Proof of Stake (Casper), Ether and Compound Interest gains — Steemit

Proof of Stake (Casper), Ether and Compound Interest gains

in ethereum •  2 years ago
  • Proof of Stake will be implemented via Casper with a rough estimate around the end of 2017
  • Holders in ETH who meet a certain threshold will be able to collect interest just by holding ETH
  • While unconfirmed, I have heard up to 8% interest on holdings paid out in ETH for stakers who meet the threshold
  • Stakers of course can buy more ETH to get compound interest and live entirely off interest on their ETH

What is Compound Interest?



In dividend investing compound interest is the holy grail. It is when you invest your dividends to buy even more shares which pay out even more in dividends. This was facilitated by a mechanism known as DRIP (dividend reinvestment program). It will not be hard to simulate this mechanism in a smart contract on Ethereum allowing compound interest for holders of ETH.

In my stock calculator code tutorial I used compound interest as an example to teach C++ because it is so pertinent and powerful of a concept. Compound interest can make anybody a millionaire or a billionaire.

If Proof of Stake (Casper) is a success there may be no reason to cash out into fiat any more than is necessary to self sustain

In a sense, these ETH tokens could become exponentially more valuable than they are today. $100 per ETH today is meaningless if ETH start paying 8% interest in the form of Proof of Stake. The incentives currently are to cash out only as much as necessary to live because of 40% income taxes, as well as capital gains taxes, etc. In a situation where there is 8% interest on the equivalent of 1 million dollars in wealth, this would mean large crowdsale Ethereum stakeholders might never in their lives exhaust their stakes and simply live off the interest indefinitely. If developers are among these individuals then the developers will in a sense be "set for life" off 8% stake assuming Ethereum is a success and continues growing with their help. For this reason developers and stakeholders will have every reason to expand the pie, continue to grow Ethereum, and maintain it.

Conclusion

The holy grail of crypto assets are the assets which pay the equivalent or interest or dividend rewards. Proof of Stake entices individuals not to cash out, not to sell, and to simply acquire as many tokens as they can over time, to generate compound interest. The key questions will be what is the threshold for being able to stake? What will the process of staking look like and how secure is it from hacks? What will the interest be and whether it is static or variable rate? In any case the main reason most people would want out of Ethereum is to diversify their wealth but even that might not be necessary if Ethereum establishes itself as unstoppable. The fact that many corporations, banks, and other entities are involved in the Ethereum alliance looks interesting but it can also produce a long term result where the biggest stakeholders are the Ethereum Alliance and the original founders, crowdsale holders, and other early stakeholders have sold out into fiat chasing the quick buck.

What would you do if you have to choose between being a lifetime stakeholder via Proof of Stake and selling into fiat for the quick buck? I would assume most people have a price per ETH which they'd decide enough is enough and sell their entire stash? If you do then what price would that be and if you never intend to completely sell and choose to go to the path seeking compound interest then why wouldn't you?

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Wow! This almost makes me want to buy more just reading this! Thanks for sharing!!

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Thanks for sharing! I read some of the initial stuff on Ethereum a few months back and picked up some ETH, but have been busy with work so haven't gotten a chance to read up on the recent developments with Casper. I am hoping things calm down this weekend!

40% tax? where you got that number my brother lol you got me scared.

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If you are of the highest income bracket your capital gains can be as high as 40%. Look it up. Also state capital gains taxes can push it even higher. In California I hear it's 15% on top of that.

References

  1. http://www.moneycrashers.com/irs-capital-gains-losses-tax-rates-deductions/
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You can get your capital gains taxes to be lower but you have to hire an accountant who can track all your gains and losses from trading going back potentially for years. This is not easy to do with the current tools.

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yup,102% correct.

8% Interest...that's SWEEETTT!!!!
I was looking for info on Casper's interest payout.
Do you know if you have to obtain a masternode in order to receive that interest payment?
And what is the payout frequency?

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I believe you do but I'm not certain on any of this because it's not here yet and we need to see it on a test network to know for sure.

Thank You. Very Helpful..!

When will it start, and where can I stake the eth?