Staking, Ethereum’s Mining Alternative, Will Be Profitable – But Barely

The Takeaway

  • Ethereum is soon to abandon bitcoin-style proof-of-work (PoS) mining in favor of a long-in-development alternative system called proof-of-stake (PoS), but the economics are still being worked out.
  • Under a proposal by creator Vitalik Buterin, computer operators who validate transactions would be able to earn 5 percent annual on a minimum 32 ETH (~$5,500) investment, or roughly $260, at present prices.
  • The profitability of computer operators who validate transactions is deemed by some analysts to favor those who run their own hardware as opposed to relying on cloud services.

Computer operators helping to validate transactions in a forthcoming version of ethereum – dubbed ethereum 2.0 – will see positive returns on their investment but not much, according to new data.

According to newly proposed numbers by ethereum creator Vitalik Buterin, validators – which are what miners are called in ethereum 2.0 – are projected to earn around 5 percent annually on their 32 ether (ETH) investment. At present ether prices, this would be an annual return of roughly $260.

However, factor in hardware, electricity and other additional overhead costs of running a validator on ethereum 2.0 and the annual profit margin drops down to roughly $41 or a net yield of 0.80 percent. Assuming ether prices at $160, under the old issuance schedule, the net yield would have been -1.87 percent, according to global token strategist for Consensys Collin Myers.

“When you include the expenses of running your own machine in your own home, the net yield is 0.80 [percent],” said Myers to CoinDesk. “So, it’s low but it’s positive compared to the last time it was not positive.”

Validators under a different reward issuance schedule proposed as recently as two weeks ago would have only turned over a profit if they were the first 300,000 or so in the network to stake their tokens. This is because ethereum 2.0’s code would attempt to dynamically incentivize the…

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