Cryptocurrencies ATOM and SNX have registered losses of over 50% concerning the price that they had early in the year. Dash and LSK are the crypto assets using PoS that have increased the most in recent months.
A study by Wilson Withiam, a research analyst from Messari, indicates that cryptocurrencies that implement a proof of stake (PoS) as part of their consensus protocol, and hold less than 40% of their assets in reserve, have decreased in price so far in 2020.
To determine the possible influence of the participation test on the price of cryptocurrencies, Messari analyzed the correlation between the percentage of liquid supply and the price fluctuation of 21 projects that use this consensus protocol. In this regard, the study determined that the price of most of the crypto assets analyzed has fallen below 20% so far this year.
Taking into account the mechanism of PoS networks, the ecosystem understands that by reducing the supply of coins that were in circulation, the demand grew and thus the price of the remaining cryptocurrencies increased. However, the Messari study found little probability in this relationship, since cryptocurrencies with the largest volume of assets reserved for user participation, such as Cosmos (ATOM) with more than 90% and Synthetix (SNX) with more than 80 %, have dropped in price during 2020.
On the other hand, Withiam concluded that price dynamics may be more closely related to specific announcements linked to each project. In this, it agrees with Dash (DASH), which reached milestones in terms of adoption last year, something that coincided with an increase in the price of the cryptocurrency above 40% of its value at that time. It should be noted that more than 60% of the cryptocurrencies in the Dash network are in circulation, which represents much less than what ATOM and SNX own.
Although the study refers to figures from April 1st, the cryptocurrency market has a valuation equal to that of January 1st, 2020, that is, around USD 192,000 million. Therefore, it is possible to observe that 14 of the 21 cryptocurrencies using the PoS consensus included in the study have a negative performance, below the market taken as a whole.
Cryptocurrencies that use proof of participation have recently received investors’ attention since several service providers have added this consensus protocol to their platforms. Furthermore, existing projects are trying to incorporate this feature. In this regard, Vitalik Buterin announced last year that the Ethereum network will use another consensus mechanism, whilst the second cryptocurrency by market capitalization plans to migrate to this algorithm due to its inherent advantages.
The proof-of-stake consensus algorithm, first introduced in 2011, is a different alternative to the PoW model for validating transactions and achieving distributed consensus. This protocol has grown in popularity recently since some consider it to be a more profitable and efficient way to secure transactions through a distributed network. Through the PoS mechanism, participants (nodes) send a special transaction that blocks their funds for a certain period and allows them to enter the process of creating and validating blocks. Depending on the type of algorithm, the network randomly defines the participant who can propose the next block to be added to the chain.
By Alexander Salazar