How crypto staking and winnings affect online poker players
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The crypto industry is one that has grown rapidly and promised much, but many of us are still wondering about the specifics. Talk of currencies that appreciate in value, that can be traded, and that can be used to play games across geographic and political borders sounds great, but savvy players want to know more. The problem is that in a time of mass online promotion, finding the right balance of insight and information can prove difficult. With this in mind, we’re going to take a deep dive into the world of crypto staking and see what it means for online poker players.
What is crypto staking?
The key point we need to highlight from the outset is that the physical infrastructure that makes any cryptocurrency possible is incredibly energy-intensive. Vast amounts of computing power need to be harnessed, and that means the energy requirements of the systems in place can grow exponentially. With more users come more transactions, and each transaction has to be executed at speed to make the system usable. This is why those in charge are constantly looking for more energy-efficient ways to operate. Staking is one such solution.
When you stake cryptocurrency, you are locking it up (guaranteeing that you won’t use it) to help support the blockchain network. Doing so provides support for the security of the network while at the same time helping to validate new transactions. In return, the person staking the cryptocurrency will receive rewards, making staking a smart way to earn passive income as an alternative to energy-intensive mining.
How does crypto staking work?
When you stake a coin, you are effectively putting it down as collateral to help the network verify transactions. Validating nodes are selected at random from the wider network, and the more you stake, the more likely your node is to be selected. The system is set up so that you will then earn newly minted coins or transaction fees for doing so.
It is common to see offers of 5-10% annual profits when researching your options. These types of offers can become attractive when you consider that you don’t have to sell the underlying asset to achieve them. However, it’s vital to know that the volatile nature of cryptocurrency values compared to fiat currency adds an inherent layer of risk.
What’s the link between crypto staking and online poker?
The rise of staking at crypto casinos has changed the way that a growing number of players think about playing poker online, and for good reason. While we will highlight the risks in the remainder of this article, for now, we will focus on the principles, not the practice.
Imagine that you are playing online poker with cryptocurrency, not traditional fiat currency, and that you have a winning hand. You are paid out in cryptocurrency, and you could simply withdraw it from the platform, convert it into fiat, and spend your winnings however you wish. Or you could adopt a long-term hold with your cryptocurrency and look for signs that the value is going to increase over time, before then cashing out by converting into fiat currency. The problem with this second approach is that you may not wish to move from online poker to cryptocurrency speculation. Staking a portion of your winnings provides an alternative.
You could put some of your winnings back into your next game, and you could stake the rest, thereby opening up the possibility of recurring passive income. When enough players do so, the network operates at speed and scale, while rewarding players for putting down collateral. In a perfect world, the passive income generated by staking winnings could be used to counteract future poker losses, thereby reducing your overall risk exposure.
Moving from perfection to reality by highlighting risk
It’s natural to start off with the ideal case to understand the intentions of the strategy, but we now need to build in a broader, deeper picture of what the risk exposure really is. As every poker player will already know, there is no such thing as a guarantee. Sometimes you win, sometimes you lose, and sometimes you are happy to walk away having broken even. On the one hand, staking tips the odds a little more in your favor, but at the same time, we need to think about the inherent price volatility that can tip it back the other way.
On any given day, the value of fiat currency is essentially flat, with trends happening on much longer timescales. By contrast, there are many cases of double-digit percentage shifts in crypto values. This means that when you keep your winnings as cryptocurrency, as you do when you stake them, the more exposed you will become to volatility. Yes, the value of your stake could appreciate, but it could also depreciate.
The evolving issue of cryptocurrency taxation
The tax codes in many countries around the world move at a slower pace than the tech innovation that drives the proliferation of cryptocurrencies. In many ways, this is both natural and understandable, but it can also lead to a number of gray areas. Countries like the UK now consider the conversion of crypto to fiat and the conversion between different cryptocurrencies to be taxable events. This poses an issue for online poker players who want to make sure they can enjoy their potential winnings.
Systems and tax codes are now being structured so that the tax due on cryptocurrency holdings is levied at the time the cryptocurrency is first received. The problem is that the volatility of the asset class means that players could see the value of their holdings drop, but the tax burden would remain the same. If this were to happen, the increased relative tax exposure would lead to reduced winnings and potentially even losses despite success on the poker table.
What should online poker players do?
Being attracted by the speed, transparency, and flexibility of cryptocurrency poker is all well and good, but poker players need to adopt wider-reaching risk management and tournament play strategies than they may have in the past. Poker is, by its very nature, a constant assessment of risk and reward, and players need to understand that the use of cryptocurrencies adds a new risk factor in the form of volatility. It’s not that their chances of winning on the poker table change, but that they would be better served by taking a more strategic approach when it comes to what to do with their winnings:
- Looking at the tax implications in the physical jurisdiction the player is based in will help inform plans when it comes to reducing potential tax exposure
- Understanding the typical volatility profiles of the major cryptocurrencies could provide insight into when it is right to convert to fiat currency
- Assessing the projected staking rewards offered by a given platform can help when it comes to understanding how to offset the risk of volatility via passive income
There may be no 100% guarantees in this world, but a measured, calculated approach will allow every player to understand the full picture when it comes to risk. Only then will they be able to play with the peace of mind that comes from knowing all of their options.
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