Bitcoin’s transformation into a layer-2 (L2) solution brings numerous benefits to users. Not only does it support faster and higher-volume transactions, but it also enhances security and enables the use of smart contracts directly within the Bitcoin ecosystem. The technical advantages of L2 alone make it a significant development in the Bitcoin world.
However, the impact of Bitcoin L2 extends beyond technical improvements. The introduction of Bitcoin staking, which was previously impossible, is a major step in legitimizing and mainstreaming crypto staking. Staking not only adds value to currency holders but also creates a new kind of interest rate, determined by users rather than central banks and government policies. This “people’s interest rate” offers an alternative to the flawed traditional interest rate systems. The ability to stake a trusted and highly recognized asset like Bitcoin strengthens the feasibility and credibility of this vision.
With the introduction of Bitcoin L2, transactions can now be conveyed across a layer-2, guaranteeing data speeds and packet delivery regardless of internet traffic levels. This means that complex smart contracts can be developed and implemented directly within Bitcoin, ensuring the integrity of contracts and making Bitcoin a means of compliance, not just a means of exchange.
Another advantage of Bitcoin L2 is the opportunity to earn interest or returns from the Bitcoin tokens under one’s management. While other blockchains have allowed dormant tokens to earn rewards, this has never been possible with Bitcoin. Previously, the only way to create value from saved Bitcoin was through trading based on price fluctuations.
Bitcoin staking is significant news for the Bitcoin “maxi” community, but its implications go beyond that. It parallels the actions of mainstream fund managers, investors, and central banks who put fiat currencies to work through staking. The base rate, which represents the opportunity cost of putting money in a savings account, has shown mixed effects on different segments of the population and the wider economy. Bitcoin staking offers an alternative by allowing unused Bitcoin to earn rewards, determined by users themselves rather than central banks.
The interest rate for Bitcoin staking is influenced by the usefulness of Bitcoin, the volume and frequency of transactions, the use cases for smart contracts, and confidence in the currency. It operates more like an exchange rate, where popular and integral economies generate a premium. Bitcoin’s mainstream understanding and recognition boost the profile and accessibility of staking, making it relevant to everyone, not just those deeply involved in the ecosystem.
Overall, Bitcoin staking provides a decentralized alternative to the existing inadequate systems, offering a new interest rate defined by participants rather than lobbyists and governmental interests. It forms part of a better future for our economic systems.
Author: Jonathan Hargreaves, Global Head of Growth at Elastos.