What will be left for Ethereum miners after the merger?

Last year, the profits from Ethereum mining drove GPU prices far above the manufacturer's suggested retail price. Now, as the Ethereum merger process is almost complete, the question is what will happen to these machines and miners.

When Ethereum’s consensus switches from Proof of Work (PoW) to Proof of Stake (PoS), which is expected to happen between September 14 and 15, Ethereum miners will no longer need GPUs to verify transactions in blocks.

Unlike the industrialized, clustered Bitcoin mining, the majority of the Ethereum network is still made up of small-scale or independent miners, who will have a hard time profiting from other PoW coins (such as Ethereum Classic, Ravencoin, or Ergo) after the Ethereum merger.

Based on the existing economic model, only about 100TH/s of the Ethereum network can find a place on other chains. This data comes from Ethan Vera , COO of Luxor, who also operates an Ethereum mining pool. This data means that about 90% of the GPUs in the network will lose the value of mining.

In this more competitive post-merger market, Vera expects that only miners with the most efficient equipment and the cheapest energy will be able to compete successfully.

“In our analysis, I think only $0.03 per kilowatt-hour and a new generation of GPUs can [win the competition],” Vera said. “Anyone with electricity prices higher than that, which includes the vast majority of residential areas in North America, is basically out of the game.”

Hive Blockchain, a Canadian Bitcoin and Ethereum mining organization, said last week that it would begin testing other GPU-minable coins to optimize its current 6.5TH/s Ethereum mining capacity. Based on their $0.03 per kilowatt-hour electricity price, they said they are "fully capable of finding their way in new markets."

Although Hive will also mine Ethereum Classic, that’s not all that’s planned for the merger. “Which coins we mine and when we mine them is a competitive advantage, so we won’t be sharing that information publicly,” the company said in an email.

GPU mining accounts for 16% of Hive's total energy consumption. "It is very clear that Bitcoin mining is more profitable per kilowatt-hour, so we will expand this part of mining." Hive also said.

BIT Mining, which uses ASIC mining instead of GPU mining (note: ASIC mining is not GPU mining, there are no other uses of GPUs besides mining, such as image processing or high-powered gaming) has also been tight-lipped about their strategy.

“Part of what makes this so exciting is the speculation about the future; because the merger shakes up everything, and there are so many unanswered questions,” BIT Mining said. “One possible way out is that our ASIC machines will all switch to mining Ethereum Classic, since both use the same algorithm.”

Mining or forking

After the merger, the hash rate of the Ethereum network will shift to other chains, thereby reducing the profitability of mining other currencies.

Mark D'Aria, CEO of used GPU retailer Bitpro, said the future of GPU mining is being misled by blind optimism and that many small miners "have absolutely no idea how much they rely on Ethereum."

“They think they can just mine other coins and get similar returns, but the fact is that Ethereum accounts for 95% of the total revenue,” he said. “Everything else will be severely affected... Miners who used to make a dollar may now only make a few cents... Then everyone will be unprofitable until someone gives up mining.”

In a guide on merged mining, Ethereum mining pool 2Miners said Ethereum Classic, Ravencoin, and Ergo are the safest options for merged mining.

Ethereum PoW – a potential fork – on the other hand, remains unknown. “They don’t have a strong community and the developers are not that active. We’ll see.”

BIT Mining said, “If ETH successfully forks before or after the merger, we are ready to mine on the forked chain. Again, these are just two of the many possible outcomes we are prepared for.”

What about Ethereum Classic?

In the email, 2Miner said that ETC, as an “old, famous, and widely circulated token on major exchanges, should become stronger.”

Although miners leaving Ethereum for Ethereum Classic will bring some value to the Ethereum Classic ecosystem, Vera does not think it will be enough to support so much hash rate. “It’s still a long way to get the remaining 90%.”

Vera said that promoting a healthy ecosystem that includes DeFi, NFTs, and stablecoins may be a way to increase profitability. "Grants are an interesting way to start, but in the long run, you need to motivate users with consensus and core ideas, not financial rewards. An ideal network is one that people want to build not just for income, but for real."

D'Aria said that coins like ETC and Ravencoin have the potential, but it's not certain whether they can grow to a significant scale.

“This has never been tested. Nothing close to this has ever happened,” he said. “Some people think miners are just extracting value from the ecosystem. They mine tokens and sell them right away, driving the price down. I don’t think that’s the case. I think miners are a grassroots support model.”

According to data from TradingView, since August 24, the date of the Ethereum merger was announced, Ethereum Classic’s value has risen by about 37%, and compared to its value in mid-July, it has risen by about 140%. “I don’t think it’s surprising,” D’Aria commented on ETC’s current price of $40.

Although Ethereum PoW is a potential competitor, he believes that ETC will eventually attract the vast majority of miners, especially when the former are not fully prepared. Although among the top currencies, miners may only earn $1 million a day compared to Ethereum's $20 million.

What will the small miners choose?

An independent Ethereum miner known as daylon.eth told The Block that he plans to mine ETC, RVN, or possibly $FLUX or $ERGO, depending on which one is more profitable. He currently pays about $0.08 per kWh and "puts low energy consumption at a high priority."

“When I started mining, I did it as a hobby. Profitability was my main concern, but I never actually sold 99% of the ETH I mined,” he said. “I mined for fun, not to support myself financially, so the worst case scenario was that I would sell my graphics cards, and it would be even better if I could sell them during a bull market for mining hardware.”

Another user, j_crypto_2015, said his plan was to mine Ethereum Classic, but not any other forked coins — alluding to EthereumPoW, an Ethereum fork that was merged into the proposal.

“If mining ETC is not profitable, I will suspend my equipment. But I will definitely not throw them away because I am definitely not the only one facing this situation,” he said.

The cruel reality

D'Aria feels that many people in the industry have no incentive to face the harsh realities of Ethereum mining in the future—from GPU mining YouTube accounts to hardware manufacturers. "They don't tell you, hey, this hardware is going to be worthless in two months." He said the company published an article about merged GPU mining and received "an extremely negative response," with many people accusing them of being doomsday prophets who told people to sell their GPUs.

Mining income may drop to one-fifth or more of what it was before, a spokesperson from 2Miners said, but not to one-twentieth. "This level of decline will make some mining organizations still profitable. The rest may disappear from the market." 2Miners said, "The crypto mining market is a self-regulating market. If mining is profitable, everyone will continue, and vice versa."

D'Aria estimates that there are about $10 billion to $20 billion of GPUs held by miners right now. Based on the hash rate, Vera thinks there are about 79 billion. D'Aria estimates that based on the trend of the existing market over the past few months, prices could dive 5% to 10% a week "for a long time."

“The people who wanted to sell GPUs have already sold them. The people who were waiting are still waiting,” he said. “My inbox will probably explode on the day of the merger because everyone wants to sell me a million GPUs, but I don’t know what price to set.”