Ending and new chapter: Where will graphics card computing power go after the merger?

The successful Merge is a "Sword of Damocles" for graphics card miners, but for the decentralized computing power market, it is a golden key to open a vast market.

Index: At 14:42 on September 15, 2022, Beijing time, the Ethereum execution layer completed the merger with the beacon chain at block height 15537393, and successfully produced a block at the next block height. Congratulations to Ethereum for successfully passing the PoS test. In the same quarter last year, Bitcoin miners at that time were seeking to export their machines due to policy changes. After the merger, the real problem facing Ethereum miners is not only to export, but also to find a way out.

Congratulations on the successful ETH Merge!

1. The era of "gold miners" who always make money in bull and bear markets.

2021 has passed, and the blockchain industry has just experienced an unprecedented bull market. Under the trend, there are endless myths of wealth creation. Some people hold on to the coins, buy at the bottom at dusk, and sell at the peak, earning a hundred times the return; some people (mainly industry funds) have invested in several projects with a hundred times, a thousand times, or even ten thousand times the return, and the ROI return is quite good; some people are good at on-chain Degen, and can rush into various DeFi first mines at the first time, and leave at a high multiple before the mining accident or price collapse;

DeFi protocol TVL statistics Source: DeFiLlama (ps: TVL in June 2020 was only 1.1B, while in May 2021 it was 123B)

Some people may have rich technical background and master MEV technology, and earn high and stable income by relying on their "skills"; some people may even have very accurate timing, and buy a large number of blue-chip NFTs when FP is low, hoarding them, and selling them out during Fomo.

Monthly Volume of NFT trading platform Opensea Source: Dune@rchen8

In the past year, a large number of various wealth creation myths have been born in the industry. There is no doubt that the protagonists of these stories have more or less some luck. However, there is a group of people who can obtain relatively stable daily income (in terms of currency standard) regardless of bull and bear markets or price fluctuations. In the glorious days of the past, there was a word that could accurately describe this group, that is, "Bull and bear forever earning".

Before the birth of Bitcoin (January 3, 2009), when people talked about mining, they usually thought of hard work, underground mines and non-ferrous metals. Compared with mining in the real world, mining in the crypto world also requires hard work, but the main body of the work has been replaced by machines, that is, PoW - Proof of Work mechanism.

BTC and ETH, the industry leaders, used PoW to obtain cryptocurrencies before the merger. They purchased large amounts of vacant land next to power plants, bought graphics cards, and established mining farms. They obtained proof of stake by consuming electricity and produced cryptocurrencies.

Monthly income of Ethereum network block validators Source: The Block

After the birth of Ethereum, due to its excellent performance and ability to handle smart contracts, it has solved the problem of insufficient scalability of the Bitcoin network to a certain extent, thus attracting a large number of PoW miners to join the army of Ethereum miners. To use a popular term, "involution" has begun to intensify, and the mining difficulty and hash rate of the Ethereum network have generally shown an upward trend year by year. Throughout 2021, Ethereum network PoW miners generated a total of nearly $19 billion in revenue. Excluding speculators who "take over at high prices", basically all Ethereum miners can obtain rich "after-sleep income" every day.

Glassnode: ETH hash rate and mining difficulty statistics 2016-2022

Today, Ethereum has become half of the cryptocurrency market, and the DeFi protocols, NFT applications, Metaverse, chain-based data analysis tools, wallet applications, etc. derived from it are countless. At the same time, due to the existence of EVM, many excellent teams have developed other EVM-Compatible Blockchains. The new chains, with the title of the next Ethereum-Killer, carried out a mighty "public chain war" last year. The flourishing of applications and the contention of public chains are almost one of the most eye-catching performances of this round of bull market.

Ps: How to describe the real income cycle of miners - many large miners have paths to cooperate with manufacturers and configure their own machines. Generally, the payback period is three to four months. One way for retail investors to get a quick payback is to buy a machine and then encounter a price increase or a price increase, which shortens the payback period. Another way is to buy an old machine that others don't want, and then by chance, it may take more than a month to get a payback. In short, just like a landlord with several buildings in the real world, whose monthly life is to collect rent regularly, the life of miners is to withdraw and sell regularly (or some people choose to hoard coins), and after the payback, it is all profit. (Story from a senior miner)

However, "I watched him build a red building, and I watched him collapse." The post-Merge era has arrived, and this group of "gold miners" have encountered "forced demolition" without compensation. According to Bitproit's statistics in May 2022, Ethereum miners accounted for 96.72% of the output of all GPU coins (Messari's June article reported 97%, and the reference source was also Bitproit, due to price changes and shutdowns, etc., so the latter data is used). After the PoS test, this huge pie will be completely overturned.

GPU Mineable Coins 05/2022 Source: Bitproit

2. What is PoS? Why does ETH want to switch to PoS?

Just like every fairy tale, the dragon slayer eventually becomes the dragon. When Ethereum was born, founder Vitalik Buterin said that it was inspired by Bitcoin and aimed to create "the next generation of cryptocurrency and decentralized application platform." After many years, Ethereum is now no less than the then "dragon" Bitcoin in terms of resource waste (power consumption), over-centralization of large mining pools, and excessive inflationary selling pressure. This crypto giant is about to turn.

There is a fatal flaw in the original Ethereum PoW mining method. Once someone accumulates more than 51% of the computing power of the entire network, they can launch an attack on the entire network. In order to obtain more accounting power, miners have to concentrate their machines or host them in a large mining pool. This not only increases the risk of 51% control attacks, but also violates the core spirit of decentralization when cryptocurrency was first created.

The PoS consensus mechanism was first proposed in the Bit-CoinTalk forum in 2011. In the earliest Ethereum white paper, Vitalik Buterin also expressed Ethereum's desire to use PoS as a consensus mechanism. However, due to the current technical maturity issues, PoS at that time was still at the conceptual stage.

PoS stands for Proof of Stake, which can be simply understood as "mining" by holding coins. To put it another way with financial significance, every coin holder is a shareholder, and the tokens held are equity. Therefore, the more equity held, the more dividends can be obtained. From the most fundamental output mechanism, the PoS mechanism does not need to consume a lot of electricity to obtain ETH.

Therefore, the PoS consensus mechanism, which is superior in many aspects such as environmental friendliness, deflation mechanism, decentralization, etc., was written into the Ethereum white paper in 2014. Eight years later, the dust has settled and Ethereum has ushered in its major upgrade.

Ethereum officially enters the "burning era"

3. Several ideas on how Ethereum miners can respond

Miners’ “way out” Source: Messari

"The real problem facing miners is not only going overseas, but also finding a way out." As early as June this year, Sami Kassab published an article on Messari describing the major directions of miners after Merge. Here is a brief explanation of each of the major directions:

1. Switch to mining ETV/ERG/RVN and other PoW tokens

As mentioned in the previous article, there are still many PoW tokens in the existing crypto market. In addition to the leading BTC, as of 8am Beijing time on September 18, 2022, the second largest PoW token in the crypto world is Doge, followed by ETC, LTC and Monero. According to Minerstat data, after the merger, ETC's total network hash rate increased by 300%, and once exceeded 300TH/s (later fell back to around 200TH/s).

ETC network hash rate statistics Source: Minerstat

This shows that computing power is honest and profit-seeking, and has made some of its own choices.

Seven-day hash rate growth statistics of some PoW currencies Source: f2pool, etc.

2. Access to centralized high-performance computing centers

Two large public miners, Hut 8 and Hive Blockchain Technologies, have already outlined their post-Merge strategies. Both companies will provide their own computing power to high-performance data computing centers. Of course, for such "behemoths", the transformation is a long process. Acquiring data centers and quickly looking for alternatives is one way for them to find their position in this struggle.

3. Provide computing resources for some blockchain-native Web3 protocols

A detailed introduction will be given later, so I will not go into details here. In short, it is to provide computing power for some decentralized computing power trading platforms or matching platforms, and solve problems in a more blockchain-based way.

4. Stake ETH to operate a validator node

Operating an Ethereum validator node would also be an available option, but like the next option, it is not a long-term solution in terms of profitability.

5. Clear and leave

(The author adds that this time point is not realistic now, because the market for mining cards is relatively small. According to the description of miner friends, the best time to escape the peak of mining machines was around December last year)

Graphics cards for sale on Amazon

Ps: The electricity bills of most machines have long been as expensive as the shutdown price, such as 588, etc. The best time to clear out and sell the machines was from October to December last year.

4. Using blockchain to solve problems, decentralized computing power may have a future

"When a whale falls, everything comes to life." In May of this year, the total computing power of ETH was 1.03PH/s. Before the Merge was completed on September 15, the total computing power of ETH was 740.88TH/s. As one of the largest undertakers of ETH computing power, ETC only took over about 15% of this computing power. In other words, a large amount of computing power and miners are currently in a wait-and-see stage. Before the decisive direction and undertaker come out, they will still wait and see. Therefore, from the perspective of the demand-side market, many Web3 decentralized native protocols or computing power matching networks have unparalleled appeal, and the decentralized computing market has ushered in their critical moment.

1. Render Network

Render Network (RNDR for short) is a fully decentralized network composed of artists and GPU (graphics processing unit) computing power providers, which can provide powerful rendering capabilities "at your fingertips" to users around the world. In November 2021, the team officially announced that it would migrate RNDR tokens and major parts of the network to Solana (here again cue the slow speed and high gas fees of the ETH network), hoping to attract more third parties to use Render's rendering tools in the future. In terms of product prospects, the Render Network has great development potential and application examples, and it can also be combined with the vision of the basic tools of the Metaverse track, so the future is promising.

2. Livepeer Protocol

Livepeer Protocol is a decentralized, highly scalable streaming media layer protocol. Content creators share live broadcasts and are rewarded with tokens (LPT) through video transcoding. It can be used as a real-time media layer in the Web3 stack. In the traditional business world, the cost of video transcoding is very high, and Livepeer's vision is to greatly reduce this cost. Anyone with GPU, CPU and bandwidth computing resources can access the protocol, and media workers with relevant transcoding needs can use your computing power. Livepeer Protocol has a wealth of practical applications in terms of application prospects, and the demand for video transcoding will only increase in the future.

3.Akash Network

Akash Network claims to be the first decentralized cloud computing market, challenging several highly monopolistic cloud computing giants such as AWS, Azure, Google Cloud and Alibaba Cloud, aiming to reduce the cost of cloud computing.

The Akash Network is currently built on the Cosmos SDK application chain and has its own separate network and blockchain. It just completed its own testnet 3 in March this year. 2,739 verified and trusted participants generated more than 3,000 submissions. This is the last step before launching Mainnet 3, further improving the functionality and durability of the Akash network.

4. RunOnFlux (formerly ZELcash)

Flux is a decentralized cloud infrastructure that can help users better develop, manage and generate Web3 Dapp applications. Flux is a game-changer in the AWS era. The network itself does not require permission. It is worth noting that Flux mining is currently based on an ASIC-resistant model, which does not require the use of powerful dedicated machines to achieve "mining". Therefore, it is not only suitable for specialized large miners, but also allows personal home computers to access the network and become part of the decentralized computing power (there is a relatively complete personal PC mining tutorial on YouTube).

5.Hamster Network

Hamster is a computing resource that can take over any computing resources from GPU/CPU/Disk. Users can choose to become computing power providers (having computing power), users (using needs) and pledgers, helping users to quickly deploy nodes for any project. According to its official Twitter, it is currently recruiting internal testers for the test network. Github updates frequently and is also one of the latest incubation projects of Web3 Bootcamp. The technical fundamentals look good. The operation of the project requires a large amount of computing power access as one of the links, so it can also become a direction for absorbing computing power.

6.CUDOS Network

CUDOS is a decentralized cloud computing market founded in 2017. It is a layer 1 blockchain and layer 2 computing and oracle network built on Cosmos, supporting the Inter-Blockchain Communication (IBC) protocol. It has a clear business model, collects idle computing resources around the world and connects them to the network, providing low-cost, convenient and fast computing resources to relevant buyers.

7.CCN (Pekka)

CCN has created a Metaverse network, in which users can use their own machines of different types to access the network to mine related tokens, while also earning the native tokens of the CCN network. ETH mining machines can also mine in the CCN network, and there are currently a lot of tutorials online.

8.Scroll

ZK-based direct mining is still in its early stages, but there are already many ideas. Scroll's co-founder and Paradigm's CTO have published research on this topic. Scroll's outsourcing mechanism allows Roller to use GPU computing power to generate zero-knowledge proofs for them, which will also be a mining process.

9. Aleo

The mechanism adopted by Aleo is Proof of Succinct Work (or PoSW for short), which is a SNARK-based proof-of-work algorithm. Miners process pending transactions and calculate valid random numbers to solve the succinct proof-of-work puzzle to generate blocks. After successfully finding a valid block, the miner will receive Aleo's block reward.

10. Starkware

As mentioned above, ZK mining has not yet been officially launched, but due to the huge difference in working speed between Starkware's two major architectures, Sequencer (transaction execution) and Prover (generating ZK proofs), it also requires extensive participation from the miner community.

Judging from the current application examples and prospects, there is no direct competition between most projects. This fully demonstrates that in the computing power market and blockchain application direction, excellent domestic and foreign teams are exploring different angles, and the market pie is still in the stage of continuing to grow.

"What is poison to others is honey to me." For Ethereum miners, the computing power generated by graphics cards was once a hot commodity. Now that the track of mining ETH with graphics cards is no longer available, a large amount of high-quality, low-cost and stable computing power is still waiting and watching. The success of Merge is a "Sword of Damocles" for graphics card miners, but for the decentralized computing power market, it is a golden key to open a vast market. The old king falls, and the new king ascends the throne.

References 1. What Will Ethereum Miners do After The Merge?——Sami Kassab 2. Will GPU mining end after the Merge (formerly called ETH 2.0)?——bitproit 3. The Last Miner: A 10,000-word Review of Ethereum's 8-year Mining History 4. A Brief History of Ethereum: A $100 billion behemoth born from Blizzard's weakening of Warlock

Appendix - Interviews with several miners

At the end of this article, the author interviewed several Ethereum miners, including their machine scale before the Merge, whether they have made a profit, mining time, current status choices and concerns, FYI.

• Miner A: I used to own more than 200 rx588 and L3+. I disposed of these machines in March this year, but it is not considered a runaway. Although L3+ was bought second-hand last year, it has paid back in two or three months (and all the investment has paid back, now it is pure profit). The failure rate is about 10%. Currently, there are more than a dozen pineapple v1s left, and most of the machines have been shipped out. I am still waiting for suitable targets (ETF, ETHW, etc.). Most of my friends have switched to the more stable ETC. Although the income has dropped sharply, it is very stable. For him and his friends, stability is a more important choice.

• Miner B: He used to own more than 300 rx598s. In December last year, he felt that the situation was not right and liquidated 90% of the machines. The ETH he mined did not make back his investment, but considering the price at which he sold the machines, he actually made a profit. Now he has some profitable machines left, and he mines ETC for fun, but he said that ETC cannot handle that part of the computing power. He is learning about some suitable blockchain native protocols for access. For him, he does not plan to continue to mine other PoW tokens heavily, and is preparing to access some Web3 protocols that can be degenerated to earn related tokens and bet on the next round of bull market.

• Miner C: A senior miner who sold out all his machines after May 19, 2021 and has no plans to buy any more mining machines.