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As Ethereum is finally ready to roll out its Ethereum 2.0 update later this year, ending a long string of delays, the network will begin to move towards a proof-of-stake model.
As a result, the network will abandon the proof-of-work consensus algorithm, leaving Ether (ETH) miners with very few options. As their equipment becomes obsolete, they will be forced to start mining altcoins or recertify as ETH stakers. So what is the current state of ETH mining and what exactly will happen to the industry as a result of the upcoming transition?
GPU v. ASIC
Ethereum’s consensus is currently based on the PoW system, which is similar to that of Bitcoin (BTC). Therefore, the mining process is almost identical for Ethereum, as miners use their computing resources to earn rewards for each block they manage to complete.
However, there is still a big difference between these processes. While Bitcoin mining has become almost entirely dependent on ASICs – large, noisy machines designed specifically for mining cryptocurrencies that are mostly clustered in regions with cheap electricity – Ethereum’s PoW hashing algorithm, called Ethash. , was designed to favor GPU units issued by global chip makers like Nvidia and AMD. GPUs are much cheaper and more accessible than ASICs, as Thomas Heller, the global business director of the cryptocurrency mining pool F2Pool, explained in a conversation with Cointelegraph:
“Since ASICs are very specialized machines, when a new generation is released, it is often a huge technological leap. Hence, their hash rate is much higher and energy efficiency is better than the previous generation. This means that those manufacturers have spent a lot of money researching and developing it. Their machines are often quite expensive, while GPUs are much more affordable. “
Heller added that those using GPU miners “have a lot more flexibility in what you can mine”. For example, an Nvidia GeForce GTX 1080 Ti card – a popular choice – can mine more than 15 different currencies, while ASIC units normally only support one currency.
However, the Ethereum network is not entirely immune to ASIC miners, at least in its current state. In April 2018, Bitmain released Antminer E3, an ASIC made specifically for Ethereum mining. Despite being a very successful model boasting a hash rate of 180 megahashs per second and power consumption of 800 Watts, it has received mixed reactions from the Ethereum community. A substantial portion of GPU platform owners appeared to have suffered loss of profits once the ASICs were connected, while some were even forced to switch to different networks.
“It is in the white paper that ETH must be ASIC resistant. I hope the white paper stands for something ”was one of the main comments on the ar / EtherMining thread discussing the Antminer E3 at the time it was announced. “800 usd for just 180mh” claimed another Reddit user. “Hardfork or die eth.”
Some Ethereum users went on to suggest that Bitmain’s mining device can lead to greater centralization and thus increase the chance of an attack by 51%. Soon, a group of developers proposed “programmatic proof of work” or ProgPoW, an extension of Ethereum’s current algorithm, Ethash, designed to make GPUs more competitive, thus promoting decentralization.
According to a March paper co-authored by Kristy-Leigh Minehan, co-creator of ProgPoW, around 40% of Ethereum’s hash rate is generated by Bitmain ASICs. Alejandro De La Torre, Vice President of Poolin – the sixth largest pool for ETH – confirmed to Cointelegraph that “GPU mining is still dominant” for the Ethereum network, adding:
“At the moment, ETH mining profit is not high and the management threshold and cost of GPU devices are higher than those of Asic devices. Compared to Asic devices, however, GPU devices are more flexible as in, you can switch to other coins with different algorithms “.
ProgPoW has not yet been integrated into Ethereum, and it is unclear when that will happen: In March, core Ethereum developers were debating whether ProgPoW would actually benefit the network for nearly two hours and failed to reach a consensus. Notably, a representative of Bitmain previously told Cointelegraph that the mining hardware giant has no plans to extend the life span of Antminer E3 to operate after October 2020: “As far as we know, mining will end approximately in October. or some time later. “
Secure but unclear future
Indeed, Ethereum will move away from mining in the future. Scheduled to launch later in 2020, Ethereum 2.0 is a major network upgrade on the blockchain designed to move its current PoW consensus algorithm to PoS where miners are virtual and referred to as “block validators”.
More specifically, they are randomly selected taking into account the wealth of users in the network or their “participation”. In other words, the more coins the PoS validators choose to wager, the more coins they accumulate as a reward.
According to Ethereum co-founder Vitalik Buterin, the network will become more secure and expensive to attack than Bitcoin as a result of the transition, although the debate over which consensus algorithm is better has been around in the crypto community for years. However, it is still unclear when the launch of Ethereum 2.0 will take place, as numerous bugs and management issues are delaying the process.
Related: Ethereum 2.0 release date set for 11th hour if problems persist
Another alleged advantage of a PoS system is that it is much more energy efficient than PoW blockchains. According to data from Digiconomist, the total annualized footprint of the cryptocurrency is 59.31 terawatts per hour, which is comparable to the energy consumption of the entire country of Greece. However, Bitcoin may not be as bad for the environment as it seems thanks to a July 2019 report that 74% of Bitcoin mining is done using renewable energy sources.
What will happen to real Ethereum miners? According to Casper’s upgrade documentation which is part of the Ethereum 2.0 roadmap, the network will initially support a hybrid model that would involve both PoW and PoS, thus leaving some room for both block validators and GPU / ASIC miners. . “There will certainly be a transition period where both networks will be active,” Jack O’Holleran, CEO of Skale Network, an Ethereum-based blockchain platform, told Cointelegraph, saying this process will take some time:
“It will definitely take some time for most of ETH1 to switch to ETH2, potentially years, not months. The good news about the slow pace of this transition is that DApp and DeFi platforms will be able to move as they please based on real evidence of feasibility, security and adoption. This is a net positive for the Ethereum ecosystem. “
Mine or not mine?
Once Ethereum works fully on the PoS binaries, miners will have two options. One is to sell the equipment and use that money to accumulate more ETH and start betting, while the other option, available exclusively to GPU miners, is to simply switch to other Ethash networks and mine altcoins. Nick Foster, a representative of US-based mining equipment dealer Kaboomracks, told Cointelegraph that most ETH miners will choose the latter option:
“I’d say most miners aren’t really interested in mining to get ETH or a specific coin. Yes, a certain number is mine and I have it, but I would support the idea that a large population of altcoin miners holds its coins for a certain period of time “.
Foster went on to describe how he switched to mining Ravencoin (RVN), a peer-to-peer blockchain asset from Ethash, with its 3GB GPU unit once becoming unprofitable for ETH mining: “It’s mining raven, and I sell to BTC immediately for good stability and sell to USD to pay for my power immediately afterwards. I would say that many people are adopting a strategy like this. “
As Foster summed up, he expects ETH miners to jump off the grid, while new players – those who haven’t invested in the electrical infrastructure or rigs – will aim for ETH. He described the following scenario:
“I can’t imagine how idiotic I would be if I found a five year lease with $ 0.04 of power, and I was mining ETH and decided to sell everything and keep paying my lease so I could bet on ETH like replacement.”
Marc Fresa, the founder of mining firmware company Asic.to, agreed with this sentiment in a conversation with Cointelegraph: “If you are invested in mining, you don’t want to stake as you have the ability to do so.”
One of the major altcoins that could benefit from PoW miners leaving Ethereum is Ethereum Classic (ETC), a more conservative version of the blockchain that reportedly has no PoS-related plans. Since it also works with the Ethash algorithm, its hash rate could experience a significant spike due to the potential migration of miners caused by the launch of Ethereum 2.0.
Related: Ethereum 2.0 Staking, Explained
The larger mining pools for ETH have similar options. When asked about his company’s post-PoW plans for Ethereum, Heller told Cointelegraph that F2Pool launched a sister company called stake.fish in early 2018, following the announcement of the Ethereum PoS upgrade. As the switch has been delayed numerous times, stake.fish has started offering staking services for other delegated PoS and PoS projects such as Tezos (XTZ), Cosmos (ATOM) and Cardano (ADA). As for Poolin, “it may temporarily give up supporting ETH mining,” as a result of switching to PoS, De La Torre told Cointelegraph.
Other major ETH mining pools, namely Nanopool, Ethermine, Mining Pool Hub, SparkPool, and SpiderPool, did not respond to Cointelegraph’s requests for comment.
Will the rest of the network notice?
As for the Ethereum ecosystem in general, experts assure that the transition to PoS will be conducted smoothly and that network participants – casual users and decentralized applications built on Ethereum – are unlikely to notice the change. Viktor Bunin, a protocol specialist at blockchain infrastructure company and a member of the Libra Association Bison Trails, echoed this sentiment in a conversation with Cointelegraph, adding:
“The Ethereum mainnet we know today should be added as a snippet on ETH2 in phase 1.5. All that will change is the consensus mechanism, so DApps and users shouldn’t notice any changes.”
Bunin went on to say that: “Any concerns that the network will split, with some people remaining in the PoW chain or that DApps will experience disruption, are exaggerated.” Additionally, O’Holleran told Cointelegraph that “ETH 2 is a new network that will run on a new token and a new inflation model,” elaborating:
“The connection is that it will all be composable and compatible with the Ethereum ecosystem and that the tokens of the first network can be mastered and replaced with the tokens of the second network. This means that DApps and users will not be directly affected until they manually switch networks. The indirect and immediate impact will be in relation to how the offer and the perceived value affect the price of the tokens on both networks. “
For now, it is clear that there should be no shortage of Ethereum block validators. According to a recent relationship From cryptocurrency analytics firm Arcane Research, the number of Ethereum wallet addresses that include or exceed 32 ETH – the minimum amount required for staking – is approaching 120,000.
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