2.0 is about to start. Will Ethereum’s switch to PoS be an opportunity for ETC to make a comeback?

“When Ethereum switches to PoS, ETC will become the largest PoW Ethereum mining chain!” - As the Ethereum 2.0 migration approaches, the topic of whether ETC will inherit ETH’s computing power and price has been frequently raised again.

Some people think that this is an opportunity for ETC, and it may surpass ETH; others think that Ethereum Classic, known as the "Doomsday Chariot", is a joke with a market value of more than 30 times and a computing power gap of nearly 20 times. However, compared with whether ETC will surpass ETH, it is more worthy of further study whether Ethereum Classic can successfully pick up the leak and thereby enhance its market influence?

Stick to ETH or return to the ETC mining chain?

Similar to BTC and BCH, there is also a relationship of switching back and forth between the ETH and ETC mining chains, which are of the same origin. Last month, with the popularity of the Atlantis hard fork upgrade, the computing power of Ethereum Classic began to increase linearly from August 19, with a monthly increase of more than 35%; on the contrary, the computing power of the entire Ethereum network began to decline slightly from August 17, falling by 7.5 percentage points within the week. During the period from May to September last year when the computing power of the ETC mining chain skyrocketed, the computing power of the Ethereum mining chain also declined.

However, this switching trend is not obvious. Since the birth of ETC, the gap between the two mining chains has always maintained a multiple-level gap, and it has gradually widened due to the explosive growth of Ethereum in 2017; so far, the computing power gap between ETH and ETC has widened to nearly 20 times. In addition, the fluctuation of graphics card mining computing power is in line with the rise and fall trend of ETH mining chain computing power. It can also be seen that even if the income from Ethereum mining is decreasing or lower than that of other graphics card mining currencies, most Ethereum miners still prefer to stay with ETH or directly shut down and leave the market rather than switching computing power to ETC or other GPU mining chains .

(Data source: wk588, bitinfocharts)

The reason why miners stick to the ETH mining chain is simple, that is, stability and market size. As a blockchain network that occupies most of the computing power of GPU mining, Ethereum has leading advantages in market value, transaction depth, market influence, etc.; compared with other graphics card mining currencies, it is more suitable for miners to mine for a long time. For retail miners, although it is easy to operate "whichever has higher returns", small currencies are unstable after all and have limited dividend periods. After the short-term premium is wiped out, retail miners have to look for the next currency to mine. As for large mine owners, a large amount of switching computing power may cause the network of other currencies to be paralyzed. If a small part of the switching computing power is unstable and shuts down, the income is still not worthwhile. Panda Mining Pool also stated earlier that the current mining scale of most graphics card mining currencies is not enough to accept a large number of potential miners who have withdrawn from Ethereum, and most Ethereum miners will continue to prefer to stay in Ethereum. To a large extent, the persistence of miners will also be conducive to the support of Ethereum prices under the market.

Take Ethereum Classic as an example. A 51% attack occurred at the beginning of this year. According to Gas Tracker data, at 0:00 on January 7, Beijing time, the computing power of a private mining pool (address starting with 0x3ccc8f74) suddenly soared from 300GH/s to more than 5TH/s, accounting for 56% of the computing power of the ETC network during that period; and thus generated ETC double-spending transactions with a total value of over one million US dollars (data source: Coinbase). Although this attack did not have much impact on the ETC price and the network itself, it just confirmed the harm of switching computing power in large quantities to the transferred currency. This may also be one of the reasons why the mining income of ETC and ETH has been similar in recent months, but the computing power between the two mining chains is still quite different.

To some extent, most Ethereum miners have no choice but to continue mining ETH. Therefore, even if Ethereum officially starts staking on January 3 next year, as long as the ETH mining income is positive, there will not be a large-scale withdrawal of computing power for a certain period of time ; unless the mining reward distribution method in EIP7011 regarding the PoW/PoS hybrid mechanism stage is adopted.

According to EIP7011, the PoW block reward will be reduced to 0.6 ETH at this stage; and according to theoretical calculations, without considering the difficulty bomb detonation and the Ethereum block speed remaining at the current level, the ETH price must increase by at least 62 percentage points to $278 or the total network computing power must drop by 42% to below 100TH/s, so that Ethereum miners can barely maintain a balance between income and electricity costs. However, judging from the previous development progress and operations, Ethereum will not rashly reduce the PoW mining reward significantly before the Beacon chain fails to run stably; moreover, the PoW mechanism is still the dominant mechanism of the ETH chain at this stage, and only a small number of blocks will be generated through the PoS mechanism.

ETH enables PoS + ETC production reduction, will it be an opportunity for Ethereum Classic?

Before 2021 (when the full switch to the PoS mechanism is completed), in addition to the official launch of ETH Staking, the more threatening thing for Ethereum miners should be the unknown difficulty bomb. The difficulty bomb has been repeatedly postponed, and the next predicted detonation time is March next year. If it is officially launched by then, the Ethereum network PoW block speed will increase from the current 13 seconds to 38 seconds per month in the next four months. This means that if the current block reward remains unchanged, the ETH mined daily under the PoW mechanism in June 2020 will be reduced to one-third of the current stage. Under the double pressure of the block reward being divided by the PoS mechanism and the difficulty bomb, Ethereum miners will always have to make a choice of staying or leaving in Q2 next year .

For miners with better equipment and electricity cost advantages, they may be able to hold on for a while; but most miners who are unable to make ends meet or even mine ETH will soon have to shut down and leave. Just like when the difficulty bomb exploded in 2017 and 2018, most of the computing power will gradually flee the ETH network. But the difference is that next year, when ETH officially starts staking and gradually turns to PoS, Ethereum miners will no longer have the option of waiting for the opportunity and returning computing power to ETH. After leaving the Ethereum mining chain, they can only choose to switch computing power, let graphics cards return to the traditional market, or continue to stay on the ETH chain to participate in staking.

(Image source: etherscan, bitinfocharts)

However, from the current situation, it is less likely that Ethereum miners will choose to participate in Staking. Putting aside the initial fixed cost investment of miners, Ethereum's PoS protocol itself has a lot of uncertainty; and the fact that the operation of staking ETH to obtain BETH is irreversible will discourage many ordinary users, because it means that before ETH successfully switches to the PoS mechanism, users will not be able to use and trade the ETH locked on the Beacon chain. As for the option of returning graphics cards to the traditional market, it is not very realistic. Earlier, the staff of the Fish Pond and Xu Xin said in an interview with the Planet Daily that if it is NVIDIA's graphics card, it can carry new value in deep learning and video rendering, but miners need resources to find buyers; and the B-side demand is too concentrated, and miners cannot obtain it at all. Assuming that a large company has such a demand, it is likely to need 100,000 graphics card machines at once; it is better to mine directly.

After this analysis, switching computing power and looking for new top currencies in the graphics card mining industry is the best choice for Ethereum miners at this stage. In the absence of new graphics card mining star currencies, ETC, which has a relatively stable performance and relatively good market depth, is the best choice to some extent .

Comparison of the top 20 graphics card mining coins by market value (data source: Coinmarketcap, wk588)

Although the market value of Ethereum Classic is not as good as Monero, which also supports graphics card mining, it is listed on more exchanges, ranks high in daily trading volume, and has a higher network computing power. In front of profit-seeking miners, in addition to mining income and prices, trading depth is also a key point for them, especially large miners; otherwise, the mined coins will have no competitors in the exchange, and mining is useless. On the other hand. For miners who purchased AMD graphics cards (high efficiency and low cost but difficult to transform) and Ant E3 mining machines (focused on the Ethash algorithm), the currencies that can be switched are very limited; ETC, which has the same origin as ETH and has removed the difficulty bomb, is also a more suitable choice for them.

(Image from: github.com/ethereumproject)

What is more noteworthy is that the activation of the ETH difficulty bomb and the reduction of ETC mining rewards in March next year will have a boosting effect . According to the data of ECIP-1017, the ETC network will reduce the block reward by 20% for every 5 million blocks mined; and Ethereum Classic will face another reduction in production around March next year.

Although it is different from the halving of block rewards every four years for Bitcoin and Litecoin, historical data shows that a similar "halving market" also occurred during the ETC production reduction period; its price reached a historical high of $46.17 in the month of the production reduction, with a monthly increase of nearly 20%. Of course, the production reduction during this period happened to hit the bull market in 2017, and it remains to be seen how much the price increase of ETC was affected by the production reduction. If the plot of the "halving market" develops, the price of ETC will go out of the upward trend; at the same time, under the background of the difficulty bomb being activated and the sharp decline in ETH mining income, the ETC mining chain will have the possibility of taking over part of the ETH computing power . Although this is not enough for Ethereum Classic to counterattack, it is still possible to get rid of the name of "Doomsday Chariot" with the growth of computing power and price.

(Source: Hash Party, Author: LucyCheng)