The investment bank has its eye on ETH 2.0 - and analyses what staking means for the crypto industry.
JP Morgan, one of the largest investment banks in the world (and one that has been sceptical of the cryptocurrency industry), believes in the possibilities that staking offers. Staking is a more energy-efficient way of creating and distributing cryptocurrencies.
The New York City-based bank writes in a report that cryptocurrency staking overall "makes the crypto ecosystem more attractive as an asset class". This is because staking could be an important source of revenue for private and institutional investors, the bank says.
But what is staking? And why is a bank like JP Morgan talking about it?
JP Morgan suddenly pro-crypto
Staking is a system in which users agree to lock up money on a network to help it validate transactions. This type of crypto network runs on a principle called Proof of Stake. This is different from Proof of Work - the system used by Bitcoin, the largest cryptocurrency.
Proof of Work is used by many other cryptocurrency networks - including still Ethereum - to validate transactions. It works by using many computers to solve complex puzzles, which in turn keep the network running smoothly.
There's just one problem: it uses huge amounts of computing power and can therefore be harmful to the environment if that power depends on energy sources like coal. The carbon footprint of Bitcoin (and other currencies) is a hot topic at the moment, but proponents of Bitcoin mining argue that much of the energy used to keep the network running is renewable - and that any potential dangers are ultimately worth it to keep the network secure.
Proof Of Stake is becoming more attractive
But beyond Bitcoin, a number of other cryptocurrencies use the proof-of-stake system. This is more environmentally friendly as it does not require "mining" to create and distribute the native currency of a particular network. Ethereum, the second largest cryptocurrency by market capitalisation, is in the process of an upgrade where it will soon use proof-of-stake instead of proof-of-work. That, in turn, means the end of Ethereum mining.
And JP Morgan writes in its new report, A Primer on Staking-The Fast Growing Opportunity for Cryptocurrency Intermediaries and Their Clients, Proof of Stake will become more attractive once the Ethereum upgrade is complete-and that ETH could become a $40 billion industry by 2025. The report comments:
"We estimate that staking is currently a $9 billion business for the crypto economy, will grow to $20 billion after the Ethereum merger, and could grow to $40 billion by 2025 if Proof of Stake becomes the dominant protocol."
The bank adds that crypto intermediaries like Coinbase will make more money if Proof of Stake becomes popular. Coinbase, the largest crypto exchange in the US, could generate up to $500 million in staking revenue by the end of 2025, the report said.
Coinbase allows customers to stake their cryptos
Proof-of-stake crypto assets, which include Polkadot and Cardano, could also increase in value, JP Morgan said.
"As staking becomes more commonplace, we think it could drive interest and market capitalisation of proof-of-stake cryptocurrencies higher."
JP Morgan has previously been anti-crypto. CEO Jamie Dimon, famous for his anti-Bitcoin stance in 2017, called BTC "a scam".
The American multinational is now more openly pro-crypto and regularly talks about digital assets.