- Operating an Ethereum 2.0 node will generate ETH for you on a monthly basis, but is it better to stake or trade?
- How much can you expect to earn from operating an Ethereum node and how reliable are the earnings?
- Staking could be viable for long term holders, but there are several implications
As part of Ethereum’s switch from Proof-of-Work to Proof-of-Stake with Ethereum 2.0, staking will be available for those who wish to partake. Anyone with at least 32 ETH will be able to operate a node on their own, but will running an Ethereum node be as financially viable as holding and selling the collateral, and what variables should you consider when deciding to stake or not? Our rough guide to Ethereum staking has the answers.
Analyzing the Earnings
Running an Ethereum validator node will, at today’s prices, set you back $9,800. That may seem expensive as an initial outlay, but of course it’s all relative to both the rewards and the value of your portfolio. Initially at least, the annual Ethereum staking rewards will be 17.94% per year. This means that our Ethereum node will be bringing in 0.4785 ETH per month, or 5.74 ETH per year.
At current rates this would equate to $146 per month, meaning an annual return of $1,752. At this rate it would take you over five and a half years to get back your investment before you can even start to make a profit.
Bull Run Needed
Of course, the idea is that the Ethereum price will go up over time. Were it to get back to all-time highs then the monthly return for our node would be in the region of $717, but markets don’t top out and then stay there – as we saw in 2018, they collapse spectacularly. So even if Ethereum were to regain its all-time high or even beat it, it probably won’t hang around for long. Just ask Dash masternode holders, whose masternodes were worth $1.6 million in December 2017…for all of 24 hours.
The ideal scenario for Ethereum node holders is that Ethereum goes on an epic bull run way past its previous all time highs, meaning that the crash that would follow would still see the node paying out nicely. Despite Ethereum’s recent rally we’re still 5x off its high of $1,500, so the chances of making it back to those levels and then having the legs to carry on substantially higher are not great. This means it might take another couple of market cycles before the minimum payouts are consistently good.
Hold or Sell?
On the flip side, if Ethereum were to hit its all-time highs then our node would suddenly be worth $48,000, quite the gain from our $9,800 investment. Does it really make sound business sense to hold onto a node paying out $717 per month (for a couple of days, anyway) instead of cashing out a $38,200 profit?
Another factor that plays into this is tax. In most countries, such as the UK and U.S., cryptocurrency earned from staking or masternodes is counted as regular income, and as such has income tax applied to it. However, crypto trading profits are counted as capital gains, and attract a far lower rate of tax. By the time the node has paid out the same amount as you would have earnt through selling it at those high levels, you will have paid far more tax on the proceeds, as well as waiting a hell of a lot longer.
The only scenario where holding an Ethereum node would be beneficial is if you plan to hold for the long term, say 5-10 years, come what may. In that case, locking the ETH away and adding the monthly rewards to your stack with the intention of selling years down the line could result in a very nice haul when you finally do come to sell. This is a high risk, high reward strategy that needs to take potential security flaws and loss of coins into account as well.
Remember too that you will have to pay tax on your staked ETH without making any ‘real’ money from it if you don’t sell it as soon as it’s earned.
An Ethereum Node Only Favors the Long Player
For most of us then, it seems that locking away our ETH and earning staking rewards will not be as financially viable as holding the same amount of ETH and selling into a bull run. Of course everyone will have their different approaches, and their different levels of bullishness on the project, and it could turn out that in 10 years your Ethereum node is dishing out enough for you to live on.
Still, cryptocurrency remains a risky venture, so pinning all your hopes into one project for up to 10 years rather than taking huge profits when they’re right in front of you is a decision that needs very careful thought, and a strong stomach.