When the cryptocurrency markets are volatile and stagnant, as they are currently, investors often look for opportunities to earn interest on their holdings in Bitcoin and other cryptocurrencies. With altcoins like Ethereum (ETH), which use the Proof-of-Stake (PoS) protocol, investors can often stake their coins. This not only helps to secure the network but also rewards them with staking bonuses that are similar to interest payments. However, Bitcoin, which operates on the Proof-of-Work (PoW) protocol, has not traditionally offered this option—until now.
Recently, the Babylon project invited users to stake their Bitcoin, marking a potential shift in how Bitcoin can be utilized. In a test phase that started ten days ago, Babylon aimed to accept just 1,000 BTC for staking, and this quota was quickly filled. Babylon functions as a Layer-2 solution for Bitcoin, similar to how Bitcoin Ordinals and Runes have been practically tested since their introduction. The project aims to build bridges to other ecosystems like Ethereum, where Bitcoin can be used as collateral and participants can earn bonuses. A collaboration with BOB (Build On Blockchain) has already been announced on X, but it has not yet commenced.
A crucial component for Bitcoin staking is the concept of smart contracts on BTC, which were introduced around a year ago and are planned to be executed via a BitVM—comparable to the Ethereum Virtual Machine (EVM) for ETH. However, this remains a future prospect; currently, Bitcoin staking is still in the phase of collecting BTC without deploying them yet.
Conclusion: Bitcoin Staking Could Transform the Crypto Landscape
Ethereum, the second-largest cryptocurrency, switched its protocol from PoW to PoS two years ago with "The Merge," thereby enabling staking. Currently, nearly 30% of all ETH is staked. If a similar trend were to happen with Bitcoin, the leading cryptocurrency, several hundred billion dollars' worth of BTC capital could be directly impacted. Observers are eagerly waiting to see when Bitcoin staking will be practically tested on Babylon and what kinds of interest rates or bonuses will emerge. The potential to expand the use cases for BTC in a meaningful and valuable way certainly exists in theory—but implementing Bitcoin staking could prove more complicated than initially thought.
