Is Ethereum Staking Profitable?
If you are currently staking on Ethereum 2.0, the proof of stake (PoS) network, you are likely earning around 8% APY.
In December 2020, the first component - the Beacon Chain - of the ETH 2 upgrade was complete, enabling a transition from proof of work (PoW) protocol to proof of stake (PoS) protocol. It is a new way to secure the Ethereum blockchain.
There's a long way to go, yet with two more stages to complete. Sometime this year (2021), phase 1.5 is to merge the Beacon chain with the current Ethereum mainnet, which precedes the multi-phase rollout of shard chains planned for 2022. Shard chains spread the load of the Ethereum network across 64 new chains.
What this means is:
- Reduced running costs
- Faster transactions
- A more secure network
- Lower hardware requirement
If you stake in Ethereum now, you can't access your ETH or ETH token rewards until the final phase completion in 2022. Subject to no delays, you can then withdraw your ETH holdings and your ETH token rewards.
Now, you may think this is a negative. But is there really any difference between tying up your ETH holdings for a year and locking in your cash with an ISA account?
It's a mindset shift.
But why would you want to tie up your Ethereum stake? What is the future for Ethereum, and is staking Ethereum profitable?
In this article, we will explore the potential for Ethereum 2.0, considering likely projections for staking rewards and the price of Ethereum once the upgrade completes.
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- Is Ethereum 2.0 Staking Profitable?
- The Future of Ethereum
- Will the Price of Ethereum Rise?
- What are the Risks of Staking Ethereum?
- Recap of is Ethereum Staking Profitable?
Is Ethereum 2.0 Staking Profitable?
When Ethereum and Ethereum 2.0 merge, validators for the Ethereum network could be looking at tripling their current rewards.
Ben Edgington advises on Eth2 across ConsenSys. Recently, he said, "It looks like around 25% per annum is the expected initial total annual return for [validators]. So on your 32 ether, you'll be earning about eight ether per year, on average."
How is it possible to treble rewards?
A merge to ETH 2 means Ethereum validators process all transactions and smart contracts, the job previously reserved for Ethereum miners. Therefore, validators will start receiving additional rewards from users and dapps (decentralised applications), which will be through transaction fees.
There's yet no firm date for the ETH 2 completion other than 2022. But, for sure, the Ethereum network will make it public as soon as they have a fixed date. We live in a world where we expect immediate rewards, and waiting for what we want leaves us feeling frustrated. Good things, however, are worth waiting for, so is staking ETH worth it?
We can't decide for you, of course. However, if you put your money in a traditional savings account, you might be lucky to earn 1% APY.
On average, stock investing generates 10% a year, but most people fail with the stock market. You could lose your money, and it's a lot of hard work.
The Future of Ethereum
Staking is becoming a lucrative service for cryptocurrency exchanges, and it's appealing to novice investors or traders.
Jeremy Welch is the vice president of product for Kraken, an established crypto exchange. Recently, he said, "Staking's popularity is the natural outcome of an asset class growing in maturity."
"Whereas three years ago, holders were mainly interested in securing short-term gains, many are now confident locking up tokens to earn passive income. Why? Conviction is growing in the longevity of crypto assets as a respectable new asset class."
In Q1 of 2021, the market capitalisation of proof-of-stake (PoS) blockchains grew 151%, which made up one-fifth of the total market capitalisation of the crypto industry at the end of March. Projected earnings for PoS networks may be close to $19 billion by the end of 2021.
Why? After the meteoric rise of Bitcoin in 2017, many people started buying and holding cryptocurrencies. But, unless the price of your cryptocurrency rises, there's not much money to be made.
Put your cryptocurrencies into staking, and you have much better returns than from holding your cryptos. Moreover, as the price of your crypto holdings increases, your profits from staking also increase.
Ethereum yearly profits average 8%, but as we mentioned, they could rise to 25%. Traditional savings with rock-bottom interest rates can't compete with the potential interest from staking Ethereum. Ethereum quickly realised the importance of scalability and the need for fast, low-cost transactions.
Is staking crypto profitable? Well, we've answered that right here.
And if we're discussing the future of Ethereum, we need to look at potential price predictions.
Will the Price of Ethereum Rise?
At the moment, Ethereum is $3,739. A few weeks ago, the price rose to $2,786.
A 34.21% drop is not unusual for cryptocurrencies.
A year ago, Ethereum was $85 to buy. When it hit the high, that signified a 400% increase in a year. Again, not unusual for cryptocurrencies, especially those in the top twenty listed cryptos according to market capitalisation.
Crypto industry experts suggest that Bitcoin may one day reach $500,000. Yes, this seems a ridiculous price projection but five to ten years from now, who knows.
Ethereum is the second-largest cryptocurrency according to market capitalisation, and the experts predict a price rise to $20,000 by 2025.
When Bitcoin hit $20k in December 2017, the world went mad. Delirious with greed, people went crazy buying Bitcoin, anticipating rumours that the price would shoot up to $100k.
Many people lost their money as Bitcoin drifted downhill in 2018, finally landing at $3,500 in December.
Ethereum is a popular cryptocurrency. A lot of investors believe in the future of Ethereum. With the rollout of Ethereum 2.0, could it be the sky's the limit for Ethereum?
Possibly. If we look at people's reaction to Bitcoin in 2017, should Ethereum staking rewards rise to 25%, the world would go nuts to get in on the action.
25% a year could be life-changing if you had a significant stake in Ethereum and the price rose to $20k or higher.
Many people are excited about the future of Ethereum.
Our world future is shifting. If digital currencies become the norm, our financial platforms would change radically. Fiat money could even become defunct, and cryptocurrencies could be the denomination for digital payments. If that happens, Ethereum 2.0 will be ready.
Read Also: Ethereum Price Predictions
What are the Risks of Staking Ethereum?
In real terms, cryptocurrencies are embryonic. We don't have a lot of historical data to observe. With currencies and stocks, we can map back patterns of price behaviour. But with cryptocurrencies, we really have no idea where they might go in the future.
Logically, decentralised, digital currencies seem like the right way for society to go.
The resistance from governments to digital currencies is a concern. Those in charge of centralised currencies would, quite frankly, prefer to regulate the life out of every digital currency on the planet.
It's the one primary concern for cryptocurrencies and, if governments found a way to centralise cryptos, the entire market could fall flat on its head.
The hope is that governments may wise up and see the potential of cryptocurrencies as a way to improve the economy. Cash is becoming unpopular, though governments still try to use it to prop up failing economies.
With the year-long Covid-19 pandemic, businesses quickly found that they no longer wanted to handle cash from consumers. Many shops and businesses were demanding card payments, and the public found they had cash lying in their wallets for weeks or months.
Digital transactions surely must be the way to go forward into the future. But with prominent investors such as Warren Buffet bad-mouthing cryptos, it may be an uphill battle.
Check Out: Top 10 Cryptocurrencies That Will Explode
There's another risk worth mentioning.
Ethereum validators have direct access to the development of the Ethereum network, which makes it possible that someone could introduce false information or double-spend. Or validators could form a group to increase their staking rewards.
Naturally, the Ethereum network does not take such things lightly. They have to prevent malicious activities, so they introduced slashing.
If a validator is guilty of malicious activities towards the Ethereum network, they could lose all or part of their ETH stake and be removed from the network.
If you have 32 ETH or more staked in the Ethereum network, losing that could be a lot of money. Though the penalty is harsh, Ethereum has to keep the network safe and secure.
If you have ETH staked with a crypto exchange, you trust them to take care of your stake and prevent slashing.
Ethereum is the #2 listed cryptocurrency on market capitalisation, second only to Bitcoin. The upgrade will set them apart from many other cryptocurrencies that haven't yet transitioned from PoW to PoS protocol.
In summary, the risks of staking Ethereum are:
- Your Ethereum is inaccessible until 2022
- If cryptocurrencies became regulated, the outcome is uncertain
- All cryptocurrencies are unchartered territory, so future price predictions have no real quantitive substance
- Potential slashing (unlikely, but it still has to be mentioned)
- If your stake is on an exchange, you're relying on them taking care of your ETH stake
Recap of is Ethereum Staking Profitable?
The Ethereum network is rolling out upgrades to the network, which won't be complete until 2022. Therefore, if you stake Ethereum now, you won't have access to your ETH or your ETH reward tokens until completion.
However, even though your ETH stake isn't accessible until 2022, your ETH token rewards will accrue during that period. At that time, you will be able to withdraw your ETH and rewards.
Weighing up the pros and cons of staking Ethereum, the consensus leads to the plus side for making profits from staking Ethereum.
If you cannot afford the 32 ETH needed to become an independent Ethereum network validator, you can join an Ethereum mining pool. There are many successful Ethereum mining pools to choose from, and we have listed three below in the FAQ section.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Trading or investing in cryptocurrencies may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.
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Virtual currencies are highly volatile. Your capital is at risk.
How much ETH do I need to stake?
Individual Ethereum network validators need 32 ETH to qualify.
But, some online platforms, such as eToro, offer no minimum ETH requirement, and they take care of the stake for you.
What's the benefit of staking Ethereum?
It depends on what you might be considering for your investments.
If you put your money in a traditional savings account, you'll be lucky to get 1% APY. With Ethereum, you can get up to 8%, and, in the future, the forecast suggests 25% may not be outside the realms of possibility.
As the #2 listed cryptocurrency by market capitalisation, ETH is shadowed only by Bitcoin and, the truth is that the PoS protocol makes the Bitcoin PoW protocol look like a dinosaur.
As an independent Ethereum network validator, you need 32 ETH. But, you can stake Ethereum with an online platform with no minimum requirement and none of the work.
See the below list of where to stake Ethereum.
What's the best place to stake Ethereum?
Many online platforms are offering the opportunity to stake Ethereum with staking rewards.
- eToro – a social trading platform with 20 million registered users. There is no minimum requirement for staking ETH and eToro take care of the entire process for you
- Coinbase – one of the largest cryptocurrency exchanges
- Kraken – an established cryptocurrency exchange
Should I stake Ethereum?
Whether you stake Ethereum or not is your choice.
In this article, we have outlined the benefits and the risks of staking Ethereum. You cannot access your Ethereum stake or rewards until the completion of Ethereum 2.0.
So, if you are uncomfortable with that or cannot afford to tie up funds for a year or so, it may be best to buy and hold Ethereum or put your ETH into a crypto savings account to earn interest.
How much money can you make staking Ethereum?
That depends on your stake.
You'll make around 8% APY at the moment. So if you have $100 of ETH, you'll make a lot less money than if you had $20,000 of ETH.
Whatever amount you can afford, you'll make a passive income from your ETH if you stake Ethereum with an exchange platform.
To become an Ethereum network validator, you need 32 ETH. At this time, that would be an investment of $120,928 at today's Ethereum price of $2002.
Will I get bigger rewards if the price of Ethereum rises?
If you have staked your Ethereum and the price rises, yes, as the value of your stake increases, it will increase your rewards. The percentage won't change, though, unless it actually changes from 8%.
At the moment, you can earn up to 8% from staking Ethereum. If you had $1000 of Ethereum, you'd generate $80 a year. If the price of Ethereum rose to $4,000, you'd generate $320 a year.
These are rough figures, do check with the exchange or the Ethereum mining pool to ascertain exact reward percentages.
Some crypto industry experts are predicting that the price of Ethereum could rise to $20,000 by 2025.
At 8% APY, that's a $1600 profit.
If, as discussed earlier, staking rewards rise to 25% APY once Ethereum 2.0 is complete, you'd be looking at $5,000 rewards. Incredible and, at this point, unimaginable. But, in 2009, who would have believed Bitcoin would rise to $64k.
How much ETH is staked?
According to the BlockCrypto website, in February 2021, over 3 million ETH had been staked in the ETH 2 contract.
That is a monetary value of over $5 billion. These figures are likely considerably higher now.
Does Ethereum have Mining Pools?
Yes. Joining an Ethereum mining pool means you pool your computational resources for mining.
The pool shares the rewards and fees. Whilst this means your rewards are split, it could be more beneficial. You may have smaller payments, but they will be more frequent than mining ETH as an independent network validator.
What's the Best Ethereum Mining Pools?
At this time, the three best Ethereum mining pools are:
- Ethpool/Ethermine – Ethpool's website suggests they are the worlds largest performing solo mining pool, with 749 miners in the pool and 1567 workers. But Nanopool is significantly bigger. Ethpool has low 1% fees
- Nanopool – Nanopool has 47,271 miners and 133,080 workers. It's a vast Ethereum mining pool with 1% fees
- F2pool – there are not many details on the number of miners and workers for F2pool. But they are the third top-performing Ethereum pool with a good reputation and 1% fees
How can I calculate my Ethereum stake?
To work out your potential Ethereum rewards, you can visit an Ethereum staking calculator HERE