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Ethereum has recently created history after shifting its blockchain from Proof-of-Work to Proof-of-Stake for energy efficiency via The Merge. The decision spanned a long time before it was finalized and implemented in September 2022. Although this is good news for the environment, it may not be the case for the crypto-mining industry.
Ethereum was the top profitable mining opportunity before The Merge. Even combined, the other cryptos in the list do not offer the same profitability. As a result, the mining industry has suffered a massive fallout. It has been estimated that over $5 billion worth of mining hardware has been displaced. So, what will now happen to the miners? We’ll get right into its details in this article.
What is Ethereum Merge?
Currently, there are a lot of mixed opinions on cryptocurrency regarding its nature. The most crucial factor remained its use of electricity to mint coins. Moreover, minting Ethereum coins incurred massive amounts of energy, raising environmental concerns.
As a result, The Merge came to be, which helped Ethereum to shift from Proof-of-work to Proof-of-stake. It will reduce more than 99% of emissions, as per estimates, and help crypto become greener. In the new Proof-of-Stake system, a validator is chosen randomly on the blockchain network based on the number of coins they have staked. The validator is rewarded when they’re picked after the transactions are validated.
In comparison, the Proof-of-Work system used high-performance computers to solve complex algorithms, which used a lot of energy. With the introduction of The Merge, staking pools will become the new norm of minting cryptocurrencies where the transactions will be validated over the network.
What Will Happen to the Miners?
For the most part, many miners are already considering exiting the crypto market. Their expensive hardware now seems to be of no use, and they are currently hoping to reel in other opportunities. Needless to say, we are at the beginning of an end to the mining market. Miners have become helpless and are left with the following options:
Move to Other Mining Coins
As mentioned earlier, Ethereum was the only crypto offering higher rewards than other coins. With the shift to a proof-of-stake system, there is hardly any other crypto that will be as profitable as Ethereum. In 2021, mining revenue from Ethereum had trumped even the likes of Bitcoin.
Even if the miners choose to mint other coins on the network, it will earn them the same profits as they did while mining Ethereum. Moreover, a gradual increase in mining other coins will only make those coins unprofitable in the future.
Shift to Other Projects
Apart from mining crypto coins, other projects require mining from Graphical Processing Unit (GPU) chips. These projects may or may not prove to be equally profitable but are present as viable alternatives.
However, increasing the number of miners in a GPU project will gradually decrease the value of rewards earned. If the project becomes profitable, it will attract more miners, reducing the overall earning capacity.
Effect on Profitability
Due to The Merge, Ethereum miners are currently forced to be on the sidelines. There are hardly any lucrative options available to the miners. Apart from individual miners, many mining companies will be affected as well.
Due to the high electricity costs incurred in mining projects, minting other coins is hardly worth the money. Ethereum had a significant share in the mining industry; with it gone, miners have lost a source of income.
Opportunities for Miners Coping with Ethereum Merge
Miners are now moving on to find similar or different opportunities after The Merge. Many miners have already shut down their operations in Ethereum. As a result, we are beginning to see an end to the Proof-of-work system in the crypto mining industry. Hence, miners are left with the following possibilities:
Migration to Proof-of-Work Chains
Ethereum was not the only proof-of-work chain in the crypto market. There are other mintable coins on the network that follow the old system. Hence, miners can migrate to these alternative chains if they wish to continue mining.
Many have also proposed a hard Ethereum fork to maintain the old system. However, there have been no final decisions regarding the matter. Ethereum has had a past of being forked in the past to circumvent hackers from accessing the funds. As a result, it has a good probability of being forked again.
Mining ETH Classic
Once The Merge came into effect, many miners had already moved on to the next alternative - Ethereum Classic, ETC. It saw massive growth in both nethash and difficulty. However, its profitability is still lower when compared to Ethereum.
The main problem with shifting to other projects is the rising participation from miners. As the number of miners increases in a project, its hash rate increases, making it difficult to mine. Eventually, it brings down the total rewards earned per unit of hash rate. This cycle will continue in any project or coin with a high participation rate.
Machine Learning & Artificial Intelligence
As mentioned in the beginning, miners have a high-performance computer system. If the miners exit the market, they can contribute their system towards machine learning and artificial intelligence.
High-performance computers can contribute towards solving complex algorithms and coming up with new ones. This will help to increase AI development, which will bring about new opportunities in the future.
The Merge was a long-planned decision to help the crypto ecosystem increase its use case and reduce energy consumption. It will benefit both the end users and the environment. As a result, miners are forced to exit the mining industry and use their high-performance computers for other uses. They have lost an essential source of income, and earnings from the current alternatives are not worth the energy costs. Moreover, shifting to other projects and coins will only increase its difficulty and reduce its profitability in the future.
Ms.Tarusha Mittal, COO and Co-Founder, UniFarm and Oropocket
An experienced professional with over a decade-long experience. Tarusha has co-founded multiple technology ventures prior to founding OroPocket. She also served as the Chief Operating Officer (COO) at Cloudrino- multi-cloud management and infra platform and was amongst the founding team of ethx.co which has now been rebranded as OroPocket. She is responsible for operations and design at UniFarm and OroPocket.
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.