A little over a month ago, around 3AM EST on September 15th, Ethereum officially merged from Proof-of-Work to Proof-of-Stake. What exactly was the Ethereum merge? What does the Ethereum merge mean? How does the Ethereum merge affect miners? These questions, and more, will be answered in this article.
What is Proof-of-Work and Proof-of-Stake?
In order to better understand the Ethereum merge, the difference between Proof-of-Work (PoW) and Proof-of-Stake (PoS) will need an explanation. Both PoW and PoS are methods of securing a blockchain and validating new transactions on said blockchain. PoW is a process where crypto mining hardware is used to solve hashes in the network to verify transactions and find the next block in the blockchain. This type of validation with computing power from machines is also why crypto mining is needed.
PoS, on the other hand, is a validation process where network validators use a consensus mechanism to validate new blocks that hold transactions in them. PoS does not require mining hardware for it to be operational, but it requires nodes to be run, which do require basic computer hardware. In order to run a node in most cases, a specific amount of the node’s crypto currency must be staked, or held, to become a validator. So for PoW, mining hardware is required to validate in the network, while for PoS, staking/holding cryptocurrency is required to become a validator in the network.
What was the Ethereum merge?
Ethereum was created as a Proof-of-Work (PoW) cryptocurrency, like Bitcoin, which means it required miners to secure the network and validate new blocks. For many years, Ethereum was planning to move from PoW to PoS, and this process held the namesake: Ethereum 2.0. Ethereum 2.0 is an ongoing process, which includes many upgrades of the Ethereum network, including the migration to PoS. The process of moving to PoS started when the beacon chain was created, which was the initial PoS version of Ethereum. Many tests were pursued to ensure that the PoS system was functioning at 100% before implementing it into the Ethereum blockchain.
In the middle of September, Ethereum had an event called the merge, where the Ethereum blockchain merged with the beacon chain to become a Proof-of-Stake (PoS) blockchain. This merge combined all the data on the Ethereum blockchain with the technology of the beacon chain. After the merge, Ethereum is running on a PoS network without the computational power of miners. Developers are still working on improving Ethereum as outlined in the Ethereum 2.0 Roadmap.
The Impact of Ethereum 2.0 on Ethereum Miners
When Ethereum moved to PoS, it meant that mining was not possible anymore. Before the merge, the Ethereum network had been growing, with a small decline as the price of Ethereum dropped in 2022 and as the merge event approached.
After the merge, the Ethereum network is secured by validators that have to stake their Ethereum. Ever since the beacon chain was live, the amount of validators on the Ethereum network has been increasing. In order to become a validator, 32 ETH or more has to be staked, meaning the amount of ETH locked in staking contracts has been increasing as well.
The problem for miners is that specialized mining hardware is required to mine and generate more cryptocurrency. For example, Bitcoin mining requires ASIC machines. With that being said, this means that there needs to be a suitable alternative cryptocurrency that can be mined with the machines that previously used to mine Ethereum. ASIC machines are made specifically for mining one algorithm, but luckily for Ethereum miners, many used GPUs to mine. These GPUs can easily be used to mine several other algorithms separate from the algorithm Ethereum required. Alternatively, the GPUs can be sold since they are also used as expansion cards in computers. Currently, due to the current market and electricity costs, mining with GPUs might not be profitable anyways.
What’s Next for Ethereum Miners
Ethereum miners used to mine using the Ethash algorithm. On that specific algorithm, there are not many other coins available to mine. The two most notable and well-known alternative cryptocurrencies that use the Ethash algorithm are Ethereum Classic (ETC) and EthereumPOW (ETHW).
Ethereum Classic has been in existence for a long time already. It was established after the DAO hack in the early days of Ethereum, and the majority of the Ethereum network decided to revert the hack. Not everyone was on board with that decision, and when Ethereum implemented that change, the classic Ethereum was hard forked, before the changes were implemented, and was saved as Ethereum Classic (ETC). Over the years, ETC has had a somewhat active network and active developers working on the code. However, the ETC network has been plagued with problems, like 51% attacks, and is very small in comparison to Ethereum. As you can see in the hashrate graph of the ETC network, it is clear there was a large influx of miners that went to mine ETC after the merge.
When the merge was getting closer, there were those in the crypto mining sector that were very unhappy with the merge because it would cause them to lose the ability to mine Ethereum. Those Ethereum miners, led by a Chinese crypto miner, decided to make a new cryptocurrency, EthereumPOW (ETHW).
The ETHW blockchain, in theory, was supposed to continue with the same functionalities as Ethereum, pre-merge. In order to achieve this, protocols and projects that build on Ethereum as well as exchanges would have to support the ETHW network. The hard fork was successful and in the below graph you can see how after the merge the ETHW network was launched and miners started to mine ETHW.
What’s Next for Ethereum
Now that Ethereum has successfully merged with the beacon chain and become a PoS cryptocurrency, the question is: what is next? On the website of the Ethereum foundation, the vision for the future upgrades and road for Ethereum development is posted. The main areas Ethereum seems to be focussing on now is scalability, network congestion, speed, sharding, disk space requirements, and more. This roadmap might include upgrades like sharding in an attempt to increase the scalability and speed, while trying to remain decentralized and secure.
The shift from PoW to PoS for Ethereum is a big deal in the cryptocurrency industry because Ethereum is the number 2 crypto by market cap, and has a lot of other projects built on top of its infrastructure. There is a larger debate between PoS and PoW on topics such as: which is more secure and the environmental impact of both methods. The focus in this article, however, is to explain what the merge was, and what the implications are for miners.
The bottom line is that there are not any more miners on the Ethereum network, and those miners either had to switch to a different cryptocurrency or stop mining altogether. Switching to another cryptocurrency can be more challenging than it looks because certain mining hardware is better at mining specific cryptocurrencies than others. Due to this, hardware could become obsolete for mining purposes if there are no suitable alternative cryptocurrencies to mine. The long term impact of PoS over PoW for Ethereum is yet to be seen, especially given the upcoming updates to the Ethereum network.