How to make money with staking. Prospects for Ethereum and cryptocurrencies on PoS

Ethereum (ETH), the second-largest cryptocurrency by market capitalization, rose 50% after the publication of a tentative date for the Merge upgrade to move the blockchain to the new Proof-of-Stake (PoS) transaction confirmation algorithm. Amid ETH's rise, the prices of other PoS-based cryptocurrencies also jumped. They include Solana, Avalanche, Algorand, Polkadot, and Cardano.

Experts believe that the cryptocurrency will continue to rise in price in the future. According to Igor Rylnikov, head of partnership development department at EMCD, the transition to Proof-of-Stake will positively affect the value of ETH in the long run, as the PoS algorithm combined with the token burning system will make the asset truly deflationary. This means that the supply of ETH will decrease over time, spurring the cryptocurrency's price to rise.

Ethereum will switch to staking soon. What miners should do and how to earn in the new conditions

Blockchain advisor Denis Smirnov also believes that the switch to PoS should have a positive impact on the coin's exchange rate. In his opinion, the transition to PoS will significantly reduce transaction costs, and therefore make the platform more attractive for developers of smart contracts. The greater the number of smart contracts, the higher the demand for Ethereum tokens required for their operation, the expert notes.

ENCRY Foundation co-founder Roman Nekrasov is confident that the price of ETH will rise after the network moves to PoS. “Within 18-24 months the transaction conductivity and value will improve significantly. This will strengthen the blockchain ecosystem's position in the DeFi market. And then the value of ETH can grow both to $5 000 and $10 000,” the expert predicts.

Mining and staking

The Merge upgrade, will make the network more efficient and, according to the Ethereum Foundation, will make it 99% more environmentally friendly. But the algorithm will also replace the mining that used to generate income for network members. If earlier expensive and complex equipment was necessary to confirm transactions, after the upgrade, a home computer will be enough, and the new way of earning will be staking.

It will probably be easier for mining pools to switch to staking than for individual miners. Companies already have the infrastructure and user support for pooling. Leading Ethereum mining pools are implementing staking solutions. EtherMine, for example, launched a beta version of its staking platform in April of this year.

“The mining pools, of course, are not happy about the fact that Ethereum will soon switch to Proof-of-Stake, but no matter how much they strike against this decision, they will have to accept it and start working in the new conditions. Otherwise, the only way out will be to switch to another cryptocurrency,” Roman Nekrasov explains. According to the expert, the pools will quickly redirect some users to other cryptocurrencies, which continue to work on PoW, and some users to PoS and joint staking.

To stake Ethereum, network users, who are called validators, need to send at least 32 ETH per contract to the Beacon Chain test network. To date, there are 409 670 validators on the network and 13,8 million ETH have been deposited. The more coins a user deposits, the greater the chance of receiving a reward, but the funds cannot be returned until the main network is upgraded.

Currently, the staking reward is 4% per annum and will decrease as ETH is added to the contract. The earlier a validator is created on the test network, the greater the reward for its owner after the Merge upgrade.

In our article, we tell you how many early Ethereum 2.0 investors have staked coins, and why most of them are suffering losses.

To use staking, you don't have to run a full node and stake all 32 ETH. You can delegate any amount of funds through a validator in a pool and earn a share of their income, sharing the risk with them. The advantage of most staking pools is that they allow you to withdraw funds at any time.

The main staking pools

RocketPool is one of the most popular staking pools supported by the developers of MetaMask Wallet. The pool offers staking from 0,01 ETH in exchange for rETH token, the price of which is equivalent to the price of ETH. Payouts of staking rewards occur in the token and work via smart contracts, which increases reliability and allows you to work without intermediaries.

Lido is a staking pool that has been in operation since 2020. In addition to Ethereum, it supports staking of coins such as Solana, Kusama, Polygon, and Polkadot. The pool operates via smart contracts and pays rewards in Lido token (stETH), any amount of ETH can be sent to staking. All major decisions in the pool are made by the pool's own decentralized autonomous organization (DAO), which is the main difference from most pools.

Ankr Staking is a pool from the creators of the platform and the token ANKR. Staking in the pool can be done through the Stkr application starting from 0,5 ETH. The pool works with smart contracts and aETH and bETH tokens. In addition to Ethereum, the platform supports blockchains such as Binance Smart Chain, Avalanche, Kusama, Polkadot, Polygon and Fantom.

Staking is also supported by centralized exchanges, the largest of which are Binance and Coinbase. The disadvantage of staking on exchanges is the centralization and lack of transparency of operations. Withdrawal of funds will be available only after the Merge upgrade, as in the case of independent staking. If in decentralized pools everything is done by smart contracts, here the user will have to entrust the funds to the exchange.

Is it worth investing in PoS coins?

In the short term, the crypto market is likely to remain at the mercy of the bears, Roman Nekrasov believes. According to the expert, investing in coins for staking, especially if it involves freezing them for some period and the inability to quickly withdraw from the deposit contract, is quite risky. “I would act with great caution in this direction and would not advise to send all available Ethers for staking,” the co-founder of ENCRY Foundation cautions.

However, according to Denis Smirnov, it is more logical to buy tokens of projects that can potentially grow in the bear market. Igor Rylnikov also believes that the current situation in financial markets is generally favorable for purchases. “We should take into account the fact that neither stock nor cryptocurrency markets have not yet hit the bottom, and are now in a state of uncertainty. Therefore, further downward movements are not excluded, where you can continue to buy assets,” the expert said, adding that the uncertainty in the markets, according to various estimates, can last another 1,5-2 years.

The investment strategy does not depend on whether the cryptocurrency works on PoS and PoW, according to Alexander Lozben, head of the representative office of the ViaBTC mining pool in Europe and the CIS. “The rules are the same. You shouldn't buy something you don't want to own, and that has no potential in it. Even if the creators promise 1000% per annum, this will not help in case of a rate collapse,” the expert explains. Speaking about the revaluation of capital, Lozben recommends considering the currency you already hold. In his opinion, staking will be an additional bonus to the portfolio, but it is not necessary to adjust it strongly for the sake of coins on the PoS.

According to the expert, the transition of Ether to Proof-of-Stake is not new, and it is unlikely to provoke the growth of cryptocurrencies on the same consensus algorithm. “Already, the price of Ether is built into its transition to another algorithm, and many people are buying coins in advance,” Lozben notes. The expert also does not rule out that in the near future we will still see an increase in the value of Ether, but without negative issuance (token burning), this effect is unlikely to be long-term.