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Examining Ethereum’s Move to Proof-of-Stake

 

The wait is finally almost over. After nearly a year of speculation, the Ethereum network is finally on the cusp of a transition from a Proof-of-Work to a Proof-of-Stake Consensus Algorithm. In fact, research has finally surfaced on just how much stakers can expect to earn.

 

According to CoinDesk, this comes down to the first million or so network participants who stake, turning a profit. After taking a look at the primary source that was cited from the Ethereum development community, however, it becomes clear that the reality is a bit different.

 

With a simple table, Ethereum developers have illustrated how the first million Ether that is staked on the network will earn the highest interest at just over 12% per annum. The principal problem with this seems to be that this interest rate represents that of the overall Ethereum network, with only one million Ether staked on it.

 

Once that number rises to, say, 10 million Ether staked, the network’s yearly average rate of return will be just under 4%. With certain Masternode dependent networks like Dash boasting average returns of around 10% per year, it is hard to say how validators will be incentivized to stay on the Ethereum network.

 

Since the network is not live in its’ staking state yet, there is still time to answer this key question. In going back to CoinDesk’s primary source on the subject, it’s clear that the development community is already considering it. Hopefully, before we reach “Serenity,” validators will be convinced that sticking with the Ethereum network for the long-term means locking in a long-term profit.

 

If not, developers may have to go back to the drawing board and re-examine the network’s economics once again. For the sake of the greater crypto market, let’s hope it doesn’t come to that.

 

 

By: BGN Editorial Staff

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