What uncertainties does ETH2.0 bring to mining?

ETH2.0 is like a sword of Damocles, always hanging over the heads of miners. On the one hand, the progress of ETH2.0 has brought about an increase in the price of coins, which has increased miners' income. On the other hand, the development of ETH2.0 has also brought some uncertainty to miners' mining.

Increased income for miners

On November 23, the price of ETH exceeded $600, hitting a new high since June 2018. The most direct impact of the surge in coin prices on miners is increased income.

According to Crypto Fees data, the average 7-day average transaction fee for the entire Ethereum network is about 3 million US dollars. Bitinfocharts shows that Ethereum transaction fees account for about 25% of miners' income, which means that on average, the total income of Ethereum miners can reach 80 million yuan per day.

This year can be said to be a bull market for Ethereum. DeFi liquidity mining and ETH2.0 are linked. Miners first made a lot of money on gas fees, and then the price of ETH skyrocketed. The mined ETH can be exchanged for more fiat currency.

Thanks to the expected increase in ETH prices, the reduction in the payback period of mining machines, the extremely low shutdown price of Ethereum mining, and the higher residual value of graphics cards, more and more retail investors or institutions are entering the market to participate in ETH mining.

The Litecoin Mining Pool has been vigorously developing ETH mining since this year. Jiang Zhuoer, the founder of Litecoin Mining Pool, once predicted that "the market value of Ethereum may exceed that of Bitcoin". Because of the optimistic outlook for the development potential of Ethereum, the mining pool purchased a lot of Ethereum mining machines this year. When the price of ETH was $400, the static payback period of this batch of mining machines was more than 400 days. When the price reached around $600, the payback period had dropped to around 260 days.

It is precisely because the DeFi mining craze has given miners an obvious profit signal that this time, miners entered the mining market and miners deployed mining machines before the price of coins rose. Bibi News learned that thanks to the increase in production capacity, mining machines on the market are not as scarce as before, but the price of mining machines is still skyrocketing.

Bitinforcharts data shows that the computing power of the Ethereum network has been gradually increasing since the beginning of this year. At the beginning of the year, the computing power of the entire network was 147T, and now it has reached 280T. The computing power level of the entire network is already at a high level brought by the last round of bull market. Obviously, more and more machines are participating in the competition of ETH mining.

Ethereum network computing power, information source: Bitinfocharts

Mining is profitable, and upstream mining machine manufacturers are also taking action. In August this year, Bibi News interviewed Wang Shenglin, the sales director of Innosilicon Technology, and learned that the price of Innosilicon's machines had increased by about 400 yuan at that time. Wang Shenglin told Bibi News that "the possibility of further increase in mining machine prices cannot be ruled out."

Jiang Zhuoer told Bibi News that the price of mining machines is rising. In early October, the price of a machine was more than 18,000 yuan, and now it has risen to more than 20,000 yuan, an increase of more than 10%. According to Bibi News, perhaps because of the attraction of high returns, the original Bitcoin mining machine manufacturers are also developing Ethereum mining machines.

In addition, the DAG file capacity of Ethereum mining is close to 4G, which means that the 4G memory graphics card mining machines on the market are on the verge of being eliminated. Currently, there are more retail investors entering the market for mining, and those miners who have 4G mining machines are also planning to upgrade their machines.

Uncertainty Brought by ETH2.0

Regarding the impact of Ethereum's upgrade from 1.0 to 2.0 and the change of consensus mechanism from PoW to PoS on miners, most miners and mining farms believe that there is "no impact". They generally believe that there is still a lot of time left for miners.

In the eyes of miners, upgrading Ethereum from 1.0 to 2.0 is a very slow process. Each stage requires time for development, testing, and updating. In addition, Ethereum 1.0 carries a large number of users, applications, and funds, so the overall migration will be very cautious and slow.

There are still too many variables before ETH2.0. For miners, it is not meaningful to think about countermeasures now. So we can see that miners are generally "waiting" now, and everything remains the same. "Coins are still being locked in, prices are still rising, computing power is still increasing, and miners are still mining."

But in fact, behind the calm, the progress of ETH2.0 is still having an impact on the miner group.

On November 4, the ETH2.0 deposit contract was launched, which was the first step in transforming the consensus mechanism from PoW to PoS;

On November 24, the balance of the deposit contract address reached the minimum startup requirement, and ETH2.0 Genesis will be officially launched on December 1;

On November 18, the ETH2.0 research team stated in the fifth AMA that the ETH2.0 roadmap has changed, and ETH2.0 will be transformed from the original "sharded execution system" to "PoS beacon chain verification execution + data sharding".

Ethereum enthusiast Ajian pointed out in a recent article that because the verification of sharded transactions is difficult to be as simple as verifying block headers, and transactions in different shards are difficult to be independent of each other, verification cannot be completely processed in parallel, so the original route of ETH2.0 is difficult to achieve; and in the new roadmap, the scalability brought by data sharding is not strong, "the scalability advantage of the new roadmap is too small to make Ethereum risk entering PoS."

In other words, the Ethereum team has already compromised on the original ETH2.0 roadmap because it is difficult to implement, and the new plan is not satisfactory. The realization of the ETH2.0 vision faces relatively big challenges.

Although there is a joke circulating in the market that "If ETH2.0 succeeds, the price of the currency will skyrocket and the miners will get their money back in advance; if it fails, 1.0 will continue to mine, and the miners will be invincible no matter what." However, it is foreseeable that if the Ethereum system really fails to "escape" to a higher dimension, the entire system will be trapped in the quagmire of low performance, the price of the currency will inevitably be greatly impacted, which will in turn affect the miners' income.

In addition, in the transition from ETH1.0 to 2.0, the Ethereum team also wants to promote the EIP-1559 proposal. The Ethereum team mentioned in the fifth AMA that "EIP-1559 belongs to the fee market part of sharding data in the ETH2.0 specification."

The EIP-1599 proposal mainly involves two aspects of changes: one is the dynamic adjustment of block size, so as to alleviate the problem that sometimes the block is too full and transactions need to wait for packaging, while sometimes the block is too empty.

The second is to divide the transaction fee into two parts. One part is the basic fee. Within a block, the basic fee is fixed, but the basic fee of each block will be adjusted according to the congestion of the network. The basic fee will increase when there is congestion and decrease when there is idle, so as to adjust the congestion of the network. It is worth noting that the basic fee will be destroyed and miners cannot obtain it; the second part is the tip given by users to miners.

It can be seen from this that after the Ethereum network transaction fees are divided into basic fees and tips, although the Ethereum network can capture the value of on-chain transactions (the more on-chain activities, the more basic fees are destroyed, the less ETH circulation, the more ETH appreciates), but in fact the miners' transaction fee income will be reduced, which is equivalent to distributing part of the handling fees originally allocated to miners to all ecological participants.

Different miners have different opinions on whether EIP-1559 will have an impact on miners. Some miners told Bibi News that the proportion of transaction fees in miners' income in most cases hovers around 2-3%, so the impact on miners is not very large.

However, some miners believe that events like DeFi liquidity mining mean huge gas revenues for miners, and it would be a pity to abandon them. The advancement of ETH2.0 may mean the arrival of EIP-1559.

In addition, as reported by Blocklike, miners may have differences of opinion on ETH2.0. Du Chao, founder of ByteChain, believes that "when it comes to the time to switch from the beacon chain to 2.0, miners will not agree, and they will continue to mine on 1.0. Although miners know about these plans, they do not completely agree. It's just that the Ethereum community does not value the miner group, and miners do not have much say."

As mentioned above, if the migration of Ethereum from 1.0 to 2.0 is not done well, the gains may outweigh the losses. Many participants in the community believe that ETH2.0 is a false proposition. Because Ethereum graphics card mining machines can also mine currencies including ETC, Grin, Beam, CKB, RVN, XMR, BTG, AION, etc., these projects are eyeing the possible withdrawal of ETH computing power.

On platforms such as Weibo, ETC and other projects have been estimating the computing power of 4G graphics card mining machines: 4G graphics cards account for about 60% of Ethereum's total computing power, and DAG files are about to fill up 4G. 4G graphics card mining machines will be eliminated from Ethereum mining, and these mining machines may enter ETC mining.

Information source: Weibo

In addition, according to information obtained by Bibi News, if miners really withdraw from the Ethereum ecosystem, some miners may choose to sell their mining machines. General-purpose graphics card mining machines can provide miners with 20-30% residual value.

The Ethereum network is trying to verify new solutions regarding decentralization, security, and scalability. The entire community is on an unknown road. How it will develop in the future and what choices ecological participants, including miners, will make, all require time to answer. But what is certain is that no matter how ETH2.0 develops, the market will always make the wisest decision.

Note: The article makes the worst guess about the development of Ethereum and the attitude of miners. The future is unpredictable. The development of the Ethereum network may not decline. There are also many users in the community who are optimistic about ETH2.0. Readers still need to observe and judge on their own. The above is not an investment advice.

Reference articles:

"Opinion | Should Ethereum's roadmap change?" by Ethereum enthusiasts

"Consensus differences, the voice of the ETH2.0 community, the coin holders "cannot hear"" by Blocklike