Proof of work (PoW) is the current system used by Ethereum and many other cryptocurrencies to secure their networks – it involves using massive amount of computer hardware that supplies hashing power to secure the network.
Proof of stake (PoS) involves groups of validators proposing and voting on the next block, and the weight given to each validator depends on how big their deposit is (their stake). The advantages of this approach include – passive income for Ethereum holders, and a system that is vastly more energy efficient than a proof of work system.
How does Ethereum Proof of Stake “mining” generate passive income for Ether Investors?
A bonded validator is someone who agrees to lock up Ether funds for a certain amount of time, during which they be rewarded with more Ether for voting on blocks. During this time they cannot use the Ether for other purposes.
In effect, this means you will earn a percentage return for locking up your funds as bonded validator, similar to a shareholder receiving dividends for owning shares in a company. Therefore, it will be an attractive method to earn a nice passive income with Ether.
As an Ether Investor, how much can I earn with Ethereum Proof of Stake?
This is not yet decided by the Ethereum core team. Amounts ranging anywhere from 1-15% per annum were discussed internally within the Ethereum development team, however these are not yet fixed.
There is likely to be a minimum amount required to “stake” – 1000 Eth has been mentioned in the past. However, this is:
a) not yet decided
b) likely to be revised downwards after updates (a limit of 32 ETH has been rumoured) and
c) it’s almost certain that proof of stake mining pools will form, meaning you can join a pool with a smaller amounts. These will be similar in concept to how proof of work mining pools operate today – many miners join their hash power together and get a more consistent reward versus going it alone.
When is Ethereum switching to Proof of Stake?
This is currently not yet not decided.
Current estimates – late 2018, or 2019. Be aware that the Ethereum team has been late with planned updates in the past, however they had a good track record of successfully rolling out changes, even if they are later than originally planned.
The Casper update will mainly depend on how the other milestones on the Ethereum product roadmap proceed.