After the Ethereum merger: Nvidia's suffering "miners" dream of getting rich ends

Under the watchful eyes of the world, Ethereum (ETH), the world's second largest virtual currency, officially switched from PoW to PoS mechanism, completing the industry-revolutionary "The Merge" merger upgrade.

Before the Ethereum merger was completed, a large number of investors holding Ethereum had already begun selling. The price of Ethereum went down all the way, from this week's high of $1,777 to around $1,650 at the time of the merger, and finally fell to the current $1,333. By the way, it also dragged down its old rival Bitcoin. Bitcoin has now fallen below the $19,000 mark again.

This is an unprecedented upgrade since the birth of blockchain, which directly overturned all previous gameplays and announced the complete end of the era of mining using GPUs (graphics cards). Nearly 100 million cryptocurrency players were affected. A large number of full-time miners have to start considering their future.

The dream of getting rich through mining, which began in 2008, has entered the countdown to its end.

Crazy mining business

The so-called mining is not the traditional physical labor such as coal mines and gold mines, but the jargon of the currency circle.

When Bitcoin's inventor Satoshi Nakamoto created Bitcoin, he developed the PoW proof-of-work mechanism to encourage all cryptocurrency players around the world to download software on their computers and use specific algorithms to solve very difficult math problems. Whoever solves the problem first will receive the Bitcoin reward for this block.

Under the PoW mechanism, the amount of computing power invested, that is, the strength of hardware performance, becomes the key to obtaining virtual currency rewards. Therefore, the process of obtaining cryptocurrency through the PoW mechanism is called "mining", and the coin circle players who operate computers are called "miners", and the computer equipment for mining is called "mining machine".

In the early days of mining between 2008 and 2012, mining was purely a personal sideline, and people could make a fortune by buying one or more advanced graphics cards and assembling mining machines. However, after 2012, as the number of miners increased and the price of Bitcoin continued to rise, the requirements for hardware performance increased day by day, and "mining" gradually became professionalized and factory-based.

According to a report by Everbright Securities, starting from 2020, the mining industry is expected to generate an additional revenue of about US$18 billion per year. The high profits have attracted countless people who are eager to get rich to participate in the mining industry. According to a data released by the Cambridge Center for Emerging Finance (CCAF) in 2021, the mining computing power of Chinese miners accounts for 65.08% of the world's total mining computing power.

A large number of amateur cryptocurrency miners have quit their jobs and moved to provinces with abundant and cheap electricity resources, such as Xinjiang and Inner Mongolia, which have abundant thermal power resources, and Sichuan and Yunnan, which have abundant hydropower resources. One mining farm after another has been established on the edge of the city, running hundreds or even thousands of mining machines day and night.

Mining equipment

Not only did miners begin to compete inward, but tools also began to be constantly upgraded, and more professional mining equipment began to appear.

Starting from CPU mining, due to low computing power, it gradually transitioned to GPU mining. Then, Application Specific Integrated Circuit (chip) designed for a specific purpose was developed, which is commonly known as ASIC mining machine. It was created for mining and has no other functions or uses.

As virtual currencies become increasingly difficult to calculate, it is necessary to purchase mining equipment with more powerful computing power. Mining equipment with less than 300 units can only be considered a small mine. At the same time, the daily power consumption of mining machines plus equipment maintenance is an astronomical figure.

Cryptocurrency mining requires a lot of electricity, and the energy consumption and carbon emissions are ridiculously high. According to statistics from Xinhua News Agency, some mining farms consume millions of kilowatt-hours of electricity a day; a mining farm in a western province can consume 45 million kilowatt-hours of electricity a month; a mining farm in a certain southwest region consumes as much electricity as three cities in a year.

The Inner Mongolia Autonomous Region has closed down and cleared out 35 large-scale mining companies by the end of April this year. It is estimated that the annual electricity consumption of these 35 companies will reach 5.2 billion kWh, equivalent to more than 1.6 million tons of standard coal.

However, Ethereum has set off a wave of reform in the industry, transforming PoW to PoS mechanism. The once-expensive mining boom has gradually come to an end, and miners are destined to become the tears of the times.

Graphics card prices collapse

The PoS mechanism of Ethereum's upgrade and transformation this time has a completely different operating logic. Simply put, it no longer relies on graphics cards, but relies on the "coin age" and the number of currencies held to act as "computing power", thereby eliminating high energy consumption.

As a result, the biggest impact will be on the graphics cards stockpiled by miners.

As the primary productivity tool for mining, graphics cards have also seen their prices skyrocket amid the frenzy of mining. At the end of 2021, Nvidia released the RTX 30 series graphics cards, which were originally a graphics card device that gamers just needed. Before players placed orders, miners began to scramble for them at a premium, buying up all the RTX 30 series graphics cards on the market and joining the mining ranks without exception.

The RTX 3060Ti graphics card, originally positioned as a mid-range product, was officially priced at 2,999 yuan. At its peak, the price skyrocketed to nearly 10,000 yuan, not to mention other high-end cards, which all started at a premium of three times. As the latest graphics cards were unavailable, miners turned their attention to "outdated" equipment, and the previous generation of RTX 20 series graphics cards all saw varying degrees of crazy price increases.

Even some RTX 10 series graphics cards that have been used for two or three years can be sold at the original price in the second-hand market, which shows the impact of the mining wave on graphics cards.

Graphics card mining

The logic behind this is not difficult to understand. Miners buy graphics cards at high prices and premiums, purely because the virtual currency income they get from mining is greater than the premium. According to a miner's revelation on a social platform in 2021: 8 3060 graphics cards cost about 60,000 yuan, and full-power mining can earn more than 300 yuan a day (excluding electricity costs), and the equipment costs can be recovered in about half a year, and it is pure profit after half a year. In addition, the price of graphics cards is high, and if you don't mine, you can sell the graphics cards and recover some of the funds.

This creates a vicious cycle. As long as virtual currencies such as Bitcoin and Ethereum exist, graphics cards will always be in short supply.

In addition to virtual currency companies, the biggest winner behind the scenes is Nvidia. Data from research firm Wedbush Securities shows that in the previous six quarters when mining was hot, Nvidia earned an average of about $800 million in revenue from mining cards each quarter, which means at least $4.8 billion in six quarters, or about RMB 33 billion.

Having made so much money from mining, Nvidia naturally has to bear the "backlash" when a mining accident occurs.

Nvidia 2022 Q2 quarterly financial report

Nvidia's Q2 2022 financial report shows that Nvidia's second-quarter revenue was US$6.7 billion, a 19% decrease from the previous quarter; net profit was US$656 million, a 72% drop from US$2.374 billion in the same period last year; Nvidia's revenue growth rate hit a new low in recent years, all profit data fell across the board, and the gaming business performed poorly; Nvidia's stock price has fallen by more than 40% so far this year.

In order to revive the stock market, NVIDIA has released the RTX 40 series graphics cards. However, compared to the previous generation RTX 30 series graphics cards, which were snapped up and doubled in premium as soon as they came out, the RTX 40 series graphics cards are somewhat lukewarm and the prices have also fallen back to normal retail prices.

At this point, the graphics card wave that lasted for 6 quarters finally came to an end.

Energy, Energy, and More Energy

Whether it is the storm that has swept countless "miners" or Nvidia, whose stock price has fallen by more than 40%, virtual currency has directly affected the fate of more than 100 million people around the world. So why is Ethereum taking such a big risk and rushing to change? The answer is that virtual currency is running out of time.

As mentioned above, if you want to "mine" cryptocurrency, you need "miners" to use the computing power of high-performance graphics cards to perform calculations day and night, and the amount of electricity required is astronomical.

According to official Ethereum information: If the PoW mining mechanism is continued, the amount of electricity consumed to obtain each Ethereum coin is equivalent to the various energies consumed by a family for 2.8 days; and Bitcoin is even higher, requiring a family's energy consumption of up to 38 days.

Data from the European Central Bank shows that the amount of electricity consumed by Bitcoin mining each year is equivalent to the energy consumption of countries such as Spain and Austria. Europe's efforts to reduce carbon emissions over the years have been offset by the carbon consumption brought about by Bitcoin + Ethereum. The voices calling for a ban on mining in Europe have been very loud.

Ethereum, which switched from the PoW mechanism to the PoS mechanism, has improved its energy efficiency by about 2,000 times, according to official statements, and can save 99.95% of total energy usage.

Ethereum founder Vitalik Buterin

Currently, the market value of Bitcoin exceeds $400 billion, twice that of Ethereum, which is over $200 billion. The competition between the two has never stopped.

Transforming PoW into PoS will be a must for virtual currencies. Compared to its old rival Bitcoin, Ethereum has completed the transformation first. The dissatisfaction of European countries and other countries with its "waste of energy" will be borne by Bitcoin. This undoubtedly brings a glimmer of hope for subverting Bitcoin's dominance.

But the capital giants who made money have already had their fill, leaving only the miners who lost their jobs to bear the pain of the end of an era alone.