Ethereum Miners Face New Challenges After Merge
Ethereum’s highly anticipated transition to a proof-of-stake consensus mechanism took place recently, marking a significant shift in how the network operates. With this change, the reliance on energy-intensive proof-of-work mining has been eliminated, leading many ether miners to seek opportunities on alternative blockchains in hopes of maintaining profitability. However, as previously noted, these other chains do not provide anywhere near the same revenue potential that Ethereum offered, which outperformed Bitcoin in mining revenue last year. Despite these hurdles, ETH miners are adapting to the new landscape.
Impact of the Ethereum Merge on Mining
The switch to proof-of-stake has replaced the traditional mining process, which depended on computational power, with a system where participants, or “stakers,” lock up their capital in staking services or self-managed nodes to validate transactions. Before this shift, miners utilized graphics processing units (GPUs) to mine ether, the same technology used for rendering graphics in computers. However, these miners are unable to pivot to Bitcoin mining, which requires specialized hardware known as application-specific integrated circuits (ASICs). The main viable options for ETH miners in the post-merge environment include Ethereum Classic, Ravencoin, and Ergo. These alternatives are all mineable via GPUs and have sufficient economic activity to justify the effort. Following the merge, the hashrate for these networks surged, with Ethereum Classic increasing by 124%, Ravencoin by 98%, and Ergo by 146%, reaching all-time highs. However, these figures have since declined.
Profitability Declines as Miners Shift
This decrease in hashrate highlights a challenging reality: these alternative networks cannot sustain the same level of computing power as Ethereum. Prior to the merge, Ethereum’s hashrate was approximately 867 terahashes per second (TH/s). The combined hashrate absorbed by Ethereum Classic, Ravencoin, and Ergo amounts to about 244 TH/s, or 28% of Ethereum’s former power. With an influx of miners competing for the same rewards, revenue potential, referred to as hashprice, has significantly diminished across these networks.
Understanding Hashprice and Mining Economics
Hashprice is a critical metric that indicates the earnings a miner can generate for each unit of computational power per day on a proof-of-work network. According to data from Luxor Technologies, miners utilizing average equipment and paying $0.06 per kilowatt-hour (kWh) for electricity are currently unable to generate a profit on Ethereum Classic and Ergo. To break even, Ethereum Classic miners need electricity costs below $0.03/kWh, while Ergo miners require costs under $0.01/kWh. Should coin prices decline further, profitability thresholds would become even stricter, leading to a potential long-term reduction in the hashrate of these networks. Following the merge, some ETH miners initiated a hard fork to retain the proof-of-work mechanism. This new chain, which went live on September 14, boasts a hashrate of 117 TH/s. However, its price has plummeted by 79% to $8.96, and current earnings are only $1.30 per gigahash per day, making it unprofitable for most miners unless their electricity costs are exceptionally low.
The Future of GPU Mining and Its Implications
As the crypto community likens Bitcoin to digital gold, Ethereum supporters have often referred to ether as digital oil due to its role in powering Ethereum’s ecosystem. However, the narrative has shifted for miners, who are now struggling to find value in their operations. For most investors, the current situation may not directly impact their trading decisions; while there were profitable trading opportunities over the past couple of months, that phase appears to have passed. Investors in Bitcoin and crypto mining stocks, such as Hut 8 and Hive Blockchain, may want to monitor these companies closely. They have heavily invested in ether mining, which proved lucrative in 2021, and can now repurpose their GPUs for high-performance computing tasks. Conversely, smaller retail miners, who often face higher operational costs and have less flexibility, may end up selling their equipment or converting it for personal use. As the peak of GPU mining fades, it is likely that gamers and tech enthusiasts will experience a long-anticipated decline in GPU prices in the near future.
