Ethereum’s long-awaited Proof-of-Stake merger happened yesterday, and now that the network no longer relies on intensive computing power via Proof-of-Work to process transactions, Ether miners are migrating in search of profit to new blockchains.
However, as I mentioned last month, these other chains don’t offer anywhere near the same level of profitability as Ethereum, a network that generated more mining revenue than Bitcoin over the past year. Still, ETH miners are trying to make the most of it.
Broader context: The ETH merger rocks the GPU mining sector
Proof-of-Stake replaces computing power with capital; Instead of performing energy-intensive calculations to mine new blocks, so-called “stakers” tie up capital in staking services or self-operated servers to perform the same function.
Before this shift, miners mined ether primarily using graphics cards (GPUs), the same computer chips that animate our screens with color and animation. These miners cannot use their computing power to mine a coin like Bitcoin, which is mined using specialized hardware via application-specific integrated circuit (ASIC) chips.
The only real alternatives for ETH miners in a post-merge world are Ethereum Classic – a blockchain that split from Ethereum in 2016 after the infamous DAO hack – Ravencoin and Ergo. Unlike other proof-of-work coins, these networks are all GPU-mined and potentially have enough economic weight to be worth the effort.
The hashrate for these networks surged on the day of the merger. Ethereum Classic hashrate exploded by 124%, Ravencoin hashrate increased by 98%, and Ergo hashrate increased by 146% since the event.
Additionally, each of these networks hit all-time highs after the event. However, they have since rejuvenated. Let’s examine why.
Outlook and Impact: Miners pushing into other chains will see profits shrink
This taper underscores the unfortunate reality that these networks cannot support the same amount of computing power as Ethereum. Before the merger, Ethereum’s hash rate was around 867 terahashes per second (TH/s).
So far, Ethereum Classic, Ravencoin, and Ergo have absorbed around 244 TH/s of that computing power (28%). As more miners compete on each network for the same rewards as before, the revenue potential (what we call hash price) for miners on those networks has dropped significantly. You can see the instant drop in the graph below.
Hashprice is a measure of how much money a miner can make for a unit of computing power per day on a given proof-of-work network. The chart above is measured in dollars per giggahash per day ($/GH/day). A gigahash equals 1,000,000,000 hasheswhich means that 1 GH mining hardware produces 1,000,000,000 guesses every second to try to find the next block in the blockchain.
According to an analysis conducted by Luxor Technologies, a miner using ordinary equipment and hashing at $0.06/kWh of electricity can no longer make a profit using Ethereum Classic and Ergo (however, miners with this equipment and performance profile are still green with Ravencoins). Assuming averagely efficient equipment, ETC miners currently require $0.03/kWh or less of electricity to turn a profit, while Ergo miners require $0.01/kWh of electricity to be green. If prices for these coins drop from here, it will be even lower, and we expect the hashrate of these networks to decline in the long-term.
As part of the merger, a collective of ETH miners also forked Ethereum to maintain the proof-of-work mechanism. This hard fork — a change in the blockchain code that makes it incompatible with the original chain, thus resulting in a new chain — went live on September 14th. It currently has a hashrate of 117 TH/s.
In the last 24 hours, the price has fallen by 79% to $8.96 and miners can expect to earn $1.30/GH/day currently mining this chain. Therefore, miners using average efficiency hardware can only make profits if they have electricity costs of $0.02/kWh or less, while miners using the most efficient hardware can make a profit of $0.06/kWh.
Notwithstanding the unprofitability of this network for most miners, there are a number of transparency issues that will discourage most miners from mining this chain, such as:
Decision Points: The Summer of GPU Mining’s Last Gasp
Playing on the common axiom that Bitcoin is digital gold, Ethereum proponents have often referred to Ethereum’s native asset, Ether, as digital oil because of the role it plays in powering Ethereum’s application ecosystem.
Well, we could rightly say that miners have moved from oil prospecting to resin drilling.
For most investors, this game of musical chairs has little impact on their investment decisions. Traders could have made good money speculating on price increases for these coins over the past two months, but that moment is probably over.
As for bitcoin and crypto mining stock investors, it’s worth keeping an eye on Hut 8 and Hive Blockchain, both of which have invested serious dollars in ether mining setups. These miners have likely easily returned these setups given how lucrative ETH mining has been in 2021, and they have the opportunity to repurpose their GPUs for high-performance computing.
However, the rest of the ETH mining community — namely, retail miners with smaller stakes and higher electricity costs — don’t have the same options as industrial-size miners like Hive and Hut 8. These miners could be fighting for scrap on Ethereum Classic, Ravencoin, and Ergo, but most of them will probably sell their devices or convert them into personal computers.
As the golden era of GPU mining draws to a close, gamers and other computing enthusiasts will no doubt witness a long-awaited drop in GPU prices in the coming months.