Having recently provided a Post-mortem ETH mergerthe outcome regarding the Ethereum-centric mining industry deserves its own analysis.
The Ethereum merger took place on September 15 and ultimately went off without a hitch. So what should Ethereum-based miners who have expensive equipment do now?
Migrating to other channels
Pre-merger Ethereum was run on a proof-of-work based consensus algorithm. Bitcoin is also based on proof of work. However, there are different types of proof of work, which means that Ethereum-based mining rigs cannot be redeployed to mine Bitcoin.
This leaves a range of Ethash-based cryptocurrencies that use the same equipment as Ethereum, such as Ethereum Classic, Ergo and Ravencoin. A segment of ETH miners believed that hashrate migration to these projects would lead to an increase in development and interest in these projects.
Others believed it would have a detrimental effect on miners' profitability in relation to such projects. It's still early but it seems that the latter is playing out.
If there are a lot of individual ETH GPU miners, it would seem intuitive that if they join other projects, they effectively grow those communities. However, adding mining power without any other positive blockchain-related developments will likely result in reduced profits as more miners seek the same level of reward. As profitability collapses, so do their interests.
Additionally, the utility of altcoins is much less than with Ethereum. This means that miners are more likely to dump coins into the market, driving down the prices of tokens from these alternative mineable blockchains. On the contrary, it could simply serve to destabilize these projects rather than give them a boost.
What happened with EthereumPoW?
In the months leading up to the merger, some Ethereum miners decided to move away from Ethereum and create a blockchain that continued in the same way that Ethereum existed before the merger. Led by developer Chandler Guo, EthereumPoW was created with the accompanying ticker symbol ETHW.
The efforts of ETHW supporters have so far been thwarted. The problem was not getting support from mining groups; it was the support from other stakeholders in the digital asset space that was lacking. One by one, major crypto players have come out and stated that they fully support the Ethereum merger and will not support blockchain forks like ETHW.
Guo was one of the main developers who created the Ethereum Classic Fork in 2016 following the DAO hack. Its efforts with ETHW meant that the new blockchain did not differ much from Ethereum Classic. If someone prefers a proof-of-work based Ethereum, Ethereum Classic would be a much more logical choice given that it already exists and has built its own community.
ETHW Unit Price Falls Following Successful ETH Merger: IMG SRC
It seemed like ETHW's only hope was for the Ethereum protocol upgrade to go wrong. Before the merger, the unit price of ETHW suffered from announcements from major players announcing that they would not support the forked blockchain.
When it became clear that the merger had been a success on September 15, the price of ETHW plummeted. Despite this, its supporters continue to try to move the project forward. On September 29, the Binance global exchange announcement that he was launching an ETHW mining pool.
Guo remains faithful to his positions and in a recent interviewhe claimed that ETHW would become a rival to ETH.
Alternative use cases
Faced with limited or unprofitable alternatives in blockchain mining, some have considered repurposing mining equipment for other use cases.
High-performance computing (HPC) – the ability to process data and perform complex calculations at high speed – is one such option. CoreWeave is an example of a company that has rotated from Ethereum mining to becoming a high-performance cloud computing provider.
The company has been preparing for the merger for some time. In 2021, cloud computing accounted for 14% of its revenue and by the end of 2022, HPC is expected to make up its share. 50% of income. CoreWeave also worked on converting GPU power to graphics rendering. Naturally, after the merger, this is no longer part of the ETH mining sector.
Ethereum GPU Miner Reuse Options: IMG SRC
Hive Blockchain – which operated one of the largest single-site Ethereum mining farms in the world – had a strategy in place in anticipation of the merger. This plan included switching some facilities to Bitcoin mining and alternative proof-of-work blockchains, but also a reorientation to provide cloud computing, rendering for engineering applications, and computing power for AI applications.
Hut8 Mining has in partnership with cloud computing specialist Zenlayer to reorient its capacity towards HPC cloud computing. In the race for alternatives, some have turned to protein simulation to medical research. This is a niche use case that only makes sense for single GPU miners. It does not adapt to mining farms.
In its efforts to stay relevant, Ethereum's largest mining pool, Ethermine, has instead opted for Ethereum staking. He paid the last mining reward granted to pool members a few days after the merge.
While it is admirable to see efforts to reuse this equipment, these use cases will likely only see a fraction of the Ethereum mining kit reused. Much of this hardware will be destined for Taiwan and China, where there is currently insufficient demand for GPUs.
According to According to Kristy-Leigh Minehan who advises on digital asset infrastructure and mining, a large number of these GPUs – there are estimated to be between 27 and 53 million Ethereum GPU cards – will end up unused.
An e-waste apocalypse
Anyone interested in energy consumption and its environmental aspects announced the merger. The protocol upgrade was responsible for a 0.2% decrease in global electricity consumption. That's quite an accomplishment, but it ignores the environmental elephant in the room: Ethereum mining e-waste.
ETH mining farm: IMG SRC
We talked about the limited options faced by Ethereum miners when it comes to alternative blockchain mining options. We've also looked at what appear to be limited alternative use cases.
The result of all this is that we will likely see massive dumping of mining GPUs onto sites like Ebay, Craigslist, and Facebook Marketplace. They will be scooped up at bargain prices by buyers who will soon discover that their attempts to use them for mining purposes will not be profitable.
Beyond that, they will end up in landfills since only about 20% of e-waste ends up being recycled. One could argue that the Ethereum Foundation and core Ethereum developers should share responsibility for this e-waste apocalypse.
Every effort has been made to achieve the protocol upgrade. There is little evidence of efforts being made to research alternative use cases or develop plans to reuse all of this expensive and resource-intensive mining kit.
Cause and effect
The response from Ethereum miners discussed above is a classic case of cause and effect. Here are other direct results from the successful Ethereum merger on September 15.
It is suspected that part of the reason Ethereum collapsed at the end of the merger was because Ethereum miners dumped ETH on the market as part of their efforts to end to their mining activities.
It is an ill wind that favors neither. Gamers have long been embittered by Ethereum mining's demand for GPUs. This demand has either made GPUs completely unavailable to gamers or made PC gaming incredibly expensive for them. As happy as the Ethereans were about a successful merge, the players were ecstatic. This means that the price of GPUs will likely drop significantly, making the hobby much more affordable.
Wrap
We are only weeks away from a post-merger Ethereum. However, it appears we can expect little other than what we have discussed for a once-lucrative Ethereum mining business that is now firmly in bankruptcy.