Ethereum Staking And The Scramble For Passive Income
The race is on right now for who can accumulate the most Ethereum, and the reason for the mad rush is due to the potential for passive income related to staking.
It has made the cryptocurrency a favorite among institutional investors, and even the likes of Mad Money’s Jim Cramer is said to have sold his BTC, but is holding his Ethereum strong due to its currency-like qualities.
Staking Ethereum is not for the faint of heart, as it requires a sizable up front investment in ETH holdings to enable the features. Alternatives are appearing as the solution grows in popularity, but it still requires some investment in Ethereum and therefore any risk associated with the cryptocurrency.
Here is why passive income is so important, how the proof-of-stake cryptocurrency Ethereum enables such revenue streams, and how you can get involved in Ethereum staking also.
Table of Contents
What Is Ethereum? An Overview Of The Top Altcoin
Ethereum is a foundational blockchain layer which much of the cryptocurrency industry is built on top of today. Ether (ETH) is the native cryptocurrency token to the blockchain. It was designed to offer smart contracts as part of transactions. These transactions require ETH in gas fees to send or interact with certain decentralized applications running on smart contracts. Smart contracts are executable code that serves as an agreement between two parties.
What Is Staking? Proof-Of-Stake And Generating ETH
Ethereum uses a proof-of-stake consensus algorithm to secure the blockchain versus the energy intensive proof-of-work system Bitcoin uses. Rather than relying on expensive machinery to operate and mine for BTC, with Ethereum, token holders must stake ETH to become validator nodes.
Validator nodes secure the blockchain and confirm transactions, and are rewarded with a portion of ETH gas fees. Essentially, by staking ETH, additional ETH is generated for the user staking the Ethereum.
Staking Versus Mining And The Cost Of ETH Staking
Although mining for Bitcoins can be expensive due to the ongoing energy costs and the upfront machinery requirements, staking Ethereum isn’t cheap either. Currently, at a market price of slightly over $3,000, the 32 ETH requirement for staking clocks in at around $100,000 total worth of the cryptocurrency.
If you hold Ethereum for the long haul anyway, staking ETH in the ETH 2.0 smart contract makes sense. But if you are approaching this for the first time that is a large investment to make in one crypto asset. By investing so much in ETH, there is much risk involved, especially at the current location of the market cycle. The top might not be in, but the bottom of the bear market was long ago at this point, so the best buying opportunities are now in the past.
Passive Income Versus Other Ways To Profit In Crypto
While the most common way to profit from the altcoin remains to be trading Ethereum (ETH), staking ETH in a smart contract can also lead to passive income through an APY paid in more ETH. Obtaining more ETH can be used to bolster holdings in crypto, or be cashed out for passive income.
However, you can’t really compare passive income with staking to trading crypto or even investing. For one, as we’ve explained, by staking you must be invested in ETH in the first place. You cannot stake crypto tokens without owning the assets. Plus, with the right trading strategy and market swings, there is simply no comparison to trading crypto due to its constant market volatility.
Passive income instead is a means of getting the most out of your money, and having your crypto assets you already hold work for you.
EIP-1559 And The Scramble For More Ether Explained
The recent modern day gold rush for Ethereum isn’t only due to staking, but due to a compounding situation that is only further enhanced due to staking. Not only are institutional investors dashing to load up on ETH for staking purposes because they can afford the sizable up front costs and potential downside risk, but they are in fear of the supply disappearing before their eyes.
A recent EIP-1559 upgrade has resulted in ETH being burned and taken out of the circulating and total supply. With an asset already as scarce as just 100 million coins, and burning them at a rate of thousands of ETH per day, simply running out of supply is a very real fear.
With what limited supply that’s available being locked up in smart contracts for ETH staking or DeFi, there could be very little ETH left on exchanges in the future.
The Future Of Ethereum And Cryptocurrencies
Without Bitcoin, the crypto industry would not exist today. But without Ethereum, most of the crypto market would be very different also. There would be far less altcoins, fewer NFTs, and DeFi might not be the same at all.
These technologies are all built on top of Ethereum, which is why it is becoming so important to the financial landscape. With more and more built on top of this blockchain and less and less of it to go around, the cost per ETH could rise exponentially unlike ever before.
Crypto platforms have already begun more closely integrating Ethereum and related products into their services and Wall Street could be next. For example, PrimeXBT recently brought ETH and ERC-20 tokens to the award-winning margin trading platform as a base currency. The platform also introduced COV token staking to unlock utilities within the Covesting ecosystem. These tools include the copy trading module, and in the future will offer Covesting Yield Accounts that offer the benefit of staking and passive income, but without the substantial 32 ETH staking requirement.
Smaller ETH 2.0 smart contract setups are being created, but it requires trusting a third-party with your assets and forking over a portion of the earned fees in exchange for the lower barrier to entry. If you can’t afford the 32 ETH now, waiting for Covesting Yield Accounts to debut later this year could instead be worth the wait. Covesting Yield Accounts are currently pegged for a Q3 2021 launch and more information is expected soon.
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