Ethereum Miners Face New Challenges After Transition
Ethereum has recently undergone its highly anticipated transition to a proof-of-stake model, leaving behind the proof-of-work system that demanded significant computational power for transaction processing. As a result, many ether miners are now exploring alternative blockchains in search of viable profit sources. However, as previously reported, these alternative networks do not provide the same profitability levels that Ethereum achieved, which outstripped Bitcoin in mining revenue last year. Despite this, miners are striving to adapt to their new circumstances.
Impact of the Ethereum Merge on GPU Mining
The shift to proof-of-stake replaces the need for extensive computational efforts with capital investment; rather than relying on energy-consuming calculations to mine new blocks, participants known as “stakers” lock up funds in staking services or operate their own servers to fulfill the same role. Prior to this transition, ether was primarily mined using graphics processing units (GPUs)—the same technology that powers vibrant visuals on our screens. Unlike Bitcoin, which requires specialized hardware known as application-specific integrated circuits (ASICs) for mining, ether miners are limited in their options. The main alternatives available in a post-merge landscape include Ethereum Classic, which separated from Ethereum in 2016 following the notorious DAO Hack, as well as Ravencoin and Ergo. These networks are all compatible with GPU mining and possess enough economic potential to warrant the effort. Following the merge, the hashrate for these alternatives surged significantly, with Ethereum Classic experiencing a 124% increase, Ravencoin rising by 98%, and Ergo climbing by 146%. However, this boom has since diminished.
Miners’ Earnings Decline as Competition Rises
The subsequent decline in hashrate highlights a critical issue: these alternative networks cannot sustain the same level of computational power as Ethereum could. Before the merge, Ethereum boasted a hashrate of approximately 867 terahashes per second (TH/s). Currently, Ethereum Classic, Ravencoin, and Ergo have absorbed around 244 TH/s of this computing capacity, which is only about 28% of Ethereum’s prior output. As miners flood these networks, competition for rewards intensifies, leading to a significant drop in their potential earnings—referred to as hashprice.
Mining Profitability Takes a Hit
Hashprice measures the revenue a miner can generate per unit of computational power each day on a proof-of-work network. It is expressed in dollars per gigahash per day ($/GH/day), where a gigahash represents a billion hashes. Analysis from Luxor Technologies indicates that miners using standard equipment and paying $0.06 per kilowatt-hour (kWh) for electricity can no longer turn a profit on Ethereum Classic or Ergo, although they can still make money mining Ravencoin under the same conditions. For miners to break even on Ethereum Classic, they now require electricity costs of $0.03/kWh or less, while Ergo miners need costs to drop to $0.01/kWh. If cryptocurrency prices decline further, these thresholds will lower, likely resulting in a decrease in the hashrate of these networks over time.
Forked Ethereum Struggles with Profitability
In the aftermath of the merge, a group of Ethereum miners initiated a hard fork to retain the proof-of-work mechanism. This new chain went live on September 14th and currently has a hashrate of 117 TH/s. However, its price has plummeted by 79% to $8.96 in the last 24 hours, with miners only earning approximately $1.30 per gigahash daily. For average miners, profitability is only achievable with electricity costs at $0.02/kWh or below, while those with more efficient hardware can manage at $0.06/kWh. Despite the challenges, many miners are deterred by transparency issues within this network, particularly due to decision-making that sends transaction fees to wallets controlled by unidentified parties.
The Future of GPU Mining in a Changing Landscape
The analogy of Bitcoin as digital gold has been frequently used, and Ethereum has been likened to digital oil for its role in powering a wide array of applications. However, the current reality for miners resembles a shift from extracting oil to searching for resin. For most investors, these changes may not significantly impact their decisions; while traders might have capitalized on price fluctuations recently, that opportunity may now be fading. For stakeholders in Bitcoin and crypto mining stocks, companies like Hut 8 and Hive Blockchain, which heavily invested in Ethereum mining operations, could still see a return on investment due to the lucrative nature of ether mining in 2021. These larger operations have the flexibility to repurpose their GPUs for high-performance computing. Conversely, smaller retail miners are left with limited options and may either compete for minimal rewards on Ethereum Classic, Ravencoin, and Ergo or choose to sell their equipment or repurpose it for personal computing needs. As the flourishing era of GPU mining wanes, a decline in GPU prices is anticipated, much to the relief of gamers and computing enthusiasts.
