Ethereum Merge invites miners and mining pools to make a choice

The Ethereum blockchain is ready to make its long-awaited transition from its current state. proof of work (PoW) mining consensus for proof of stake (PoS). The merger date is officially scheduled for September 15-16 after the successful final Integration of Goerli testnet to the Beacon Chain on August 11.

Currently, miners can create new Ether (ETH) by pledging a huge amount of computing power. After the merger, however, participants in the network, known as validators, will instead have to pledge large amounts of pre-existing ETH to validate blocks, create more ETH, and earn staking rewards.

The three-phase transition process began on December 1, 2020, with the launch of the Beacon Chain. Phase 0 of the process marked the start of the PoS transition, where validators started staking their ETH for the first time. However, phase 0 did not impact the Ethereum mainnet.

Phase 1, the integration of the Beacon chain with the current Ethereum mainnet was planned for mid-2021; however, due to several delays and unfinished work on the developer’s side, it was postponed to early 2022. Phase 1 is expected to be completed in the third quarter of 2022 with the merger. This phase would eliminate PoW-based miners from the ecosystem and make many current PoW-based projects redundant.

Phase 2 and the final phase of the transition would see the integration of Ethereum WebAssembly or eWASM and introduce other key scalability features, such as sharding, which developers and co-founder Vitalik Buterin believe would help Ethereum to achieve processing speeds comparable to centralized payment processors. .

In anticipation of the merger, there have been active discussions about what will happen to the PoW chain after the mainnet transitions to PoS. Many centralized exchanges expressed support for the merger, but said that if PoW-based chains gain traction with miners, exchanges will list the forked chain and support them.

Evaluate the possibility of a successful hard fork

Chandler Guo, an influential Bitcoin (BTC) miner, was among the first to present a case for the Ethereum PoW chain after the merger. In a July 28 tweet, Guo shared a screenshot of Chinese miners saying PoW Ethereum is coming soon.

However, Buterin denounced those who advocate this forking, saying that it would only be a ploy for miners to make easy money without benefiting humanity. Perhaps more importantly, it appears that much of the decentralized finance (DeFi) ecosystem has no intention of supporting Ethereum PoW, which is reason enough for Ethereum advocates take a conservative approach to mergers.

Shane Molidor, CEO of crypto exchange AscendEX, thinks there is a definite chance of forks, with PoW miners already showing interest, telling Cointelegraph:

“Some Ethereum miners may believe it is in their interest to redirect the new Ethereum PoS chain to PoW in order to continue using their expensive mining hardware. If this were to happen, ETH holders would likely be airdropped ‘ETH PoW’ in addition to their original ETH holdings that merged with PoS.

He added that if a fork does not occur, it is likely that other PoW chains such as “Ethereum Classic and GPU-intensive applications like Render Network will gain hashing power from older PoW Ethereum miners.”

Daniel Dizon, CEO of noncustodial ETH liquid staking protocol Swell Network, believes otherwise and sees a very slim chance of a successful fork. He explained to Cointelegraph that even if miners manage to create the PoW chain and keep it alive, there is very little chance that they will remain as profitable as before the merger:

“Ultimately, Ethereum’s value as a network goes far beyond its simple consensus mechanism. It extends to highly defensible characteristics, such as its user base, developer activity, its ecosystem, infrastructure, capital flows, etc.

He added that a full Ethereum PoS has always received support from the vast majority of the community and society at large, given the improved environmental, social and corporate governance outcomes after the merger. Additionally, he said that major “DeFi protocols will simply choose not to recognize the ‘Ethereum PoW’ variant over Post-Merge Ethereum, which is another major sticking point for the fork.”

The Ethereum mining industry is worth $19 billion, according to an estimate by crypto research group Messari. The report states that mining alternative PoW coins will not be economically sustainable for most existing Ethereum miners. The total market capitalization of GPU-minable coins, excluding ETH, is $4.1 billion, or about 2% of the market capitalization of ETH. ETH also accounts for 97% of total daily miner revenue for GPU-mined coins.

Big mining pools turn to staking

The transition is not so drastic for mining pools compared to individual miners, as pooling companies have never generated their own computing power and never invested money in soon-to-be-obsolete mining equipment. However, these companies have human capital, that is, the infrastructure necessary to organize the pooling of resources, find new consumers and maintain the satisfaction of thousands of current customers. Existing Ether mining pools are already well on their way to transitioning to staking pools.

Ethermine, one of the largest Ether mining pools, announced a beta version of Ethermine Staking in April. Nearly half of the hash power, or computing power, currently used to mine Ether is shared between Ethermine and F2Pool.

The second largest Ether mining pool, F2Pool, announced the end of the PoW mining era during the second week of August. The company said whether or not it supports the Ethereum fork is no longer important. He will let the mining community decide.

Dizon thinks there will be a huge impact on mining pools, and many of them could move to other PoW chains, but a majority will focus on the staking industry: “We are seeing that many mining pools miners are moving their operations towards Ethereum staking, which is expected to grow exponentially through the merger.

Related: The Merge: Top 5 Misconceptions About Ethereum’s Planned Upgrade

Will Szamosszegi, CEO and founder of Bitcoin mining platform Sazmining, told Cointelegraph that the idea of ​​an Ethereum fork is highly ideological – many Ethereum enthusiasts consider the costs of a PoW protocol to be higher than his advantages :

“One problem that Ethereum miners will face post-merger is that the cost of their overhead may exceed the revenue they could earn mining alternatives to Ethereum. They could instead invest their compute resources in Web3 projects that their mining algorithms and hardware can support.

Ethereum Classic vs Forked Ethereum PoW?

Antpool, the mining pool affiliated with mining platform giant Bitmain, announced that it has invested $10 million in development and applications for Ethereum Classic. Shifting ETH valuation into a PoS model will change the way ETH accumulates value from mining to staking and allow investors to earn passive income – like interest in a coin bank. fiduciary savings.

Sazmining COO Kent Halliburton told Cointelegraph, “Ethereum miners are currently divided on what to do after the merger. Some will continue to mine Ethereum Classic, which will still use a consensus mechanism. of proof of work after the Ethereum merger. Other miners are using their resources for higher-level crypto projects.

Related: Economic Design Changes Will Affect ETH Post-Merger Value, Says ConsenSys Director

Classic Ethereum (ETC) appears to be a more prominent choice for many Ether miners over the forked Ethereum chain. Chinese miner Guo, who has made his intentions to fork a PoW chain clear, was reminded by some on Crypto Twitter that ETC might be a better alternative than a forked token.

With just under a month until the official merger, PoW miners and mining pools have already started looking for alternatives. Many believe that the chances of a forked chain are negligible, given that there is no certainty about its value even after a successful fork. Others are predicting a rush of mining activity on Ethereum Classic. Ether mining pools seem to be the least impacted by the transition, as many of them have focused on the expanding staking ecosystem.