Will Mining Die With Ethereum 2.0? (2024)

What will happen to miners when Ethereum switches to Proof of Stake?

Ethereum has been on the long path of transitioning from a Proof of Work consensus protocol to Proof of Stake for over a year now. Despite repeated delays, it seems like the Ethereum development team is finally getting close to making the change. Ethereum will officially switch to Proof of Stake in 2022 with an update referred to as “the merge”, which will join the Beacon Chain with the Mainnet. The Beacon Chain is what enables staking ETH, and it has been live since the end of 2020 with many people staking their Ether to support the transition and earn interest on their stake. After the merge occurs mining difficulty will skyrocket due to the “difficulty bomb”, which is a mechanism to remove the incentive to mine Ethereum in favor of staking.

A couple of months ago the Ethereum Foundation deployed the Kintsugi test network, which brings the changes of the merge to a public testnet. This testnet is designed for application developers to begin working on updates for their apps in a post-merge environment and means that the dev team is making progress on a public release. There has long been discussion of Ethereum 2.0 never happening, especially with the repeated delays over the past year, however, the release of the Kintsugi testnet is a large step towards an official launch this year. There has been over $35 billion USD staked on the Beacon chain since it launched in December 2020, which accounts for nearly 7.5% of the entire ETH supply. It’s safe to say that significant resources have been invested into this update, and it appears the devs are close to completing it.

What Will Happen to Miners?

With the recent market decline, mining cryptocurrency is not as profitable as it was for most of 2021. A single Nvidia 3080 can still generate a profit of roughly $3.50 per day mining Ethereum depending on local energy costs, which is half the profit of late 2021. However, even if another rise in the value of Ethereum occurs, the merge will still end profitable mining.

The difficulty bomb will make mining Ethereum essentially worthless, which means anyone currently mining ETH will either have to transition to a different coin or sell their graphics cards in favor of staking. There are other Proof of Work cryptocurrencies that can be mined with consumer hardware for a profit; however, with many Ethereum miners seeking new coins to mine, these alternate options may not remain profitable. It’s likely that it will be difficult to continue profitably mining cryptocurrency unless major shifts occur in the popularity of certain coins, let’s discuss.

There are several cryptocurrencies, other than Ethereum, that can be mined profitably using consumer hardware. They include Ethereum Classic, Ravencoin, Firo, Beam, and more. While these coins are currently profitable to mine, they aren’t nearly as profitable as Ethereum and have much smaller market caps. At the time of writing the 24hr profitability of several coins is as follows for a single Nvidia 3080 with no overclocking and electricity costs set to $0.07 per kWh:

We can see that Ethereum is currently much more profitable to mine than any of the alternatives. The profitability of mining these alternative coins (altcoins) fluctuates, but they are generally 30–50% less profitable than Ethereum mining at any given time. One of the largest downsides of mining a smaller coin is that the value is considerably more volatile than Ethereum, which means they tend to rise and fall more dramatically than larger coins. They also are listed on fewer exchanges, which can make selling them for a profit more of a hassle; out of this list, Crypto.com supports Ethereum, Ethereum Classic, and Ravencoin.

Because smaller coins are less stable, the order of this list changes often. A couple of months ago Ravencoin would have been the clear winner and Ethereum Classic would have been much further down the list. These kinds of fluctuations can make it more difficult to choose which coin to mine. This is one area where NiceHash has an advantage by choosing what to mine based on demand and profits.

Regardless of current profitability, the big question is what will happen to this chart when Ethereum suddenly transitions to Proof of Stake? There are several scenarios that are possible, let’s walk through each of them.

Scenario 1: GPU Mining Dies Off

Every GPU that is mining a cryptocurrency contributes to that network's total hashrate. We can see each of the top coins' total hashrates in the table above, where Ethereum eclipses the rest by a significant margin. This means that there are far more GPUs currently tasked with mining Ethereum than any of the alternative options. Ethereum Classic currently has the next highest hashrate, but it is still over 40x smaller than Ethereum’s.

Since there are so many GPUs currently mining ETH, once Ethereum’s transition takes place there will be a massive number of miners looking for the next best option. It seems unlikely that any of these other coins will grow in value enough to assimilate that much hashrate without ruining profitability. If there is no profitable alternative to Ethereum once all of the Ethereum miners begin to switch, GPU mining will likely die off.

Mining Difficulty

You may be wondering why a sudden surge of miners on these smaller coins would ruin profitability. This has to do with something called mining difficulty. Difficulty is a fairly simple mechanism that ensures blocks are produced at a relatively steady rate. If the network’s hash rate goes up, then the network increases the difficulty of solving each block to compensate for the increased hash rate. On the other hand, if for some reason a lot of hash rate suddenly disappears, difficulty will drop to ensure blocks continue to be solved at a consistent rate.

The mining difficulty on the Ethereum blockchain has been steadily increasing over the past year because there has been a steady increase in the total number of GPUs actively mining ETH. There was a significant dip in June 2021, which was the result of China’s sudden ban on cryptocurrency mining. China’s ban is a great way to visualize how difficulty will decrease if there is a sudden drop-off in hashrate. It also helped show how a sudden decrease in mining power won’t ruin the network’s ability to function; while having more miners increases the security of the network, it isn’t critical to keeping the network functioning.

When Ethereum transitions to Proof of Stake, there will be a massive influx of miners to the altcoins that are currently profitable. Gaining so many new miners at once will force mining difficulty to rise significantly. Since the networks can’t increase the rate at which they produce blocks, and many more people will be competing for the same rewards, the likelihood of solving a block and receiving a reward will fall dramatically.

Scenario 2: GPU Mining Finds a New Favorite

If we have learned anything in the past couple of years, it’s that the cryptocurrency market is unpredictable. There are a lot of miners who are eager to continue earning money off of the hardware they already own, and there is some speculation that these altcoins could rise in value as their hashrates rise. The idea is that enough attention from the mining community could potentially result in an increase in the coin’s value; this is possible, but it may be overestimating the amount of market power miners have.

I personally think this scenario is less likely to happen. The value of a coin is much more complex than its mining profitability. Considering these other options are fairly small coins it seems doubtful they could see significant increases in value simply because they have become the only viable coins for miners to switch to. Some of these coins do have interesting ideas that separate them from other projects, however, none of them are majorly popular.

The largest market share on the list is Ethereum Classic, which is a controversial coin. I will link an article that discusses Ethereum Classic in-depth in the Resources section below. The only other coin on the list that is supported by major exchanges, like Crypto.com, is Ravencoin, which is a fork of Bitcoin designed to easily create and exchange custom tokens sort of like NFTs. The biggest problem I have with these alternatives is that neither of them offers major benefits over other blockchains that are already larger in market cap.

I want to believe that a coin’s value has to do with how useful it is, but that isn’t always the case with speculative assets. If enough people shift their attention to these coins and begin purchasing and holding them, it is possible they could remain profitable. As long as miners can maintain 60–70% of their profitability post-merge, I would expect GPU mining to continue. Even if profits aren’t as high, every GPU working will continue to bring in more money than it costs to run; since mining is a fairly low effort endeavor, I would expect a number of miners to continue participating as long as some profit is made.

My Best Guess

Both of these scenarios are extreme options, either GPU mining continues or it ends. However, I would guess that some mix of the two will actually occur.

I expect a majority of miners to simply liquidate their hardware when the merge is close to happening or shortly after. Throughout 2021 the market for graphics cards has been incredibly competitive, with used GPUs selling online for much more than they cost new. It would make sense for miners to take advantage of these inflated prices before the secondary market is flooded and invest into staking or simply move on. I think that shifting focus to staking by running a validator node on the Ethereum blockchain is the most sensible option that many people will go with.

Once a portion of the ETH miners sell their GPUs, the remaining miners may try out the alternative coins. Profitability may disappear at first, but there is some likelihood of a smaller mining community continuing to make a profit as coin prices catch up with mining difficulty. This all depends on whether coins like Ravencoin grow enough to support the influx of miners, and I don’t expect to see the mining rewards that Ethereum generated throughout 2021.

If you are wondering why Bitcoin isn’t on the list of coins to mine, it’s because Bitcoin cannot be mined using consumer graphics cards as Ethereum can. Bitcoin is mined using ASIC miners, which stands for application-specific integrated circuit miners. An ASIC is a piece of specialized hardware designed to mine a particular cryptocurrency. These miners are developed from the ground up to mine one cryptocurrency very efficiently, which means that they can produce more hash rate with less electricity.

There are a couple of reasons why we don’t see ASICs developed for every Proof of Work coin. One is that some blockchains, like Ethereum, are designed to be “ASIC resistant”. While ASICs can make mining more efficient, they tend to increase the centrality of mining since large operations can afford to buy many ASICs with the sole purpose of mining Bitcoin. However, when consumer graphics cards are used there is more opportunity for people to mine without purchasing expensive hardware specifically to mine cryptocurrency. This centrality can be seen once again from China’s crypto mining ban; while Ethereum saw a decline of roughly 20%, Bitcoin lost nearly 50% of its total hashpower showing how a massive portion of Bitcoin’s total mining was coming from certain regions of China.

The other main reason we don’t see ASICs for other Proof of Work coins is that they require a lot of time and resources to develop. There isn’t much interest in developing an ASIC for a coin that is questionably profitable in the long term, so they are mostly only seen with Bitcoin since it is a relatively stable coin.

Cryptocurrency mining is a controversial subject, and possibly one of the largest reasons sentiment towards cryptocurrencies is mixed among young people. While Proof of Work is a very dependable and well-tested way to secure a decentralized network, it is very energy-intensive. You can find many articles online discussing the massive amount of electricity used by Bitcoin mining; one of the reasons China banned mining was the strain it put on the electrical grid. Some people will argue that all financial systems require significant resources to operate, which is true; however, it is also true that there are alternative ways to secure a decentralized network that use less energy.

The main change coming with Ethereum 2.0 is the transition to a protocol called Proof of Stake. Proof of Stake requires nearly zero electricity, and several large blockchains — Cardano — have already been using Proof of Stake for several years. With Ethereum being the second-largest blockchain by a wide margin, transitioning away from Proof of Work to a protocol that uses no energy will be a huge benefit to the environment. The massive amount of work done by the Ethereum development team will also help pave the way for other blockchains to implement similar changes in the future.

Ethereum’s motivations aren’t purely for the good of the environment either. Proof of Stake will better suit the kind of network Ethereum has become, and will hopefully help to lower transaction fees.

Ethereum moving away from mining also means that consumers will finally be able to buy a graphics card for retail price. Gamers, creative professionals, and engineers have been struggling to obtain GPUs with how profitable Ethereum mining has been for the last year and a half, and this transition should help that market tremendously.

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• Understanding Proof of Stake
• China’s Crypto Mining Ban
• ASICs Explained
• Ethereum Classic Explained

Disclaimer: I am not a financial advisor and nothing written in this article should be considered financial advice. All of my content is a result of personal research and experience. Crypto.com sponsored the creation of this post, however, they did not influence the content and they weren’t given a copy of it for approval before posting to the public.

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