On blockchain networks like Ethereum, there has to be a way to validate transactions in a decentralized manner, without a centralized authority, such as a bank. Currently, Ethereum, along with other popular cryptocurrencies like Bitcoin, use what’s known as Proof of Work (PoW).
In a PoW system, miners, who use various types of computer hardware like computer processors, graphics cards, and specialized mining devices, use their processing power to solve complex mathematical puzzles in a race to verify new network transactions. By being the first to solve a given puzzle, a miner adds new transactions (which together form a “block”) to the record of all transactions (the “blockchain”). For their efforts, they are rewarded in newly minted crypto like ETH.
PoS on the other hand, is another way of validating transactions (“consensus”) that works differently from PoW. Instead of miners, transaction validators, called validators (or other names like “bakers” on Tezos) lock up or stake their crypto as collateral for the right to verify transactions.
Now you might be wondering, if Ethereum is transitioning to Proof of Stake and getting rid of mining, what’s going to happen to all the miners?
It’s very unlikely that those who have amassed mining equipment over the years will just stop mining once PoS rolls out. They will probably take their mining power to a different blockchain, which will increase the overall hashing, or mining, power of other networks.
Or, if they want to remain part of the Ethereum ecosystem, they might sell their mining equipment to amass more ETH and participate in Proof of Stake consensus.
Either way, miners will have time to decide on the best course of action, since the transition to Proof of Stake will not happen overnight. In fact, the current version of Casper proposes to use PoS on every 100th block that gets validated, which means that ETH 2.0 will likely be a hybrid PoW/PoS blockchain until all the PoS kinks are worked out.
Interested in becoming a validator for ETH 2.0 and want to know what you need? The minimum stake to become a validator in Ethereum 2.0 is 32 Ether, according to Collin Myers, head of global product strategy at ConsenSys, an Ethereum application developer and startup incubator. Myers made the announcement at Devcon 5 (Devcon is an annual Ethereum conference).
Along with knowing what the minimum Ethereum 2.0 stake will be, we also know that the yearly “interest” in staking rewards one will earn for staking on Ethereum will be ~4.6% to 10.3%. While that’s quite a broad range, it’s undeniably higher than the average US savings account interest of 0.09%, as mentioned in our DeFi (decentralized finance) guide - not to mention low or even negative interest in other countries.
If you want a more precise way to calculate potential returns on an Ethereum stake, there is an Ethereum staking rewards calculator called ETH 2.0 Calculator that is set to launch in conjunction with Ethereum 2.0. The model for the calculator is being discussed in a Telegram group called ETH 2.0 Calculator if you’d like to get a clearer preview of what your potential ETH staking rewards might be.
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