ETH 2.0 is here. Can I still buy mining machines to mine ETH?

Hello everyone, I am Keven, the product manager of Litecoin Mining Pool, and also a small miner. I hold Bitcoin and Ethereum mining machines, and recently added some Ethereum mining machines.

After the launch of the ETH 2.0 beacon chain on December 1, many people asked me:

ETH 2.0 is coming, and ETH is going to switch to PoS. Can I still buy graphics card mining machines to mine ETH now?

Here, I would like to share with you the logic behind my recent investment in Ethereum mining machines.

ETH 2.0 has been mentioned for many years. For Ethereum miners, ETH 2.0 is like a sword of Damocles hanging over their heads. Once ETH2.0 is developed, millions of mining machines on the Ethereum network will be eliminated. Except for a small part that will flow into other currencies, most graphics card mining machines will be sold in the secondary graphics card market. This is undoubtedly a disaster for Ethereum miners who have not yet recovered their investment.

As a small miner who is risk-averse but wants to obtain stable and high returns, I am thinking at this time: Can I continue to buy Ethereum mining machines for mining?

Let me first state the conclusion: Now is a very good time to invest in Ethereum mining machines.

01
ETH 2.0 beacon chain launched, how long can Ethereum be mined?

Conclusion: After the ETH 2.0 beacon chain is launched, graphics card miners can still mine for one and a half to two years, and Ethereum miners do not have to worry about switching to PoS for the time being.

ETH 2.0 launched the beacon chain on December 1 this year. So far, 1,483,297 ETH have been staked:

Data source: https://launchpad.ethereum.org/
Time: 2020.12.15 11:00

The launch of the beacon chain means that the Ethereum network currently has two chains, PoW and PoS. So when will the PoW chain be merged into the PoS chain and ETH mining will no longer be possible? In fact, this process will take quite a while.

Let’s look at the stages of ETH upgrade:

Phase 0: Launching the beacon chain with PoS as the consensus mechanism

Phase 1: Data Sharding, Introducing Sharding Chain

Phase 1.5: ETH1 (PoW chain) merged into ETH2 (PoS chain)

Phase 2: Continue to implement the sharding mechanism, and each shard chain will officially perform various functions

We can see that Ethereum mining can no longer be carried out after Phase 1.5 is implemented. Before Phase 1.5 is implemented, Ethereum mining can still be carried out normally. It can be said that there is no impact on miners before Phase 1.5.

So when will Phase 1.5 be implemented? We can find the answer from the AMA held by ETH on the Reddit forum on November 18:

Justin, a core developer of Ethereum, is not optimistic about the progress of the merger plan. In his opinion, since it involves the coordination of ETH 1.0 and ETH 2.0, it may offend the conservatives of ETH 1.0. Justin believes that it is estimated that ETH 1.0 and ETH 2.0 will not be merged in 2021. In other words, the funds deposited in the ETH deposit contract and participating in staking will have to wait for at least more than a year.

From Justin's answer, we can see that Phase 1.5 will not be completed in 2021, so ETH can be mined for at least 13 months. Considering the difficulty of Ethereum 2.0 development and multiple delays, it is predicted that Ethereum can be mined for another year and a half to two years.

For miners, there is no need to consider the impact of switching to PoS for the time being.

02
Why is now a good time to buy mining machines?

1. Graphics card mining machines are not expensive

Friends who follow the mining industry may have noticed that since the price of Bitcoin broke through 10,000 in September, the price of Bitcoin mining machines has also risen sharply. Currently, the spot mining machines on the market have been sold out. Ant is currently selling futures around July 2021. I counted the sales prices of mining machines on B.TOP:

In September, due to the DeFi craze, the Ethereum network was congested, and the transaction fees even exceeded the normal block revenue. Ethereum miners made a lot of money, so the price of ETH mining machines also rose, and the spot price of 5600xt was around 20,000.

According to the comparison in the table above, from September to now:

The price of ETH increased by 61.2%, but the price of Ethereum mining machines fell slightly;

The price of BTC has increased by 85.4%, and the price of Bitcoin mining machines has increased by 20% (calculated using the January futures price, the actual increase is even greater).

From the data, we can see that the current price of graphics card mining machines is not expensive and the premium is not obvious.

2. Network computing power prediction

Unlike Bitcoin, it is expected that Ethereum mining power will not increase significantly in the next 1 to 2 years.

1) Mining power lags behind the price increase

Generally speaking, as the price of coins rises, the payback period becomes shorter, and miners buy more mining machines to enter the mining market. You can take a look at the changes in the computing power of the entire Ethereum network in 2020:

Data source: qkl123

As you can see, the computing power increased significantly in August and September, especially in September, when the computing power increased by 17.36%. The essence of this was because of the DeFi craze at the time and the congestion of the Ethereum network. At that time, one day of mining was equivalent to three days of normal mining, and the payback period was very short, about four months, which stimulated miners to purchase a large number of mining machines.

Due to the uncertainty of mining brought about by ETH's conversion to PoS, there is currently no obvious premium for graphics card mining machines, and the computing power of graphics cards has not increased significantly in November and December. From this, it can be judged that miners are not willing to enter the market, and the subsequent increase in Ethereum's total network computing power will be limited.

2) DAG files limit mining with 4G graphics cards

Based on the characteristics of the Ethash algorithm, the DAG file will gradually increase. The DAG file is directly in the GPU memory. If the DAG file is larger than the GPU memory, the GPU can no longer mine. At the end of December, 4G graphics cards can no longer mine ETH. Of course, some 4G graphics cards have been modified or are being modified. Some old graphics cards that entered the market in 2017 may be directly eliminated. It is difficult to estimate how many 4G graphics cards will be eliminated. What is certain is that there is a certain period of time for 4G graphics cards to be modified into 8G graphics cards, and some 4G graphics cards will also be eliminated.

The DAG file limits 4G graphics cards, which is beneficial to miners who buy 6/8G graphics cards for mining, allowing them to mine more ETH.

3) ETH’s transition to PoS creates a computing power vacuum

ETH's transition to PoS is a double-edged sword for current graphics card miners. After the transition to PoS, graphics card miners have lost their golden goose that has been laying eggs, which is really disappointing. Before the transition to PoS, at the current time, miners can still enjoy a short-term mining bonus.

Switching to PoS is like hanging a sword over the heads of miners, preventing some miners from entering the mining field.

Mining depends on the payback period. Generally, everyone uses the static payback period as a reference. The current static payback period is 10 months. We have reason to believe that after April 2020, there will be fewer and fewer graphics card mining machines entering the mining market. After April next year, there will be a computing power vacuum period (provided that the Ethereum development plan is not delayed), which will form a very interesting game situation. The price of Ethereum will rise, but the computing power will not rise. Miners will make a lot of money, and the payback period will be greatly shortened.

03
Calculation of payback period for Ethereum mining machine

5600xt 6G graphics card mining machine, computing power 320G, power consumption about 1200W, ETH price 3600 yuan, calculate the static payback period on the mining website:

Currently, it takes about 10 months to get back the investment. Taking into account the actual upward trend, no matter the coins are sold immediately after being mined or hoarded and sold later, the actual payback period for miners is much shorter than the static payback period.

The essence of mining is a game between computing power and price. The computing power of the entire Ethereum network will not increase on a large scale in the future, but the price of Ethereum is likely to skyrocket. The sword of Damocles hanging over their heads selects those who are good at learning and understanding ETH mining, allowing them to obtain super high returns.

Risk warning : The content of this article is only the author’s personal opinion, does not represent the views or position of Zhikuang University, and does not constitute any investment opinion or recommendation.