Ethereum Upgrades Could Jumpstart $40 Billion Staking Industry, JP Morgan
Ethereum upgrades could jumpstart a $40 billion staking industry, according to a JP Morgan report. JP Morgan estimates that the staking industry is currently worth $9 billion and that this number could balloon to $40 billion by 2025.
The report speculates that the launch of ETH 2.0 would lead to more adoption of the coin and could increase staking payouts to $20 billion in the first years of the launch. While $40 billion is a number that could be reached by 2025.
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The report was from two JP Morgan analysts who stated that the returns from staking are an attractive investment in this zero rate climate. Referring to the low-interest rates being given by banks on customer savings.
Introducing Ehereum 2.0
ETH 2.0 is an upgrade to the Ethereum network that will help to improve network security and provide more scalability. ETH 2.0 aims to improve the overall efficiency of the network by introducing sharding to the mix. Sharding is simply a process of splitting a database into smaller pieces so the network is better able to accommodate more load.
The ETH 2.0 upgrade will move the network from proof of work to proof of stake. Drastically reducing the amount of energy required to mine the coins and confirm transactions on the network.
Since proof of work requires machines to solve mathematical equations to confirm transactions on a network, the amount of energy it consumes is tremendous. Bitcoin and Ethereum mining still use proof of work mechanisms, leading to growing concerns about energy consumption in the crypto mining industry. Mining is purported to be the 33rd largest consumer of energy in the world.
Current total DeFi market cap | Source: Crypto Total DeFi Market Cap on TradingView.com
Proof of stake on the other hand achieves the same result of confirming transactions on the blockchain sans solving complex mathematical equations. Proof of stake allows holders of a coin to be validators of a transaction. The mechanism uses a pseudo-random selection process to select a node to be the validator for the next block.
According to the Ethereum website, this will happen in three stages. The first is the Beacon Chain. The Beacon Chain is already live and with it came staking. It will also lay the groundwork for future upgrades and coordinate the entire system.
Next is the Merge. This will be the merging of the Mainnet Ethereum with the Beacon Chain. The merge is estimated to go live in 2021.
Lastly will be the addition of the shard chains. Shard chains will increase the capacity of Ethereum to process transactions and store data. ETA for the addition of shard chains has been set at 2022.
Staking Pays Significantly More Yield
The report went in-depth about why staking might be the new preferred way of investing. Staking provides up to 13% yield on crypto balances, and more in some cases. Compared to traditional banks and investments like bonds, this is a much more attractive investment opportunity for investors.
“Yield earned through staking can mitigate the opportunity cost of owning cryptocurrencies versus other investments in other asset classes such as U.S. dollars, U.S. treasures, or money market funds in which investments generate some positive nominal yield.” – JP Morgan analysts report on staking.
The report also pointed out that rewards from staking could be a way to mitigate against inflation. The rise of staking as a way of earning passive income will be on the rise.
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Already, current market capitalizations of staking tokens have already exceeded $150 billion. And this number will only continue to grow as staking becomes more mainstream.
JP Morgan has been looking to give customers crypto options despite their CEO Jamie Dimon not being in support of crypto. Reports are that the company is preparing to offer customers a Bitcoin fund.
Featured image from CYBAVO, chart from TradingView.com