Does Ethereum 2.0 Mean the End of Mining?
Ethereum 2.0, the highly anticipated update of the Ethereum blockchain, is expected to make the network more sustainable, secure, and scalable. This massive upgrade will result in switching Ethereum to a new consensus mechanism. But, what does this mean for mining?
With Ethereum’s own website stating that mining will become obsolete after Ethereum 2.0 launches, the future doesn’t look bright for Ether miners. Let’s break down what will happen with mining and what your next steps should be.
What’s Ethereum 2.0?
Ethereum 2.0 is an upgraded version of the Ethereum network that will use a proof-of-stake instead of a proof-of-work consensus mechanism.
The latter entirely relies on mining, with miners using powerful computers to solve complex mathematical equations known as hash functions. This system uses a massive amount of electricity for verifying transactions.
At the moment, Ethereum’s total power consumption is comparable to the country of Portugal, while its carbon footprint matches that of Myanmar. Switching to verifying transactions via staking will drastically decrease these alarming figures, thus addressing one of the most prevalent cryptocurrency criticisms.
The proof-of-stake mechanism will reduce the amount of computational work necessary for verifying blocks and transactions. Instead of solving cryptographic puzzles, coin owners simply need to hold and stake their coins.
Coin owners become validators once they buy and stake coins as collateral. The blocks will be randomly validated, which is a stark contrast to the competition-based mining.
Due to this competitive approach, the proof-of-work mechanism encouraged people to look for any way to gain an advantage. This typically resulted in massive farms of single-purpose hardware equipment, which Ethereum 2.0 aims to eliminate.
When’s Ethereum 2.0 Launching?
The shift to Ethereum 2.0 has been set in motion since late 2020. It marked the first out of the three planned phases.
Phase 0: Beacon Chain
Phase 0 laid frameworks for the subsequent two phases. It was launched in December 2020 by creating a proof-of-stake blockchain called Beacon Chain. This phase aimed to create a central coordination and consensus hub for Ethereum 2.0.
Phase 1: The Merge
Phase 1 aims to merge the current Ethereum Mainnet with Beacon Chain, effectively switching the consensus mechanism to proof-of-stake. This update is expected to roll out in the third or fourth quarter of 2022. According to the developers, the Merge will eliminate the need for energy-intensive mining and start a new era of eco-friendly Ethereum.
As of April 2022, there have been two parallel blockchains, the second being a test chain using the proof-of-stake mechanism. After the Merge, there will no longer be two separate Ethereum networks. There will only be a unified Ethereum blockchain.
Phase 2: Shard Chains
The beginning of Phase 2 depends on how quickly the work progresses after Phase 1. At the moment, shard chains are expected to be released in 2023. They will provide more affordable storage layers for rollups and applications, reducing network congestion and increasing the number of transactions per second. The current Ethereum 1.0 chain is expected to become a shard of Ethereum 2.0. In total, the network’s load will spread across 64 new chains.
What Does Ethereum 2.0 Mean for Miners?
Once Ethereum 2.0 ships, the proof-of-work consensus mechanism and, in turn, mining won’t automatically be disabled. In theory, Ether miners could continue their established practices even after the Merge.
However, the Ethereum developers are dead set on completely transitioning to the proof-of-stake consensus mechanism. Having anticipated that many people would choose not to transition to staking, they’ve developed a mechanism called the “difficulty bomb.”
What’s Ethereum’s Difficulty Bomb?
Ethereum’s difficulty bomb will significantly increase the time necessary to mine a new block by making the puzzles in the mining algorithm more difficult. This will, in turn, increase energy usage.
This mechanism is intentionally set to launch in June 2022, shortly before Ethereum 2.0 is released. It aims to do the following:
- Encourage miners to move away from energy-intensive proof-of-work consensus mechanism
- Take away the possibility of centralizing currency ownership and creation
- Force node upgrades
- Discourage blockchain forks
Simply put, the difficulty bomb is a deterrent that will make mining worthless. Therefore, Ethereum miners risk losing their cash flow overnight as their machines become obsolete. In addition, their GPUs’ resale value is also expected to drop significantly.
As a result, Ether miners will either have to switch to staking or find a different coin to mine.
Currently, there are many different proof-of-work cryptocurrency options for miners. They can transition their graphics cards to coins that are profitable with their current equipment.
Unfortunately, other coins are likely to be less profitable than Ether. On top of that, if a considerable number of miners start seeking new coins, the profitability of these alternate options might decline even further.
What Are the Alternatives to Ethereum?
Ethereum miners can use their consumer hardware to mine several other cryptocurrencies profitably. The most popular alternatives are the following:
Regrettably, these coins are currently not as nearly as profitable as Ethereum. Their profitability fluctuates, but it’s generally 30 to 50% less than Ethereum at any given moment. Also, they have significantly smaller market caps and are listed on fewer exchanges, making their sale more challenging.
But, the biggest downside of smaller coins is their volatility. This means these coins tend to rise and fall much more dramatically than larger coins. As a result, it isn’t easy to choose which coin to mine.
Is Bitcoin a Viable Alternative to Ethereum?
Despite its high volatility, Bitcoin has arguably been the most popular cryptocurrency since its inception.
However, Bitcoin isn’t on the list of viable alternatives for Ethereum miners because of the difference in equipment used for mining these coins.
This cryptocurrency is mined using application-specific integrated circuit (ASIC) miners, so your existing consumer graphics cards would be of no use. Therefore, Bitcoin wouldn’t be the best route to take if the goal is to use the existing hardware equipment.
Nevertheless, you can always invest in their specialized hardware and switch to mining these coins.
Will Mining Disappear Completely?
The mining hash rate is one of the key metrics in measuring the overall performance of miners in a network. The more GPUs mining a specific cryptocurrency, the higher its hash rate.
Ethereum currently has a substantial advantage over the other coins’ total hash rates, meaning most GPUs tasked with mining are used for Ethereum.
As a result, once the Merge takes place and the difficulty bomb is implemented, many miners will look for the next best option. This sudden surge in hash rate will ruin the smaller coins’ profitability due to a mechanism called the mining difficulty.
Mining difficulty is a simple mechanism that ensures a steady block production rate. If its hash rate increases drastically, the network will compensate by increasing the difficulty of solving each block.
So, a massive influx of miners will cause these alternative networks to make it almost impossible to solve a block and receive a reward. If mining takes such a colossal profitability hit, it will likely die off, as miners won’t have any incentive to continue.
Can Mining Be Saved?
With how popular cryptocurrency mining is, many people stand to lose a lot if it ends. Naturally, most miners are eager to continue making money using the hardware they already own.
In theory, the value of alternative coins could rise together with their hash rate if enough people buy and hold them. This would, in turn, lead to them remaining profitable even after the Merge.
The earnings might never be as high as they were with Ethereum, but they could stay high enough to ensure a profit. If running a GPU costs less than the unit earns, many miners will probably choose to continue this endeavor.
What’s the Best Route for Miners?
The crypto market is widely unpredictable, so there’s no telling which scenario will occur once Ethereum 2.0 is launched.
Many miners will probably choose to liquidate their hardware to avoid it becoming useless and worthless. It might be prudent to do so before the Merge when GPUs are likely to flood the market.
If a larger portion of miners sells their GPUs, this can open the door to a smaller mining community continuing to make a profit. Profitability might initially take a hit, but the coin prices could eventually catch up with the mining difficulty.
Of course, there’s always the option of investing in staking. This might be the most sensible option, considering it includes the least amount of speculation.
Ethereum holders who switch to the proof-of-stake will pay less for transactions. Also, they can use their existing coins to become validators. Finally, any apps they have on Ethereum will migrate to Ethereum 2.0 with no data or records losses.
To Mine or Not to Mine?
The launching of Ethereum 2.0 will undoubtedly change the course of crypto mining. Although mining Ether will become unprofitable, other mining options might still appeal to you. Alternatively, you can sell your hardware and use the money to accumulate more Ethers and start staking. Consider your choices wisely and do your best to stay ahead in this unpredictable market.
