Upgrades to the ethereum network could turn crypto staking into a $40 billion industry by 2025, JPMorgan says

• Ethereum network upgrades could help the crypto staking industry boom to $40 billion by 2025, JPMorgan said.
• It could also see Coinbase earn around $500 million in revenues in just over four years' time.
• Ethereum is currently overhauling the way validation and rewards are carried out on the network.

Major upgrades to the ethereum network could help turn crypto staking into a $40 billion business by 2025, according to analysts at JPMorgan.

The staking industry - in which users earn cryptocurrency by putting up their own tokens to validate transactions - is currently worth around $9 billion, JPMorgan analysts, led by Kenneth Worthington, said in a note on Wednesday.

But that industry could grow to $20 billion after the ethereum network moves to a staking system, likely within the next year. And it could then boom to $40 billion by 2025, providing opportunities for crypto holders to earn a reliable yield, JPMorgan said.

Worthington and his team also said they see Coinbase potentially earning around $500 million a year in revenues from staking by the end of 2025.

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"We see staking as a growing revenue stream for cryptocurrency intermediaries such as Coinbase and a source of income for retail and commercial owners of cryptocurrencies utilizing the proof-of-stake protocol," the note said.

"The opportunities to 'earn' will grow meaningfully with the ethereum merge anticipated for later 2021, which will boost the size of the proof-of-stake ecosystem."

Developers plan to shift the ethereum network, which runs the ether cryptocurrency, from a so-called proof-of-work mechanism to a proof-of-stake system towards the end of 2021, or in early 2022, as part of the ethereum 2.0 project.

Under proof-of-stake, users put forward a certain amount of cryptocurrency and in return get the right to validate transactions on a network. They earn more tokens in the process, delivering a yield on their initial stake.

The system differs from bitcoin's energy-intensive system, which is also currently used by ethereum, where computers solve complex mathematical puzzles to validate transactions.

JPMorgan's analysts praised the staking model and its opportunities for investors. "We see the ability to earn a positive real return as one of the factors driving the cryptocurrency market to become more mainstream," they said.

However, the analysts said there are risks. One is that staking locks up a user's cryptocurrency holdings for a period. Prices could tumble, but the user would be unable to sell. Another is that users could fall victim to fraud if staking on unreliable networks.