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Staking network of blockchain Ethereum 2.0: when will start and what will be the income?

At the beginning of may was online summit Ethereum developers Ethereal Virtual Summit. The most attention it was given the coming upgrade of the network, the second by market capitalization of cryptocurrency — Ethereum 2.0.

Among other innovations, the new version of the network will be the ability of staking earnings passive income for delegation of coins. The summit was announced the latest news about the team’s plans regarding the launch of the update.

When Ethereum 2.0 will be available for staking coins, how much it can earn and what other possibilities open to users of Ethereum (ETH) after upgrading to version 2.0, understood Spoiler: to get rich will not work.

Why Ethereum 2.0 will add stacking tokens?

A brief educational program for those who do not follow the update of the project Vitalik Buterin. Ethereum has long been in need of updating and the main problem of the network scalability:

  • the blockchain is overloaded
  • the transaction is slowing,
  • the cost of “gas” (Commission per transaction) increases.

If you don’t update algorithm, consensus, the network will ever cease to be operational. To avoid this, developers have several years working to transition the network from a PoW algorithm in as 2.0, running on PoS. This should make the network more scalable, faster and cheaper.

In December last year, the network had implemented the first stage of the upgrade — Istanbul. And in April of this year I was running a test network of Topaz with the possibility of staking first users have already earned 1%.

In the PoS algorithm, which goes Ethereum, there is no mining per se, but the validation occurs through the delegation of masternode coins network users. At the time of the delegation of these coins are frozen, and for the provision of its funds to validation blocks users receive part of remuneration. This is taking — this crypto is similar to a Bank Deposit.

There are several types of staking: from income from dividends or mastered, but all of them important, not the power of the device, as in a PoW algorithm, and the number of coin miner. The more coins, the higher the income. For crypto investors staking is an opportunity to receive passive income from the blocked coins.

It is expected that the launch of staking:

  • Will make the ETH prey more accessible, but less resource-intensive;
  • Will make the network more protected and safer attacks will become too expensive;
  • Will create a completely new infrastructure of steaks around the platform;
  • Will provide increased scalability, which will create the opportunity for a wider implementation DeFi-protocols;
  • And, most importantly, show that Ethereum is a developing project.

The first payments to steneram will be only after 1-2 YEARS after starting the upgrade!

Minimum steak validator will be 32 ETH (≈$6092 for today). This is the minimum number of coins that should freeze the holder of the ETN in order to qualify for payment.

Another prerequisite is not to disable your wallet from the network. If a user disconnects and goes into automatic mode, he loses his daily income. If at some point the steak will fall below 16 ETH user will lose the right to be a validator.

The Ethereum network must undergo many important stages before the coin holders will be able to earn on its store. Head of product strategy in a startup Ethereum developer ConsenSys Colleen Myers at the summit said that the Genesis block of the new network will not be produced until then, until the total amount of frozen funds will not reach 524 000 ETN ($99.76 million at the time of publication). So many coins should hold 16 375 validators with a minimum Deposit 32 ETH. Up to this point none of them will not receive any percentage of profits.

Myers noted that this event is not tied to a fixed time and depends on the activity of the community. All validators will have to freeze a considerable sum for an indefinite period in a new network without confidence in the growth rate of the coin. It is difficult to say how many people will want. The developers believe that it will take 12-18 or even 24 months.

According to a fresh report ConsenSys Codefi, more than 65% of the 300 respondents of the owners of the ETH planning to use the opportunity of staking. This sample is certainly not representative, but it can be assumed that the majority of large holders of coins still to be willing to take the risk.

How much can you earn staking Ethereum?

Developers have long been arguing about what the yield should be from validators Ethereum 2.0. Economic model the network maintains a level of inflation below 1% and dynamically sets the scale of remuneration for validators. The trick is not to overpay, but not to pay too little.

Yields will be variable, as it depends on the number and size of steaks, as well as other parameters. The less frozen coin and validators, the higher the yield and Vice versa. This is a simple way to motivate users to freeze ETH.

At the October calculations Collin Myers, after the launch of the Ethereum 2.0 validators can get from 4.6% to 10.3% per annum as remuneration for his steak. At the summit he said that the first time after the launch of the Genesis block, it can be up to 20.3%. But the growth in the number of steaks yield will be reduced. So, if it is steak it drops to about 6.6%.

The above figures are not net return. They do not include the costs of equipment and electricity. According to estimates Myers, after the Genesis block the cost of maintaining the node the validator will be approximately 4.75% of the amount of remuneration. They will continue to increase as growth in the number of blocked coins and when the five millionth steak will grow to be about 14.7%.

Myers stressed that the yield will be higher in those who will work on their own equipment, and not to rely on cloud services. The latter, according to his calculations, at current prices, can incur a loss of up to minus 15% per year. This, he believes contributes to true decentralization.

At the end of April Vitalik Buterin saidthat the validators will be able to earn 5% per annum with a minimum stacking 32 ETH — ETH 1.6 per year, or $304 at the time of publication. However, given the cost of freezing funds, the real return will be at the level of 0.8%.

How to calculate the yield from staking ETH?

The easiest way to calculate the expected yield of staking Ethereum is to use a special calculator. For example, online services or EthereumPrice Stakingrewards. The service takes into account the past profitability of the network as well as additional characteristics: the nodes in the network, the coin price, share blocked ETN and so on. Depending on these values, the profit of the validator can vary greatly.

For example, you block 32 of the ETN on the current price of the coins — $190, 1% of the coins locked, as Noda works 99% of the time. According to the calculator EthereumPrice, in this case, your return will be 14.25% per annum, or 4.56 ETH.

Заработок валидатора из примера выше за 10 лет по данным EthereumPrice

Change data. You have the same steak, but the proportion of blocked coins is 10%. Now it’s your annual yield — total 4.51%, or 1.44 ETH.

Заработок валидатора из второго примера за 10 лет по данным EthereumPrice

It is important that it yields without considering the costs. The real return will be much lower and in the second case can be negative. In addition, it is necessary to consider the fluctuation. Even assuming a yield of 14% in ETN, the yield in dollar terms can be negative in a bear market.

When will start the transition to Ethereum 2.0?

Ben Edgington from Teku, operator Ethereum 2.0, at the last summit said that the transition to PoS can be launched in July this year. These deadlines unless a new delay, called and experts of the crypto currency exchange BitMEX, in his recent report on the transition of the Ethereum ecosystem to the stage of 2.0.

However, on 12 may acne Buterin denied the ability to run an Ethereum 2.0 in July. The network is not ready and is unlikely to be launched before the end of the year. On 30 July will be 5 years after the launch of Ethereum. Unfortunately, to start the update for the anniversary, apparently, will not.

Full deployment will consist of several stages.

Дорожная карта Ethereum 2.0

“This is my rough idea of how to look for the next ~5-10 years for Ethereum 2.0. The road map below reflects my own views, other developers may be a different point of view (I can change my mind)! Details, of course, can change as new information or the development of new technologies”, — commented on the timing of network updates acne Buterin in March of this year.

  • Phase 0. Beacon chain. The “zero” phase, which could be launched in July this year. In fact, this is just a test network and test a PoS without economic activity, but it will use the new coins ETH and will have the opportunity of staking. The “zero” phase will test the first layer of the architecture of Ethereum 2.0 — Lighthouse. It is the customer Ethereum 2.0 on the Rust language, developed in 2018.
  • Phase 1. Sharding (Sharding) — the refusal of full nodes in favor of distributing the load among all the nodes (shards). This should increase network capacity and solve the problem of scalability. This is the first full stage Ethereum 2.0. Will initially be deployed with 64 shards. Because of sharding the network transition to a new state so difficult — the existing smart contracts cannot be transferred to the new network. So the first time, years probably, will simultaneously exist both networks.
  • Phase 2. State execution. In this phase you earn a variety of applications, and you can enter into smart contracts. This is a complete working network Ethereum 2.0.

After the second phase will be to work in parallel two network — Ethereum and Ethereum 2.0. Holders of coins will be able to translate ETN from first to second without the ability to translate them back. To stimulate network support issue coins in both networks will continue to grow until they are merged. Read more about the phases of the transition to 2.0 as can be read in the aforementioned report BitMEX.

As the upgrade of the network to Ethereum 2.0 will affect the market of staking and price of coins?

The transition of the second capitalization on the PoS coins will dramatically increase the proportion of staking on the market. Deposit 32 ETH is too large for most users. So expect a growth of supply in staking from the exchanges.

So, the launch of such service in November announced the largest Swiss crypto currency exchange Bitcoin Suisse. It will not have a minimum Deposit, and the Commission will be 15%. According to the October estimates of analysts of the leading crypto currency exchange Binance, the transition to the stage of Ethereum 2.0 can increase the coin value and the proportion of staking on the market twice, as it will make the ETH the most popular currencies in the PoS algorithm.

Adam Cochran, partner MetaCartel Ventures DAO and the developer DuckDuckGo, in his blog cited arguments in favor of the fact that the transition to the state of Ethereum 2.0 will be the “biggest event” of the stock market. He believes that a yield of 3-5% will attract the capital of large investors and fear loss of profit (FOMO) among retail investors will push them to active buying coins. Planned burning mechanism of coins in each transaction will reduce the potential oversupply.

However, experts BitMEX in the above-mentioned report believe that the network refresh will not be as important event as it appears to many, and will not have a significant effect on the rate of coins and the market staking. Initially it will be more testnet PoS system, not a full-fledged network. It would not be economic activity, and smart contracts, and interest on the steak will be paid immediately. Therefore, the majority of economic activity is still enclosed in the original Ethereum that will work in parallel with the new.

Stock exchange analysts stressed that because of the addition of staking the first time (short, in their opinion) a large number of ETN will be blocked in the network. Most likely, this will limit the offer for the coins and will lead to higher prices. However, this can also release some locked in smart contracts ETN, and then the price rises. The authors of the document do not believe that the demand for the coins will be long term and sustainable.

To make this happen, PoS and sharding have to prove that they work consistently and provide the benefits for which the upgrade was started. But, if this happens, the network will face a wave of coins from the developers of smart contracts and DeFi-protocols. In any case, rapid changes can be expected. Full transition to Ethereum 2.0 will take years and will not be smooth — network outages are inevitable.

We also believe that hope for staking Ethereum as the next panacea for all problems of the coins and the market is not worth it. Most likely, the transition network at PoS will not have a significant impact on the market staking, but may have a positive effect on the price of the coin. However, rely on rally ETH in anticipation of this too optimistic.

Publication date 14.05.2020
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