Ethereum Creator Vitalik Buterin Proposes Increased Staking Rewards for Ethereum 2.0

Vitalik Buterin, the creator of Ethereum, has suggested that users will receive greater rewards for the ETH that they stake than what was initially proposed. On GitHub, Buterin posted a comment that explains his proposed changes. He also includes a chart that indicates how many new ETH tokens will be generated and distributed to stakers once Ethereum 2.0 goes live.

This means that staking could be more profitable than previously expected (although profits will also be influenced by the total amount of ETH staked by all users). Yet since staking reward tokens must be created anew, Ethereum could see greater inflation as well. As such, rewards and inflation must be balanced against one another.

Targets For Staking

Justin Drake of the Ethereum Foundation believes that Buterin’s proposal is reasonable assuming that Ethereum targets a total of 32 million staked ETH. This would set base inflation to 1% per year and base return to 3.2%. Drake adds that if less than 32 million ETH is staked, it would be reasonable to double Ethereum’s base inflation.

This raises the question of whether 32 million ETH or less will actually be staked. Trustnodes believes this is achievable: it argues that 5-10 million staked ETH is probable, even accounting for large entities that could engage in staking, such as Coinbase Custody. Still, some critics want to see an expert economic analysis of the numbers.

Other Adjustments

During the transition to staking, Ethereum has been phasing out its current proof-of-work mechanism by reducing mining rewards. As part of its latest upgrade, Ethereum has reduced mining rewards from 3 ETH per block to 2 ETH per block. This change has two effects: it reduces inflation and slightly discourages mining.

In addition to reductions in the number of tokens that are created, other factors could affect Ethereum’s supply and demand. Drake has noted that Ethereum’s gas fees will become lower with the introduction of sharding and that some gas will be burnt (ie. destroyed) as well. These changes will mitigate inflation to some extent.

Still, it is hard to say whether Buterin’s precise numbers will actually be enacted, as staking will not be widely used until Casper is introduced in Ethereum 2.0. Buterin has recently said that this upgrade is right on schedule. However, Ethereum 2.0 is still some time away, so its precise reward scheme could change again in the meantime.