[AMA Digest] A Doomsday Dilemma for Miners

• Ethereum Miners have begun dumping their GPUs ahead of the impending Merge, with many wary about the profitability of their activities after Ethereum’s transition to a PoS network.
• Mining pools have also likewise started to diversify their operations portfolio, offering staking services alongside PoW mining.
• The shrinking of the mining industry is likely to lead to a more competitive market for miners, who now have to contend more closely with large mining institutions.

The days leading up the Ethereum’s long-awaited Merge has caused fractures amongst the community, with perhaps the most prominent fault lines appearing within the mining industry.

The Merge, which will see the Ethereum Mainnet merge with the Beacon Chain Proof-of-Stake (PoS) consensus protocol. Where Ethereum has long since operated on a Proof-of-Work (PoW) system, the Merge is touted to reduce Ethereum’s energy consumption by up to 99.95%, in addition to drastically increased transaction speeds through sharding.

This dramatic shift is indeed a significant milestone for the entire blockchain industry, as it marks the first time a blockchain has transitioned between different consensus protocols. However, this transition brings with it a myriad of concerns, chiefly concerns regarding a hard fork. Ever since its inception, Ethereum has operated on a PoW consensus protocol, which involves heavy-duty computation and has led to the conception of mining pools, where miners pooled together their resources and computing capacities to better consolidate and streamline the process.

Expensive hardware, time, and potentially livelihoods have been put at risk in the days leading up to The Merge, as it would make mining on the Ethereum Mainnet obsolete. This has led to divisions in the community as to the future of Ethereum mining, and has spawned ETHPoW, a potential forked chain that will continue to accept PoW mining even after The Merge.

To learn more about the future for miners during this critical period, Coinlive spoke with Kenway Wang, the CTO of XHash and Liang, the Head of Finance and Global BD of F2Pool, both of which are established mining pools in the scene.

“After The Merge, the mining industry will immediately shrink as there will be a drop in PoW ETH mining,” Liang warns. “We can expect a partial ETH hashrate to switch over to other GPU mining tokens like ETC, but the maximum ETH hashrate they can shoulder there is limited.”

Indeed, what Liang is referencing here are the two kinds of ETH hashrates. Hashrates, which refer to the overall computing power in the network, help ensure the network’s security and overall resistance to attacks. Up to 20% of Ethereum’s hashrate is generate from Application-Specific Integrated Circuit (ASIC) miners, which oftentimes comprise of individual miners utilising relatively more affordable hardware. The remaining 80% of the blockchain’s hashrate is generated from GPU mining, which are comparatively more expensive than ASIC hardware.

After The Merge, while ASIC miners may only be able to continue mining ETC or similar forked chains due to the requirement of certain algorithms specific to ASIC mining, GPU miners have more leeway here in pursuing other alternate coins. However, due to the marginal difference in costs between ASIC mining and GPU mining, the lack of diversity in alternatives for ASIC mining is cushioned by cheaper overall operational costs.

“Some traditional ETH mining pools will start to support staking in the future,” Kenway theorises. “There won’t be additional GPU mining pools, but more staking service providers will appear in the market in the future.”

What Kenway is suggesting here is that with mining becoming increasingly less profitable and lucrative, a significant portion of individual miners may potentially give up mining altogether, and instead switch over to staking instead.

This however, opens up another can of worms. The shrinking of the mining industry would mean that the vast majority of miners still remaining are likely to be large institutions and staking pools, making the market for mining after The Merge that much more competitive and simply unprofitable, especially for independent ASIC miners.

Faced with this dilemma, many independent miners are left considering if they should just sell off their current hardware right now, especially GPUs, to recuperate as much as they can before The Merge.

To this, Jack, the founder of Bitcoin Gold, retorts almost immediately: “Don’t hold on to hopes that your GPU will survive. If you sell your GPU, at the very least you have more liquidity on hand. Use that cash to invest in other ventures, like alternate coins to get interest,” he says. “After The Merge, nobody will want to buy GPUs.”

Even mining pools such as XHash are already moving towards including staking in their operations, alongside conventional mining, in an attempt to inject some much-needed stability by diversifying their operations portfolio.

Yet Jack is still a firm believer that PoW mining is still necessary, even after The Merge. “What we (miners) do after The Merge, is to help hedge your risk,” he says confidently. “Nobody knows what will happen after The Merge, so we help you to hedge the risk and prevent people from coming out with their pockets empty.”

“In the same way that the Ethereum Foundation is free to upgrade to PoS, we miners should also be free to fork. But at least we do it to hedge your ETH risk in the event that your ETH PoS price drops.”

While Jack may be right that having a forked chain may potentially help serve as alternatives for investors, especially if The Merge backfires or fails to live up to expectations, there are also mounting concerns as to the veracity of a forked chain.

“The most important thing is that ETHPoW needs to obtain sufficient hash rate to secure the blockchain,” Liang advises. “Otherwise, it will be vulnerable to all sorts of attacks.”

“The forked blockchain also needs to get rid of the difficulty bomb as soon as possible, or else miners will stop mining,” Kenway follows in agreement. “Inapplicable upgrades like EIP-1559 need to be removed from the forked chain as well”.

Indeed, the genesis of ETHPoW will bring with it a whole slew of concerns and risks with it, with probably the defusal of the difficulty bomb as the main priority for the forked chain. The difficulty bomb, which will significantly increase the difficulty level of mining upon The Merge, is meant to discourage further mining activity after The Merge and prevent forks from occurring.

A forked chain such as ETHPoW which serves to duplicate the main chaine, would have to remove the bomb, together with other inapplicable upgrades before it can practically be utilised to sustain mining operations.

With such risks associated with ETHPoW, it is no wonder that many traders have appeared to be more comfortable just sticking to ETH, enabling them to receive ETHW, the native asset of the ETHPoW chain, should a chain split occur.

ETHPoW's Daily Price Chart

For the most part, ETHPoW is still a theorised hypothetical, a futures ticker, that was conceived in anticipation for the Ethereum Merge. What is certain however, is the impact it is likely to have on miners. Many have already started dumping their GPUs and hardware prior to The Merge, and mining pools have likewise begun to diversify their operations to include staking as well.

Further, if The Merge were to truly happen, there may also be heightened attention directed towards the environmental impacts of cryptocurrencies. As the second biggest coin, Ethereum will certainly make waves by being more environmentally friendly as a result of its staking protocol, which does away with energy-intensive mining.

This however, is likely to draw attention towards the other chains that still engage in PoW mining activities as the comparison then will be all the more distinct. Bitcoin alone for example, consumes an estimated 150 terawatt-hours of electricity annually – enough to power the entire of a smaller country like Sweden or Argentina. It would be interesting then, to observe the trend of political lobbying against mining pools and institutions to potentially even switch over to less energy-intensive methods of operations, especially after Ethereum’s Merge.

Regardless, the impending Merge has definitely shaken up the industry as a whole, leaving more questions than answers and quite possibly, an uncertain future for PoW miners whose livelihoods are now more threatened than ever.

This is an Op-ed article. The opinions expressed in this article are the author’s own. Readers should take the utmost precaution before making decisions in the crypto market. Coinlive is not responsible or liable for any content, accuracy or quality within the article or for any damage or loss to be caused by and in connection to it.