What happened
Today, top proof-of-stake cryptocurrencies Solana (CRYPTO:SOL), Cardano (CRYPTO:ADA), and Polkadot (CRYPTO:DOT) have all seen incredible downside pressure. These top tokens were down 7.4%, 8.3%, and 3.8%, respectively, over the past 24 hours as of 9:45 a.m. ET.
What’s notable is that leading proof-of-work blockchain Ethereum (CRYPTO:ETH) has seen smaller declines over the same time. This token had lost approximately 1%, still outperforming the overall market, which dropped nearly 3% at the time.
It appears investors are continuing their flight to safety in the crypto world, choosing megacap tokens such as Ethereum over higher-growth altcoin competitors such as Solana, Cardano, and Polkadot.
Additionally, Ethereum is quickly moving toward a proof-of-stake validation model via various updates that are expected to be completed this coming year. It appears investors may be pricing in positive future expectations for this shift, gravitating toward Ethereum and away from alternative blockchains, which have already adopted a proof-of-stake validation model.
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So what
Proof-of-work “mining” (the solving of complex computational problems to validate blocks on a chain and secure a given network) is the original cryptographic validation method used by top tokens such as Bitcoin, Ethereum, and Litecoin. This mining (or validation) model consumes a huge amount of energy.
On the other hand, a proof-of-stake validation model allows those holding a given cryptocurrency to stake their tokens on a blockchain to help secure and validate the network. This allows for much quicker and less energy-intensive validation, with some estimates showing proof-of-stake blockchains use less than 1% of the total energy consumed across the network.
Now what
Ethereum’s shift toward a proof-of-stake validation model is certainly notable. While this transition has been underway for some time, and it’s not entirely clear when everything will be wrapped up, investors looking for a safe haven in the crypto world appear to be designating Ethereum a top pick. Ethereum’s relatively high transaction fees and overburdened (slow) network could be vastly improved by this update.
Accordingly, investors still have an appetite for established tokens like Ethereum that have massive networks of projects currently running on top of their blockchains.
Does this mean investors in Solana, Cardano, and Polkadot should be worried? Perhaps. However, these blockchains have seen impressive growth over the past year, posting incredible performance in their own right.
Currently, investors have a lot to consider with respect to how proof-of-stake tokens are likely to perform in the intermediate term. Today’s price action suggests near-term sentiment in the crypto market may favor tokens such as Ethereum that represent a flight to safety. However, it’s hard to ignore the growth potential of these three proof-of-stake tokens as well.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.