In the year of change for ETC and ETH, how should graphics card mining be planned?

In 2020, the two major Ethereum currencies, ETH and ETC, are in their respective transformation periods. Ethereum’s original chain ETC is about to experience its second production cut, ETH plans to switch from PoW to PoS in the second half of the year, and the graphics card computing power layout is about to undergo a major adjustment.

As Ethereum switches to PoS, where will the computing power of mainstream graphics cards go? Can ETC, which has the same origin, take over the computing power baton and lead the PoW camp? With the changes in computing power and price, how should miners mine ETC and ETH?

Recently, the F2Pool live broadcast room invited Xu Kang, head of ETC Asia Pacific, Zhang Songqing, co-founder of minerOS, and Kevin Zhou, head of Aladdin Mining Coin Research Institute, to analyze from the aspects of network value, ecology, computing power, etc., and lead the majority of mining enthusiasts to discuss the changes in computing power and understand the ETC ecology.

Reduce production by 20% and enter "Era 3"

As the original chain of Ethereum, ETC's economic model is designed with reference to Bitcoin. Its production reduction logic is similar to that of Bitcoin. However, considering design requirements such as network functionality and security, ETC's production reduction is not halved, but a 20% reduction for every 5 million blocks.

ETC's monetary policy is the result of protocol programming and does not rely on human subjectivity. This monetary policy is mechanized and algorithmic, with an upper limit and a saturated supply curve, which will keep the inflation rate on a downward trend.

• What are the characteristics of ETC’s block rewards?

Xu Kang, head of ETC Asia Pacific, compared it with BTC and pointed out the characteristics of ETC. The average block time of ETC is 15 seconds, the genesis block has more than 72 million pre-mined, including 1 EVM, 1 programming language and 1 gas system.

In block rewards, an obvious feature is the existence of "uncle block" rewards. When dealing with the situation where more than one block is discovered at the same time and broadcasted throughout the network, Bitcoin's rule is to discard the blocks with shorter chains and name them "orphan blocks" without giving any rewards. In ETC, since blocks are produced at a higher frequency, the possibility of generating multiple valid blocks at the same time is higher, and ETC's rule is to reward stable blocks at the same time, which are called "uncle blocks."

• How do ETC rewards change with the “era”?

Each time ETC undergoes a halving, it enters a new “era”, and each era lasts about 2.38 years. ETC has entered “era 2” at the end of 2017 and is about to enter “era 3”.

In "Era 1", a single block will receive 5 ETC rewards, a single uncle block can receive 4.30375 ETC rewards and 0.15625 ETC incentives, and a maximum of 2 uncle blocks can be packaged, so a maximum of 14.0625 ETC can be obtained each time;

In "Era 2", a single block will receive 4 ETC rewards, and a single uncle block can receive 0.125 ETC and an incentive of the same ETC. A maximum of 2 uncle blocks can be packaged, so a maximum of 4.50 ETC can be obtained each time;

Starting from Era 3, all block rewards will be reduced by 20%. Incentives including uncle block rewards will receive the same discount.

• As the “era” changes, where is the halving market currently at?

Kevin Zhou, head of Aladdin Mining Coin Research Institute, believes that the market has completed the first wave of production cuts in accordance with the "production cut script" and entered the pre-production cut correction stage.

Mainstream graphics card mining coins such as ETC will still develop according to the production reduction script. Although the causes of the outbreak and the final development of each project may be very different from before, the trend of mainstream projects will still "repeat history" according to the development script of a pullback before the production reduction, a rapid bottoming out after the production reduction, and then the start of a long-term slow bull market.

At present, we are at the tail end of the ETC production reduction market and at the head of the entire production reduction cycle.

ETH/ETH, the ratio shows changes

MinerOS co-founder Zhang Songqing pointed out the three factors that determine miners’ decision-making: computing power, currency price, and revenue. He also pointed out that ETH and ETC, both of which use the Ethash algorithm, can understand the flow of mining resources at critical moments in the development of the two networks from the ratio of their prices, computing power, and revenue.

• How do the computing power, price and revenue of ETC and ETH with the same algorithm change?

Through data analysis we can find some characteristics:

The ETC network's computing power is strongly correlated with the price of the coin, and the computing power and price rise and fall synchronously. In terms of magnitude, from the end of 2019 (when the production cut expectations began) to the recent period, the price of the coin has increased by 4 times at most, and the computing power has increased by 2 times at most.

Changes in the daily output of ETC and ETH will also affect the price of the currency. From historical data, each change in daily output will have some impact on the price of the currency. When the daily output of ETH decreases, the price of ETH first falls and then rises, while the price of ETC is the opposite; and when the daily output of ETC decreases, the price of ETC first falls and then rises, while the price of ETH is the opposite.

The expectation of production cuts affects the comparison of computing power. From the end of 2019 to mid-January, the computing power gap narrowed as the ETH/ETC price ratio decreased; then the ETH price rose and the computing power gap widened. Compared with other currencies with the same algorithm, the market is reluctant to sell the currencies with production cuts, which first rose and then fell. After the halving, due to the reduction in supply, the currency price gradually recovered.

• How do the ETC and ETH computing power markets achieve self-regulation?

Similar to "moving bricks" on exchanges, miners can achieve self-adjustment during the price changes of the same algorithm mining coins. Due to the emergence of miner management systems such as minerOS, NiceHash computing power trading system and some machine gun pools, the short-term benefits of miners mining ETH and ETC are currently the same.

• What impact will the production cut have on miners’ income?

Compared with a 20% and 50% reduction, the risk of short-term income changes for miners is a little smaller. According to Tokenview data, on March 8, 2020, the total market value of ETC was US$869 million, which is still small compared to ETH's US$24.89 billion. ETH's daily output value is US$2.3 million, and ETC's daily output value is US$142,000. Under the condition that other market conditions remain unchanged, the estimated impact of ETC's 20% reduction on the overall income of related miners is (-14.2*20%)/(230+14.2)=-1.1%.

ETH to PoS, computing power redistribution

How will ETH's transition to PoS affect the graphics card mining landscape? ETH miners are concerned about where the computing power will go. Currently, half of the total computing power in the graphics card market is in ETH. When ETH2.0 transitions to the PoS consensus, miners will inevitably choose ETC or other projects. How will this part of the computing power change? How will the ETC computing power increase as a result? The computing power distribution between ETC and ETH has become the focus of miners.

• ETC, taking over ETH computing power?

At present, there is still a big gap between ETC’s market value and ETH’s. Whether it can “take over” enough computing power from ETH depends on market performance. Although prices are difficult to predict, we can try to look at future trends from the perspectives of current status, value, and development potential.

When analyzing the reasons for the rise in ETC's production cuts, the head of ETC Asia Pacific said that supply and demand is only one aspect. In addition to the fixed monetary policy and issuance cap that make ETC tokens a "hard asset", the recognition of institutions and mainstream ecology, as well as the progress in technical interoperability with Ethereum, have also driven the value increase.

MinerOS co-founder Zhang Song pointed out that according to CoinMarketCap, ETC currently ranks 18th in the cryptocurrency market value, and is the graphics card mining currency second only to ETH in market value. After ETH switches to PoS, graphics card miners are likely to "join" ETC. Judging from the current market value of ETC, it is far from enough to take over the computing power of ETH, but compared with other currencies, ETC is more likely to take over the computing power.

Kevin Zhou, head of the Aladdin Mining Coin Research Institute, believes that in the long run, stable and continuous project operations and development will have a great impact on the market value of graphics card mining coins, because the current public chain ecosystem is very competitive, and only by using technology to complete the implementation of public chain applications can we seize the future. The value of ETC also depends on the growth of computing power to promote the improvement of network security. The once separated computing power is brought together again, which will inevitably promote new developments in the community and development.

ETC's mining income has long been the first among A-card mining coins. The computing power can ensure the network security of the mining coins, and can also explain the value of the mining coins, thereby promoting the price increase; and under the influence of the price, the computing power will automatically flow to the mining coins with higher prices. From this point of view, the growth of computing power and price is complementary.

• What strategies can ETH miners choose?

"Hoarding coins" is considered one of the coping strategies. Kevin Zhou, a researcher at Aladdin Mining Coin Research Institute, believes that the combination of the two factors of "ETC production reduction + ETH2.0" is "bad news" for graphics card miners. After the output of the project decreases, the income of the same computing power will decrease if the price remains unchanged. Although the conversion of ETH to PoS will go through a process, graphics card miners will eventually not be able to mine ETH with mining machines, and must consider switching computing power to other projects.

"ETH is going to switch to PoS. Can the mining machines still mine? How long can they mine?" Many miners have raised the question of how to deploy computing power when ETH upgrades to PoS. According to ETH official media, ETH's switch to PoS is expected to start this year, and the specific time has not yet been determined. After the launch of PoS, it will take up to two years or even longer to complete this major project. The PoW and PoS blockchains will coexist for a period of time to complete the transition. After the PoS chain of ETH is launched, miners can still use mining machines to mine and earn income. The process of PoW to PoS conversion is relatively slow, and miners have enough time to make adjustments and deployments.

In this regard, GPU miners need to make good use of current computing resources to mine and hoard more ETH and other reduced-production tokens. This is because 1) after ETH is converted to PoS, only by holding more ETH to participate in the network consensus can more token revenue be obtained; 2) if other reduced-production tokens are calculated according to the model that daily output is fully taken over by the market, then after the reduction in production, the market will demand the inflow of tokens with the same output value, raising the token price.

Long-term value and new narrative topics

Although the entire cryptocurrency market has been impacted in the short term, in the long run, the growth of network value and the iteration of mining hardware are still important factors driving the price of coins. We can look forward to the DeFi ecosystem, interoperability, and more new narrative topics.

• How can ETC achieve a stronger community?

There will be more discussions and progress on the compatibility between ETC and ETH, which is also a breakthrough point for the development of the ETC ecosystem. Xu Kang said that through Atlantis, Agharta and the upcoming Phoenix hard fork upgrade, ETC and ETH will be fully compatible. It is almost free to copy or transfer DApps on ETH to ETC, and even DApps on ETH and applications on ETC can be seamlessly connected and communicate with each other, truly achieving interoperability.

Soon, a large number of DApps of various types will appear on ETC, including DeFi ecosystems such as lending, exchanges, and stablecoins. After ETH switches to PoS, ETC can serve as the data availability layer of ETH2.0 and be responsible for security confirmation. This combination will be more conducive to the mutual integration of the two communities and achieve common prosperity.

• What challenges do graphics card mining machines face?

ASIC mining machines for the Ethash algorithm will become a hot topic. Zhang Songqing pointed out that this year, the DAG files of ETH and ETC will exceed 4G, which will make 4G graphics cards unable to mine. Compared with the topic of production reduction, the impact of graphics card mining machine iteration may be greater.

Xu Kang analyzed that the most important reason why Antminer E3 stopped mining ETH and ETC not long ago was the DAG limitation of 4G. In addition, the mining algorithms of Ethash and Bitcoin are very different, and it is inevitable that the big Bitcoin mining machine manufacturers will not adapt to the local environment. In addition to E3, the Ethash mining machine that has been announced is Innosilicon's A10. Some other manufacturers such as Linzhi are also eager to try. It is believed that many Ethash ASIC mining machines will surface this year.

This year, new narrative topics will emerge with the development of network protocols and changes in the market. Financial derivatives and DeFi network security will also bring more discussions to the industry along with the topic of production cuts.

This article is for reference only and is not an investment advice. Please be aware of the risks and invest with caution.