Ethereum Proof of Work (Mining) vs Proof of Stake (Staking) Profitability Comparison

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In the third quarter of 2022 Ethereum is expected to switch to Proof-of-Stake. This will put an end to ETH mining on GPUs, and the Minerall Pool where users are actively mining ETH now is no exception. After the upgrade the reward process will involve locking Ether in a special contract. How much will validators earn in Ethereum 2.0 and how much less will it be compared to mining? Let’s get into it.

Ethereum 2.0 is a set of upgrades to the current Ethereum blockchain. First of all, it introduces Proof-of-Stake consensus: validators that stake ETH will replace GPU miners in creating blocks and ensuring the network security.

Eth2 also introduces sharding that will increase the cryptocurrency blockchain bandwidth 64 times. It means that it will be able to handle at least 64x more transactions per second and even more going forward.

The initial phase of transition to Eth2 known as Phase 0 started on December 1, 2020. That was when Ethereum launched its new network called Beacon Chain that activated the Proof-of-Stake mechanism.

Although PoS is more eco-friendly as it doesn’t require a lot of power, miners are not particularly happy about the new consensus algorithm. It will be much less profitable and it doesn’t need GPUs. After the merge of the current network Ethereum 1.0 with Beacon Chain miners will have to use their GPUs to mine other coins. How much less profitable is staking compared to mining?

To answer this question, we found out their profitability and compared them. We also talk about positive and negative aspects of Proof-of-Work and Proof-of-Stake.

Contents

Ethereum’s Staking Profitability

It’s quite easy to find out staking profitability in Ethereum 2.0: the Launchpad webpage displays up-to-date stats. It also contains guidelines for validators willing to help to secure the blockchain and earn rewards.

At the current amount of coins at stake, the annual percentage rate is 5.2%. So if you invest $100 thousand, in a year you will get $105.2 thousand, provided that the cryptocurrency rate remains stable.

There are two ways to stake Ether in the new network: directly or through special services. In the first case, you should have at least 32 ETH and be capable to launch a node. A network node is a piece of software that monitors what happens in the cryptocurrency network, votes for new blocks and gets rewards.

If you don’t have 32 ETH (after all, it’s more than $151 thousand), you can use services offered by special platforms. They gather coins from users and stake them. Then they distribute rewards according to provided shares and charge fees.

For example, Binance is one of the platforms that offer such services. The platform pays out rewards in the form of BETH tokens to Spot wallets.

Advantages of Ethereum’s PoS

Ethereum’s shift to Proof-of-Stake has its advantages. Thanks to PoS, the network can be protected without huge amounts of electricity needed to power GPU mining rigs. As a result, the environment will benefit from it.

For example, the energy consumption of Bitcoin miners is extremely high: it’s comparable to the energy consumption of a small country. With that being said, major industries like construction consume more energy and pollute the environment even more.

Those who live in countries with high electricity rates will appreciate it. Especially in Europe, where electricity rates have recently gone up. Overall, the cryptocurrency industry will benefit from it: just in spring Bitcoin was criticized because of excessive amounts of energy wasted on mining.

Another advantage is node maintenance. It’s much easier to maintain a node than a rig. Plus, if one of the rig parts breaks, it will take you a lot of time to detect the problem. But if you have a node, you just need to upgrade it to the latest version.

06 Apr 2022

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