Where will miners go after Ethereum Merge?

Miners may be the biggest "victims" of this ETH2.0 upgrade. Where will they go?

Ethereum is embracing PoS in big strides. Although there are still many issues to be resolved before the final Ethereum mainnet integration, it will come sooner or later. Miners may be the biggest "victims" of this ETH2.0 upgrade. Where will they go?

The end of mining

It has been four years since Ethereum’s consensus mechanism officially planned to switch from proof of work (POW) to proof of stake (POS). As the first step (Phase 0) of the ETH2.0 roadmap, the Ethereum Beacon Chain is to introduce a more secure and environmentally friendly proof of stake to the consensus layer of the Ethereum network, and eventually replace the energy-consuming and increasingly centralized proof of work after merging with ETH1.0.

In the PoW stage of Ethereum, miners compete for the right to record and sort transactions through hash collisions. After adopting proof of stake, people stake Ethereum on a new chain (beacon chain) and randomly become validators to sort transactions in the network, thus forming a consensus on the world state . After Ethereum is officially integrated, the overall energy consumption of the network will be reduced by 99%.

Total ETH2.0 stake (ETH)

Currently, there are more than 1.26 million Ethereums in the ETH2.0 staking contract, accounting for 10.7% of the circulation. More than 400,000 addresses have participated in the PoS consensus layer deposit, and each address has staked at least 32 Ethereums. Among them, there are many centralized exchanges such as OKX, Kraken , Coinbase , ETH2.0 staking liquidity protocol Lido , and some market depth players who have participated vigorously.

ETH2.0 Staking Rate

However, while the transition from PoW to PoS is beneficial for the industry as a whole (especially for the environment), as Ethereum no longer needs to consume energy to ensure the security of the network, it does mark the end of the mining industry, the second largest Crypto ecosystem that hosts more than 70% of Dapps.

2. Pressure from miners

Ethereum's integration may face pressure from miners in two aspects: a sharp drop in computing power & forks .

As the certainty of integration increases, miners will choose to slowly withdraw from the Ethereum PoW consensus at the right time. At that time, the overall computing power of the Ethereum network may drop sharply , and the remaining mines will have extremely high block production rights. The extremely low cost of crime and considerable benefits will bring a devastating blow to nearly 3,000 applications on Ethereum. However, the current ETH2.0 client has long been prepared for this - if the computing power of the entire network drops significantly, affecting the security of the network, Ethereum integration will be advanced .

The reason for the fork may be that the miners of ETH1.0 "resisted" the block before the difficulty bomb was triggered, and forked the chain - vowing to squeeze the last drop of blood of PoW on Ethereum . This may lead to the coexistence of Ethereum with both PoW and PoS consensus mechanisms for a period of time.

Once the above two situations occur, Dapp developers, users and centralized exchanges should be extremely vigilant to avoid the loss of on-chain assets.

3. Where will miners go after PoS?

However, the general trend is that the merger of PoS and PoW will eventually come. If some miners withdraw from Ethereum mining before the merger, the computing power (hash rate) of the entire network will decrease, and the remaining mines will be more profitable. In other words, as fewer and fewer people mine, it will be easier for those who stay to get ETH.

So, all Ethereum PoW miners currently have to face this choice: those who have already made back their investment can choose to exit, those who have not made back their investment can hold on to the end, or those who are stubborn enough can fork .

The existing Ethereum mining machines are mainly divided into two categories: graphics card mining machines and ASIC mining machines . Graphics card mining machines require us to configure a PC to run the mining program. The performance of the graphics card determines the mining speed and computing power, and the motherboard and power supply largely determine the stability of the mining machine operation.

In contrast, ASIC mining machines (Application Specific Integrated Circuit) use integrated circuits (chips) as the computing core and integrate specific cryptocurrency algorithms into the chip, thereby greatly improving computing efficiency.

Obviously, miners who own GPU mining machines will have more choices and take less risks . They can choose to sell their existing mining machines before Ethereum completely switches to PoS mining to complete other computationally intensive tasks besides Crypto. In addition, GPU mining machines can also mine other types of cryptocurrencies , such as Ethereum Classic, Ravencoin, Dogecoin, Litecoin, etc. However, since these projects using PoW consensus have a smaller market value, the profits are far less than mining in Ethereum, and the price fluctuations are larger. Therefore, these GPU mining machines have not been completely withdrawn at present.

It is also important to note that once the final fusion plan and code are finalized, these large numbers of powerful GPU miners will migrate their computing power to other PoW networks, and the hash rate will suddenly increase, which will reshuffle the original mining ecosystem.

Another type of miners who use high-end ASIC mining machines such as Innosilicon A11, especially those who have just entered the market, have already invested fixed costs and no one is willing to pay a high price for highly customized ASICs. They may only have one way: to run at full capacity until the last block before the merge .

In addition, miners operating ASIC mining machines are most likely not to follow PoS and fork out a second Ethereum Classic behind the original ETH1.0.

We speculate that some miners may not think that integration will come in the short term, which is why the computing power has only increased slowly so far, but there is no downward trend.

Average hashrate of the ETH network

The integration on June 8th is only the integration of the first test network (Ropsten), not the official main network integration. Several major test networks will be merged in a few weeks, and if all goes well, we may see the official integration of the Ethereum main network in Q3.