for Tesla transactions.
Do you want Tesla to accept Doge?
— Elon Musk (@elonmusk) May 11, 2021
Further, during a recent poll, 78.2% of people wanted Tesla to adopt Doge. FYI, Doge is a PoW token as well. Now, in comparison to Bitcoin, PoS tokens could be considered worthy transaction replacements. PoS is more energy-efficient and it does eradicate high-powered computation.
In Proof-of-Stake, the network secures itself through the commitment of stakers, and its security is derived from the perceived economic value of the network. In general, it is good for the environment. However, its strength also highlights its Achilles heel. For all their stability, PoS networks are difficult to secure. While stakers secure the network, they invariably also get richer as ownership is rewarded with capital, leading to centralization within the network.
PoW for Bitcoin, however, has stood the test of time. Over a decade down, PoW systems are yet to be successfully attacked. Additional sources also confirmed that Bitcoin’s energy consumption might not be as drastic as predicted. According to CNBC’s Brian Kelly, 74% of Bitcoin’s energy is renewable, and only 1 out of 5 provinces in China (Mongolia to be exact) is currently operating energy out of coal mines for Bitcoin mining. Kelly went on to state that Bitcoin is possibly acting as a ‘subsidiary for green energy’.
So, Who is winning?
Taking nothing away from PoS projects, as their performance speaks for themselves, the PoW vs PoS debate stems down to economics, efficiency, and individual opinions. Bitcoin’s monetary policy is rigid but it is the only successful one. PoS projects have their issues but with its consensus protocols, multiple projects are breaking out in the market.
At this moment in the current market, the debate will only continue, without a clear-cut answer.