How Profitable Would Staking Ether Be Under Vitalik’s Latest Proposal?
Ethereum, the world’s second-largest cryptocurrency by market cap, is currently validated using a proof-of-work mining system. But all that’s about to change, as the token is slated to switch to proof-of-stake, and a new proposal from founder Vitalik Buterin suggests there’s likely to be some profit in it for longtime Ethereum fans.
Proof-of-work consensus uses hardware mining -- computers chugging through complex calculations - to validate blockchain transactions. It’s effective and secure, but it also requires expensive hardware and a lot of processing power. Proof-of-stake blockchains validate transactions by having users stake a set number of tokens, a process that requires only basic computer hardware and little processing power.
But like mining, staking is incentivized by offering a return. Buterin’s latest proposal pegs that number at 5% annually for Ethereum staking, with a minimum of 32 ETH required to be a staking validator and thus earn the 5% return.
Just how profitable this new form of ETH mining is likely to be under this scenario depends on where you live, and what you’ve already got. But let’s take a look at how profitable staking might be if you start from scratch.
First, you’ll need to buy the 32 ETH. As of early May — all calculations in this article are circa early May, with Ether prices around USD$170 — that’ll set you back just under US$5.5k. You’ll also need a computer, although not a very powerful one. Vitalik has said that an “average” computer will be fine, so let’s assume you buy Amazon’s top-selling laptop, which happens to be the $329 Acer Aspire E 15. You’ll also need power for that computer, but again, not much, since staking doesn’t require heavy processing. Assuming an efficient 30 watts/hour of power consumption, running this computer for a year will cost you about $31.50 in the US.
That puts your all-in cost for a year of ETH staking at roughly $5,810.
Your profits, then, are going to depend a lot on what happens to the ETH price. At early May's ETH price of roughly $170, you’ll earn about $242 in a year. That’s enough to cover your electricity costs, but not much else. At that rate, it’ll take you about two decades to earn enough to recover your original investment.
The more the ETH price rises, though, the time it takes you to repay your investment drops proportionally. So if ETH hits $300, you’re down to a dozen years to repay. If it returns to the loft heights of its near-$1,500 all-time-high, you’d have earned back your investment in under two and a half years.
And that’s assuming you’re cashing out your returns to cover your bills. If you re-invest your returns to stake proportionally higher sums of ETH, your returns would come more quickly, although precisely how quickly would depend on details of the ETH staking rewards system that haven’t been ironed out yet.
Long story short: ETH staking probably isn’t worth it if you’re not confident that the token will see a significant price rise after you buy in, assuming you don’t already own enough ETH to start staking without further investment.
If you do already own a significant sum of ETH, on the other hand, staking looks much more appealing. A 5% annual return may not sound like much, but if you’ve already got 32 ETH and a computer, getting that return requires little in the way of effort, and the electricity cost should be minimal enough that you'll be in the black within a few months.