One of the largest shifts in the blockchain world in 2018 will be Ethereum’s move from ‘Proof of Work’ (POW) to ‘Proof of Stake’ (POS). In short, this means that instead of new Ether tokens being mined through physical hardware work they will be distributed almost like interest to existing token holders.
At some point in the near-distant past, while Ethereum traded around $10 a token, the minimum staking amount was set at 10,000 Eth. Since then we’ve seen a 7,000% price rise over 2017, and all but the largest stakeholders can afford to hold the 10,000 minimum. There is hope for the majority however: the minimum is expected to drop over time, and even before then users can join ‘staking pools’ where they club together to meet the threshold.
Pools are common with traditional cryptocurrency mining. It’s impossible for a small-time bitcoin/altcoin miner to solve a block by themselves, so they pool their processing together via websites and share the rewards. Often mining pools will take a small commission, say 10% or so, for the work they have to do maintaining the infrastructure.
The Stakes Are Higher
The problem with a ‘staking pool’ is that you likely have to trust your funds with a third party. Say you join a mining pool, the worst that can happen is the administrator doesn’t pay out, and you lose the work for a few days/hours. With a staking pool, if you have to deposit your Eth, they could potentially run off with the lot.
So, with Eth staking it is important to find a trusted third party. Otherwise it’s not worth risking your existing holdings for an annual return expected to be around 7%.
How Coinbase Can Step In
Coinbase has now become the first point of entry for most newcomers to Cryptocurrency. It allows you to purchase cryptocurrency easily and for a low fee (or no fee, with gdax). Many users keep their holdings within Coinbase itself, rather than risking their own technical knowledge or investing the time to store it securely themselves.
So, who better to implement a fair staking pool than Coinbase? The rewards are obvious – they could charge a small percentage fee for the administration, while not adding much additional risk for users who leave their holdings on the exchange anyway.
When Would We See This Happen?
Coinbase already have quite a lot on their plate. Recently they added bitcoin cash (with a fair bit of controversy!) and they’ve promised to add more coins and ERC-20 tokens in the coming months. Nevertheless, their founder seems to be a great fan of Ethereum, so building a mutually beneficial service would likely be a high priority for the firm.