We are not stopping mining and we will not stop.
The development of Ethereum is moving forward and it is possible that this year will see the long-awaited change in the consensus mechanism from proof of work to proof of stake. This change, which was planned from the beginning of Ethereum’s inception, will no longer use machines for mining cryptocurrencies to verify transactions, but instead, so-called validators, who “stake” a certain amount of tokens in the system and allow validators to verify transactions.
What does that mean for miners? Will mining perish for good?
Mining is unlikely to disappear completely in the near future. The proof of this is Bitcoin, which still uses PoW and mining rigs to verify transactions on its blockchain. However, Bitcoin mining is done on specialized equipment designed solely for this purpose, known as ASIC miners, which have made mining less accessible to the average user and have contributed to a more centralized mining landscape.
The end of Ethereum mining will not affect Bitcoin miners, but it will impact those who prefer to mine cryptocurrencies using graphics cards.
Currently, it is possible to mine dozens of cryptocurrencies on graphics cards, with varying levels of profitability. In the long run, Ethereum mining has been the most profitable, with an enormous increase in network power and price for each Ether. As more power is added to the network, more active miners are attracted. However, as more miners join the same network, each individual miner receives a smaller share of the reward, as they are essentially dividing the same large pie among themselves. This is one of the fundamental and self-regulating mechanisms of cryptocurrency mining. The aforementioned metric is directly proportional to the price of the coin, as the more expensive the coin, the greater the interest in mining it. This metric works in reverse as well, which we can observe from the beginning of the year, when the price of Ethereum was steadily decreasing, and with it, the number of active miners. At present, existing miners are receiving larger rewards than they did last year due to the decrease in the number of active miners.
TMining Ethereum does not have the same power as Bitcoin, but it still has an impressive 958 TH/s as of today’s date. However, this power will need to be redirected elsewhere after Ethereum’s mining ends, and this raises a question that we touched on earlier. If this power is redistributed among ten currently profitable mining coins, each new and existing miner will receive significantly smaller rewards, and profitability will decrease dramatically. Miners may end up in the red. However, it is unlikely that this situation is as bad as it seems for several reasons.
Firstly, if mining other coins is to remain profitable, their prices must at least increase tenfold (based on current prices, Ethereum’s and other PoW coins’ prices, and mining rewards). While this may seem unrealistic at first glance, it is not uncommon for cryptocurrency prices to fluctuate significantly. If there is high demand for a lesser-known cryptocurrency with low market capitalization and liquidity, its price can increase significantly in a short period. As speculators and miners pile into the coin, its price can rise again, making mining profitable.
Secondly, a significant portion of Ethereum’s power comes from ASIC miners (estimates range from 50% to 70% of the network’s total power). This means that these machines will not be able to mine other PoW coins if they do not have the same Ethash algorithm as Ethereum. These machines will likely switch to mining Ethereum Classic, as it uses the same proof-of-work algorithm and is a well-established and known cryptocurrency. GPU miners will eliminate at least 50% of the competition on other mining pools and will therefore share larger rewards.
The last reason why this is not the end of mining is the self-regulating mechanism of mining. If mining becomes unprofitable shortly after the end of Ethereum, miners will not pay for electricity without earning anything, except for a few hard-core exceptions. At that moment, the difficulty of mining will decrease and the number of miners sharing larger rewards will increase, and mining will reach a certain profitability, where they will extract more value than they pay for electricity.”
What is our plan in this wild time with energy prices reaching more than a month’s worth of cryptocurrency, with a visible end to Ethereum mining and the current crypto winter? We will continue to mine.
