Where will Ethereum’s miners go when you can’t mine on Ethereum any more? That’s the $19 billion question.
If all goes according to plan, the so-called Merge will take place in late September, completing Ethereum’s transition from the proof-of-work (PoW) consensus mechanism to a Beacon proof-of-stake (PoS) blockchain. This long-awaited event will force the network's mining industry, which research firm Messari estimates is worth $19 billion, to find other ways to make money.
Pioneered by Bitcoin, mining is the process of verifying transactions and racing to solve complicated math problems for the right to record transactions on the blockchain. In return for dedicating time and resources to performing this task, winning miners receive a fixed amount of newly issued currency. The Merge will replace this recordkeeping system with staking, which requires less computational power and energy.
One option being bandied about for mining pools is to redirect their expensive and powerful specialized computers to Ethereum Classic. This is the splinter network that emerged from the 2016 hard fork, after a hack in which $60 million was stolen from one of the earliest decentralized autonomous organizations (DAOs) on the Ethereum network. Ethereum split into two chains. The new one, which rewrote history as if the DAO hack never happened, took the Ethereum name. The initial version continued on as Ethereum Classic.
For most of its history, Ethereum Classic has operated in its namesake’s shadow. But last month, ETC, its native token, surged 150%, and its market cap as of Aug. 4 was about $5 billion (still dwarfed by nearly $200 billion for Ethereum proper).
Varying degree of concerns
Miners are signaling a variety of approaches to adapt to a post-Merge Ethereum.
AntPool, the mining pool affiliated with mining rig giant Bitmain, for instance, last month announced that it had invested $10 million into development and apps for Ethereum Classic, while Ethermine, the largest Ethereum mining pool, announced a beta version of EtherMine Staking, a staking pool service. Then, there were rumors that Ethereum miners would hard-fork the network in protest of the Merge. But the likelihood of that happening and being successful is extremely slim.
Luxor Technology, the full-stack bitcoin (BTC) mining software and services provider, also has made investments in Ethereum mining, despite the upcoming possibility of a change of consensus mechanism.
Luxor put together a PoW advocacy group aimed at keeping the blockchain on this consensus mechanism, Ethan Vera, the co-founder & chief operating officer of Luxor, told CoinDesk.
Vera said that the group came to fruition because of concerns about the transition to PoS. “While there are varying degrees of concern, the commonality is that there has not been enough testing of PoS transition yet,” he noted.
“The chance of an unsuccessful Merge is non-zero, which is very worrying to people who have invested time, social and financial into Ethereum,” Vera said.
There are billions of dollars at stake, and the Ethereum Foundation, the nonprofit that oversees network software development, is moving too fast in its process to switch to PoS, causing enormous risk for miners and those holding ETH, Vera added.
Although Vera said he believes Ethereum is best served on PoW, if the transition to PoS is successful, his company “will be happy for the ecosystem and still supportive personally and as a company.” He added that “we are highly interested in Ethereum intellectually as a project and all the interesting applications built on it.”
Vera wouldn’t say whether Luxor believes Ethereum Classic would be a better alternative, just that it would coordinate with its partners to determine where its mining practices will turn.
Hive Blockchain (HIVE), the first publicly traded miner, also shared with CoinDesk its challenges with Ethereum in a post-Merge era. When asked whether Ethereum Classic would become more valuable for miners in a post-Merge era, Aydin Kilic, president and chief operating officer of Hive said that “this would depend on the use case of Ethereum Classic.”
“Currently, approximately 95% of the DeFi projects exist on the Ethereum blockchain. If NFT and DeFi developers realize that a secure proof-of-work layer 1 blockchain is the best playing field for their code based projects, then we would expect to see a rise in applications on the Ethereum Classic blockchain,” Kilic said. He added that “we believe there is intrinsic value in a broadly decentralized proof-of-work coin, which Ethereum Classic stands to become, if the Merge does take place.”
So the jury is out on whether Ethereum Classic will gain in a post-Merge world. The only common thread seems to be that miners want Ethereum to succeed, regardless of what consensus mechanism they use, although they seem to prefer it to stay on a PoW mechanism.
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