Ethereum’s long-anticipated merge to proof-of-stake occurred yesterday, and now that the network no longer relies on intensive computing power via proof-of-work to process transactions, ether miners are migrating to new blockchains in search of profit.
However, as I covered last month, these other chains don’t offer anywhere near the same levels of profitability as Ethereum, a network which produced more mining revenue than Bitcoin last year. Nevertheless, ETH miners are trying to make the best of it.
Broader Context: ETH Merge Shakes Up GPU Mining Sector
Proof-of-stake replaces computing power with capital; instead of running energy-intensive computations to mine new blocks, so-called “stakers” lock up capital in staking services or self-run servers to perform the same function.
Before this switch, miners mined ether primarily with graphics cards (GPUs), the same computer chips that enliven our screens with color and animation. These miners cannot deploy their computing power to mine a coin like Bitcoin, which is mined with special 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 in the aftermath of the infamous DAO Hack– Ravencoin, and Ergo. Unlike other proof-of-work coins, these networks are all GPU-mineable and potentially have enough economic weight to be worth the effort.
Furthermore, each one of these networks hit all-time highs following the event. However, they have tapered away since. Let’s explore why.
Outlooks and Implications: Miners Crowding Into Other Chains Will Shrink Profits
This tapering highlights the unfortunate reality that these networks cannot support the same amount of computing power as Ethereum. Before the merge, Ethereum’s hashrate was roughly 867 terahashes a second (TH/s).
So far, Ethereum Classic, Ravencoin, and Ergo have absorbed roughly 244 TH/s of this computing power (28%). With more miners on each network competing for the same level of rewards as before, revenue potential (what we call hashprice) for miners on these networks has dropped substantially. You can see the instantaneous drop-off in the chart below.
Hashprice is a measurement of how much money a miner can make for a unit of compute power per day on a given proof-of-work network. The above chart is measured in dollars per giggahash per day ($/GH/day). A gigahash equals 1,000,000,000 hashes, which means 1 GH of mining hardware produces 1,000,000,000 guesses each second to try to find the next block in the blockchain.
According to analysis conducted by Luxor Technologies, a miner using run-of-the-mill equipment and hashing with $0.06/kWh electricity can no longer turn a profit on Ethereum Classic and Ergo (miners with this equipment and power profile, though, are still in the green with Ravencoin). Assuming average efficiency equipment, ETC miners currently need $0.03/kWh or below power to see a profit, while Ergo miners need $0.01/kWh power to be in the green. If prices for these coins fall from here, this will be even lower, and we expect the hashrate of these networks to recede over the long term.
In the wake of the merge, a collective of ETH miners also forked Ethereum to maintain the proof-of-work mechanism. This hard fork – a change to blockchain’s code that makes it incompatible with the original chain, thus resulting in a new chain – went live on September 14th. It currently features a hashrate of 117 TH/s.
Over the past 24 hours, its price has fallen 79% to $8.96, and miners can expect to earn $1.30/GH/day mining this chain currently. As such, miners running average efficiency hardware can only eke out profit if they have $0.02/kWh power costs or less, while miners with the most efficient hardware can turn a profit at $0.06/kWh.
The unprofitability of this network for most miners notwithstanding, there are a number of transparency issues which will keep most miners from mining this chain, such as its orchestrators’ decision to send transaction fees to a wallet controlled by unknown entities.
Decision Points: GPU Mining’s Last Gasp Summer
Playing off the common axiom that Bitcoin is digital gold, Ethereum proponents have often called Ethereum’s native asset, ether, digital oil for the role it plays to power Ethereum’s ecosystem of applications.
Well, we could rightly say that miners have gone from prospecting for oil to drilling for resin.
For most investors, this game of musical chairs has little impact on their investing choices right; traders could have made good money speculating on price rises for these coins over the last two months, but that moment has probably passed.
As for Bitcoin and crypto mining stock investors, it’ll be worth keeping an eye on the likes of Hut 8 and Hive Blockchain, both of which invested serious dollars in ether mining setups. These miners likely ROI’ed these setups easily given how lucrative mining ETH was in 2021, and they have the opportunity to repurpose their GPUs for high-performance computing.
The rest of the ETH mining community though – namely, retail miners with smaller deployments and higher power costs – don’t have the same options as industrial-sized miners like Hive and Hut 8. These miners could fight for scraps on Ethereum Classic, Ravencoin, and Ergo, but most of them will probably sell their equipment or repurpose it for personal computer use.
As the golden-era of GPU mining comes to a close, then, gamers and other computer enthusiasts will no doubt see a long awaited decrease in GPU prices in the months ahead.