Staking in Ethereum 2.0: When to Launch, How Much Can You Earn, and Other Concerns


The  Ethereal Virtual Summit  was held on May 7-8   .   The closest attention was paid to the upcoming network update of the second la...

The Ethereal Virtual Summit was held on May 7-8   The closest attention was paid to the upcoming network update of the second largest cryptocurrency in terms of capitalization - Ethereum 2.0. In addition to other innovations, the new version of the network will offer the possibility of staking - earning passive income for delegating coins. At the summit, the latest news was announced about the team's plans to launch the update. When will the possibility of staking coins become available in Ethereum 2.0, how much can you earn from it and what other opportunities will open up for Ethereum users after the upgrade to version 2.0. Spoiler alert: You can't get rich.

Why Ethereum 2.0 will add coin staking

A short educational program for those who do not follow the update of Vitalik Buterin's project. Ethereum has long been in need of updating, and the main problem of the network is scalability: the blockchain is overloaded, transactions are slowing down, and the cost of gas (transaction fees) is growing. If the consensus algorithm is not updated, then the network will eventually cease to be operational. To avoid this, the developers have been working for several years on the transition of the network from the PoW algorithm to the 2.0 state, working on PoS. This should make the network more scalable, faster, and cheaper.
In December last year, the first stage of the upgrade, Istanbul, was implemented in the network, and in April of this year, the Topaz test network with the possibility of staking was launched - the first users have already earned 1%.
In the PoS algorithm, which Ethereum is switching to, there is no mining, and validation occurs due to the delegation of coins to the masternodes of the users' network. During the delegation, these coins are frozen, and users receive a part of the reward for providing their funds for block validation. This is staking - a crypto analogue of a bank deposit. There are several types of staking: with income from dividends or masternodes, but in all of them, it is not the power of the device that is important, as in PoW algorithms, but the number of miner's coins. The more coins, the higher the income. For crypto investors, staking is an opportunity to receive passive income from locked coins.
It is assumed that staking starts:
  •  Makes ETH mining more affordable, but less resource intensive;
  •  Make the network more secure and secure - attacks will become too expensive; 
  • Will create a completely new sector of steak infrastructure around the platform;
  •  Will provide increased scalability, which will create an opportunity for wider adoption of DeFi-protocols;
  •  And, most importantly, it will show that Ethereum is an evolving project.

The first payments to stakers will be one to two years after the launch of the update

The minimum stake of the validator will be 32 ETH (≈ $ 6092 today). This is the minimum number of coins that an ETH holder must freeze in order to qualify for payments. Another prerequisite is not to disconnect your wallet from the network. If a user disconnects and goes into automatic mode, they lose their daily income. If at some point the stake drops below 16 ETH, the user will be deprived of the right to be a validator.
The Ethereum network still has many important milestones to go through before coin holders can make money from storing it. Colleen Myers, head of product strategy at the Ethereum startup developer ConsenSys, said at the last summit that the genesis block of the new network will not be mined until the total amount of frozen funds reaches 524,000 ETH ($ 99.76 million at the time of publication). This is how many coins 16,375 validators should hold with a minimum deposit of 32 ETH. Until then, none of them will receive a percentage of the profit.
Myers noted that this event is not tied to a clear time and depends on the activity of the community. All validators will have to freeze a fairly significant amount indefinitely on the new network without confidence in the growth of the coin's rate. It is difficult to say how many people are willing. The developers reckon it will take 12-18 or even 24 months. According to a  recent report from ConsenSys Codefi, more than 65% of the 300 surveyed ETH owners plan to take advantage of the staking opportunity. This sample is, of course, not representative, but it can be assumed that most large coin holders will still be willing to take risks.

How much can you earn on Ethereum staking?

Developers have been arguing for a long time   about how much profitability the Ethereum 2.0 validators should have. The network's economic model keeps inflation below 1% and dynamically adjusts the reward scale for validators. The tricky part is not overpaying, but also not overpaying. The profitability will be variable, as it depends on the number and size of the stakes, as well as on other parameters. The fewer frozen coins and validators, the higher the yield, and vice versa. This is an easy way to motivate users to freeze ETH.
According to  Collin Myers' calculations in October  , after the launch of Ethereum 2.0, validators will be able to receive from 4.6% to 10.3% per annum as a reward for their stake. At the summit, he specified that the first time after the launch of the Genesis block, it can even reach 20.3%. But as the number of steaks increases, the profitability will decrease. So, with five million steaks, it will drop to about 6.6%.
The above numbers are not net returns. They do not include equipment and electricity costs. According to Myers' calculations, after the Genesis block, the cost of maintaining the validator node will be about 4.75% of the reward amount. They will continue to increase as the number of locked coins grows and, with a 5 million stake, will rise to about 14.7%.
Myers stressed that the profitability will be higher for those who will run on their own equipment, rather than relying on cloud services. The latter, according to his calculations, at current prices can bring a loss of up to minus 15% per year. This, he believes, contributes to true decentralization.
At the end of April, Vitalik Buterin  said that validators will be able to earn 5% per annum with a minimum staking of 32 ETH - 1.6 ETH per year, or $ 304 at the time of publication. However, taking into account the cost of freezing funds, the real profitability will be at the level of 0.8%.

How to calculate the return on staking ETH

The easiest way to calculate the estimated return on Ethereum staking is to use a special calculator. For example, from the online services EthereumPrice or Stakingrewards. The service takes into account the latest indicators of the network's profitability, as well as additional characteristics: the operating time of the node in the network, the price of the coin, the share of blocked ETH, and so on. Depending on these values, the validator's profit can vary greatly.
For example, you block 32 ETH at today's coin price of $ 190, 1% of the coins are blocked, and the node is working 99% of the time. According to the EthereumPrice calculator, in this case your yield will be 14.25% per annum, or 4.56 ETH.
Earnings of the validator from the example above for 10 years according to EthereumPrice. Source .
Let's change the data. You have the same steak, but the share of locked coins is 10%. Now your annual return is only 4.51%, or 1.44 ETH.
Earnings of the validator from the second example in 10 years according to EthereumPrice. Source .
It is important that this is profitability excluding expenses. The real profitability will be much lower, and in the second case it may be negative. In addition, rate fluctuations must be taken into account. Even with a yield of 14% per annum in the ETH, the yield in dollar terms can be negative in a bear market.

When will the transition to Ethereum 2.0 start

Ben Edgington of Teku, the operator of Ethereum 2.0, announced at the last summit that the transition to PoS could be launched in July this year. These terms, if no new delays occur,  were  also called by the experts of the BitMEX crypto exchange in their recent report on the transition of the Ethereum ecosystem to stage 2.0. However, on May 12, Vitalik Buterin  denied the  possibility of Ethereum 2.0 launch in July. The network is not ready yet and is unlikely to be launched before the end of the year. July 30 will mark 5 years after the launch of Ethereum. Unfortunately, it will most likely not be possible to start the update for the anniversary.
The full rollout of updates will involve several phases.

“This is my rough idea of ​​what the next ~ 5-10 years might look like for Ethereum 2.0. The roadmap below reflects my own views, other developers may have a different point of view (I can change my opinion myself)! The details, of course, can change as new information is received or new technology is developed, ”Vitalik Buterin said about the timing of the network renewal in March this year.
Phase 0. Beacon chain.  The "zero" phase, which can be launched in July this year. In fact, this will only be a network check and PoS testing without economic activity, but it will use new ETH coins and there will be a staking opportunity. Phase zero will test the first layer of the Ethereum 2.0 architecture - Lighthouse. This is an Ethereum 2.0 client written in Rust, developed back in 2018.
Phase 1.  Sharding  (Sharding)  - refusal of full node in favor of load distribution between all nodes in the network (shards). This should increase the network bandwidth and solve the scalability issue. This is the first full phase of Ethereum 2.0. Will initially be deployed with 64 shards. It is because of sharding that the transition of the network to a new state is so difficult - existing smart contracts cannot be transferred to a new network. Therefore, at first, perhaps for several years, both networks will exist simultaneously.
Phase 2. State execution. In this phase, various applications will work, and smart contracts can be entered into. This is already a fully functional Ethereum 2.0 network.
After the second phase, two networks will operate in parallel - Ethereum and Ethereum 2.0. Coin holders will be able to transfer ETH from the first to the second without the ability to transfer them back. To stimulate the support of the network, the emission of coins in both networks will grow until they merge. You can read more about the phases of transition to state 2.0 in the aforementioned BitMEX report.

How the network upgrade to Ethereum 2.0 will affect the staking market and the price of the coin

The transition of the second largest coin to PoS will dramatically increase the share of staking in the market. The 32 ETH deposit is too large for most users. Therefore, we should expect an increase in offers for staking from exchanges.
So, the launch of such a service was announced back in November by the   largest Swiss crypto exchange Bitcoin Suisse. She will not have a minimum deposit, and the commission will be 15%. According to the October  estimate  of analysts Binance Research, Ethereum transition to the stage 2.0 can increase the value of the coin and share steykinga market twice, as this will make the ETH most popular currency in the PoS-algorithm.
Adam Cochran, partner at MetaCartel Ventures DAO and developer of DuckDuckGo, has  argued in his blog  that Ethereum's move to 2.0 will be the "biggest event" in the crypto market. He believes that a 3-5% return will attract capital from large investors, and fear of lost profits (FOMO) among retail investors will push them to actively buy coins. The planned mechanism of burning coins on every transaction will reduce the possible oversupply.
However, BitMEX experts in the aforementioned report believe that the network upgrade will not be as important an event as many believe, and will not have a significant impact on the coin rate and the staking market. Initially, this will be more of a testnet of the PoS system, rather than a full-fledged network. There will be no economic activity and no smart contracts, and interest on the stake will not be paid immediately. Therefore, most of the economic activity will still be trapped in the original Ethereum network, which will run in parallel with the new one.
Exchange analysts emphasized that due to the addition of staking, for the first time (short, in their opinion), a large number of ETHs will be blocked on the network. This will most likely limit the supply of coins and drive up the price. However, this can also release some of the ETH blocked in smart contracts, and then the price will not rise. At the same time, the authors of the document are not sure that the demand for coins will be long-term and sustainable. For this to happen, PoS and sharding must prove to be stable and provide the benefits for which the upgrade was intended. But, if this happens, the network will have a wave of coins from the developers of smart contracts and DeFi protocols. In any case, there is no need to expect quick changes. A full transition to Ethereum 2.0 will take years and will not be smooth - network disruptions are inevitable.
We also believe that it is not worth hoping for Ethereum staking as another panacea for all the problems of the coin and the market. Most likely, the network's transition to PoS will not have a significant impact on the staking market, but it may have a positive effect on the price of the coin. However, hoping for an ETH rally ahead of this is too optimistic.

Cryptocurrency Magazine - Crypto Market Updates: Staking in Ethereum 2.0: When to Launch, How Much Can You Earn, and Other Concerns
Staking in Ethereum 2.0: When to Launch, How Much Can You Earn, and Other Concerns
Cryptocurrency Magazine - Crypto Market Updates
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