Ethereum 2.0 is underway and with the end in sight for completion. The phase 2 rollout is 2022, subject to no delays. Phase 1.5 is due this year (2021.
But is Ethereum staking profitable? How do you stake Ethereum? Should you stake Ethereum now, and what are the risks of staking Ethereum?
Potential investors for Ethereum believe that the ETH 2 upgrade may rocket Ethereum prices. Crypto industry experts suggest that the price of Ethereum could rise as high as $20,000 by 2025.
Ethereum, listed as the #2 cryptocurrency by market cap, is second only to Bitcoin. But Bitcoin currently runs on proof of work (PoW) protocols, and Ethereum is transitioning from PoW to proof of stake (PoS) protocol.
With stage 1 of the upgrade, the Beacon chain component, completed in December 2020, loyal fans of Ethereum could finally help secure the network by becoming validators using PoS protocol. But there are no ribbons and bows to the PoS protocol yet, and, as such, it's not particularly useful.
If you have 32 ETH available, you can join the Ethereum network as an independent validator and gain ETH reward tokens. But the question is whether it's worth running your own nodes, and, if you do, what are the pros and cons of staking Ethereum?
Does it follow that the more secure the Ethereum network, the more successful it can become? Indeed, the price of Ethereum has seen an increase of 400% over the last year. It appeared to coincide with the integration of the Beacon chain component, introducing the PoS protocol.
As with any business, demonstrations of innovation and growth almost always lead to increased prices of company assets. Why should Ethereum be any different?
This article will look at whether it is worth staking Ethereum and the risks of staking Ethereum. You may find the answer to be subjective because of the many variables concerned with staking Ethereum.
- To Stake or Not to Stake Ethereum?
- Is It Worth Joining an Ethereum Staking Pool?
- Is It Risky to Stake Ethereum?
- Will ETH Be Tokenised?
- Recap of Is It Worth Staking Ethereum
To Stake or Not to Stake Ethereum?
The real question right now is whether to stake Ethereum 2.0.
Staking Ethereum offers up to 8% rewards, and industry experts suggest that Ethereum mining rewards could increase following the upgrade. Speculation of future 25% APY Ethereum rewards has been flying around the crypto circuits.
Nothing is guaranteed, and nobody can predict what will happen with Ethereum. Not everyone has 32 ETH to spare. It's a high entry cost for independent Ethereum network validators.
The alternative is to use a third-party staking provider or join an Ethereum mining pool. Sure, it's one way of mitigating the risk of staking Ethereum. But you are handing it over to someone else, so you need to make sure it's a safe option.
Is It Worth Joining an Ethereum Staking Pool?
The 32 ETH requirement is prohibitive for most people, so they opt into an Ethereum mining pool.
Regardless of whether you run your own node or join an Ethereum mining pool, there's no going back once an asset enters the Beacon chain. Your ETH and rewards remain locked until Ethereum 2.0 completion.
Whichever way you look at it, staking ETH now is a long-term commitment.
Decentralised finance (DeFi) is super-fast. Other cryptocurrencies are exploding the market with incredible returns. For instance, Dogecoin experienced 15,000% this year, and that cryptocurrency started as an internet joke.
In the top ten listed cryptocurrencies, there are a few gathering speed, loyalty and increased market capitalisation. Why would you want to tie up your hard-earned cash with staking Ethereum?
Ethereum followers believe that the Ethereum network is solid and steady and, over time, will reap significant rewards. Is it different to tying up your money in an ISA for a year or so, with guaranteed returns of minuscule percentages that might buy you a box of matches at the end?
Ethereum 2.0 will improve network security. It will also increase and speed up transactions and improve the efficiency and future scalability of the Ethereum network.
Working with an Ethereum mining pool means less of a learning curve to learn how to stake Ethereum. It does reduce your risks and means you can get involved in staking Ethereum without an investment of $64k (at the current Ethereum price of $2,000 – June 2021).
Is It Risky to Stake Ethereum?
If you stake Ethereum before the ETH2 upgrade completes, your ETH is locked until 2022. You continue to earn ETH reward tokens from staking Ethereum, but you can't access them. Nor can you withdraw or sell your ETH.
Staking Ethereum as an independent network validator poses a considerable risk with an investment of 32 ETH and is certainly too expensive for most.
As of now (June 2021), there is no fixed date for the ETH 2 completion other than 2022. Should there be delays, your ETH remains untouchable.
If you stake Ethereum now, you accept that you are committing to a long-term process.
The only other risk is the concern that cryptocurrencies may one day become centralised. Right now, it isn't an issue. But governments dislike the lack of control with decentralised digital currencies. If they found a way to centralise cryptos, the entire picture for cryptocurrencies would change.
Will ETH Be Tokenised?
Rumours suggest that ETH on the Beacon chain may create a derivative token that can be used and traded. There's no solid evidence yet. But. So many emerging cryptocurrency developers demonstrate significant innovation from DeFi systems experimentation.
We wouldn't be surprised to see the launch of an ETH derivative.
It's important to remember that the recent launch of ETH2 is just the start of a multi upgrade:
- Phase 0 – December 2020 - Beacon Chain - future use for shards to communicate. There will be 64 shards in phase 1, which increase the Ethereum blockchain from 15-30 TPS (transactions per second) to 1000-2000 TPS
- Phase 1.5 – The Merge – 2021/2022 TBC -– The Beacon chain merges with the Ethereum mainnet. This phase is significant for Ethereum because it enables staking for the entire network. PoW miners can do no further work, and it precedes the rollout of shard chains
- Phase 2 – 2022 TBC – The final stage is to introduce Shard chains. The network transforms into a PoS consensus network from the current PoW consensus algorithm. The process expands Ethereum's capacity and supports smart contracts and accounts. Finally, you can withdraw ETH and transfer your ETH2 tokens
The shard chains will gain more features over time, expanding capacity and scalability further.
Recap of Is It Worth Staking Ethereum
Ethereum has many loyal fans. It's the #2 cryptocurrency listed by market capitalisation.
Crypto-industry experts predict a solid future for Ethereum. But, until the Ethereum 2.0 upgrade completes, tying up your ETH for a year or more could present a problem.
Ethereum staking rewards are around 8% APY. If you join an Ethereum mining pool, the rewards are shared, but mining is faster and more frequent, so it balances out. Plus, you don't commit 32 ETH to join the Ethereum network as an independent validator.
Ethereum increased by 400% over the last year. The price slipped back from $4300 to below $2000 but such an increase shows that Ethereum is becoming popular with investors and traders of Ethereum.
The dilemma is whether to stake Ethereum now and risk committing your money until 2022 or waiting until ETH 2 completes. At that point, however, the price of Ethereum could have increased. Phase 2 takes longer than expected, which means further delays in accessing your ETH and reward tokens.
There is a large Ethereum community where you can chat about Ethereum. To keep up to date with upgrade news, Ethereum developers regularly share Ethereum 2.0 progress updates. The last update was London's Testnets announcement, 18th June 2021, by Tim Beiko.
The statement said, "The long-anticipated London upgrade is now ready for deployment on the Ethereum testnets! The upgrade will first go live on Ropsten, at block 10499401, which is expected to happen around 24th June 2021. This upgrade follows Berlin, which was activated only a few months ago on the Ethereum mainnet. By starting the work on London while Berlin was being rolled out, client teams were able to release this network upgrade at record speed! The upgrade includes the following EIPs: EIP-1559:..."
If you're a total Ethereum fan and like a bit of bedtime reading, Ethereum has an online whitepaper.
It seems clear that the Ethereum network is keen to speed things up for the Ethereum 2 upgrade, which can only be a good thing if you are thinking of staking Ethereum.
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, staking 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 long will Ethereum staking last?
Staking cryptocurrencies is proof of stake (PoS) protocol. It reduces running costs. Increases the speed of transactions and creates a more secure network. Because of the lower hardware requirements, PoS is also less damaging to the planet.
You can stake Ethereum with online exchanges like eToro. Rewards average between 5-6.25% per year, and all you have to do is buy ETH with no minimum requirement. Staking is profitable for the exchanges, and many clients are turning to this avenue for staking ETH.
The need for staking is likely to increase in the future as more cryptocurrencies switch to PoS protocol.
Should I stake Ethereum?
Weigh up the pros and cons and decide if staking Ethereum is for you.
The high entry cost to become an Ethereum network validator is 32 ETH, which most people cannot afford or don't want to risk such a large amount of money.
But, you can join an Ethereum mining pool (see below list) or buy ETH from an exchange such as eToro, the leading social trading platform. There are no minimum requirements, and it's a way of getting your foot in the door if the Ethereum price increases.
You can buy a dollar amount of ETH at a budget that suits you.
Is staking Ethereum profitable?
You can make around 8% APY from staking Ethereum. If you are part of an Ethereum staking pool, the rewards are shared. But, as more Ethereum miners work together with shared resources, more ETH can be produced.
You have many options to profit from staking Ethereum.
You can stake Ethereum, buy and hold it, join an Ethereum mining pool, stake with an exchange or put it into a crypto savings account.
How do I join an Ethereum staking pool?
Check out the websites for Ethereum mining pools to find out entry requirements and commitments. Three of the top Ethereum mining pools are –
- Ethpool – an established Ethereum mining pool
- Nanopool – a huge, established Ethereum mining pool
- F2pool - F2pool are the third performing Ethereum mining pool
All three Ethereum mining pools offer low 1% fees.
Remember that, even being part of a mining pool, you still cannot access your ETH or ETH reward tokens until the completion of Ethereum 2.0.