Ukrainian crypto trading company SpangBit, which has been active in the cryptocurrency market since 2019, announced the placement of 3,200 ETH (with a total value $1,900,000) on the Ethereum 2.0 deposit contract, which allows the launch of 100 validator nodes.
Aleksandr Pan, the founder of the company SpangBit, explains it as follows: “First of all, we make this step in order to diversify our business, and to develop two strategies of investing in cryptocurrency in parallel, i.e. active cryptocurrency trading in the market, and “buy and hold” strategy, providing for passive income from holding of cryptoassets.”
It is worth taking a closer look at what Ethereum 2.0 is all about. It is a new decentralized blockchain network launched on December 1, 2020. Its main distinguishing feature is the change of consensus from Proof-of-work to Proof-of-stake. In other words, all cryptocurrency transactions are now handled by miners, which can be any user who provides his/her hardware for computing operations. However, this entails a number of unresolved problems, such as:
– low transaction speed;
– high energy consumption;
– concentration of a large part of production capacity in one hand.
This can be solved by switching to the Proof-of-stake algorithm, which is the basis of Ethereum 2.0. In other words, users will be able to contribute their Ethereum tokens to validate blocks and get rewarded for it. This process is called “staking.” The developers hope that this approach will optimize the validation process and speed up transaction processing on the Ethereum network.
Staking can be compared to a bank deposit continuously generating passive income for ETH holders. However, in order to receive staking, one needs to have validator nodes, each of which is equal to 32 ETH. At the moment, the annual yield from staking is unknown, but according to the project roadmap, it will range from 18.1% to 1.81%, depending on the amount of ETH mined and the validators. The network launch will take place in several stages. At the last stage, the Ethereum network will become a part of Ethereum 2.0.
The following nuances should are important:
– coins that were transferred from the Ethereum network to the Ethereum 2.0 network (which is the only way to become a “stacker”) are frozen in the Ethereum 2.0 network until the last transition step, and cannot be withdrawn or transferred to the Ethereum network
– when it becomes possible to withdraw the frozen funds, it cannot be done instantly. The cryptocurrency withdrawal process will take at least 18 hours. This period can be extended if a lot of users request token withdrawal at the same time, as stated in the project roadmap. Accordingly, if ETH price starts to fall, it will be impossible to sell it instantly. Thus, there is a risk of losing some capital and all of the income generated by stacking.
As Mr. Pan notes, “We couldn’t help but react to the launch of Ethereum 2.0 cryptocurrency. From an investment point of view, we see a great prospect in this model, as it does not require substantial investments in computing power, as well as their depreciation, which is highly critical for the Proof-of-work model.
Globally, it is similar to a bank deposit with yields ranging from 18.1% to 1.81%, in exactly that sequence, as the yields from stacking will decrease in parallel with the network expansion. Accordingly, the earliest investors, including us, will receive the highest returns. At the same time, this network is still in its inception stage, we are simultaneously continuing our business of trading in the other types of cryptocurrencies.
SpangBit currently receives 1.04 ETH ($ 580) in reward per day, which is about (adjusted for the reduction) 320-340 ETH per year (at the current exchange rate of about $193,000). We are also interested in the fact that, in addition to the income from staking, the value of ETH itself as a crypto-asset will grow, caused by the fact that some ETHs will be frozen for the launch of the new Ethereum 2.0.”
As of the date of this article, the number of stakers on the Ethereum 2.0 network has reached 89,278 (2,856,898 ETH). On the date of the Ethereum 2.0 launch (01.12.20), there were 21,700 (700,000 ETH) validators in the network. The annual yield is 9.3%, but as the number of validators increases, the validation fee decreases. When there are 100,000 (3,000,000 ETH) validators in the network, the yield will be 9%. As of today, approximately 1.5% of issued ETH has been moved to the ETH 2.0 deposit contract.