The Ethereum blockchain is poised to make the long-awaited transition from proof-of-work (PoW)-based consensus mining to proof-of-stake (PoS). The merge date is officially scheduled for September 15-16 after Goerli’s final successful testnet integration with Beacon Chain on August 11.
Currently, miners can create new ether (ETH) by dedicating a huge amount of computing power. However, after the merger, participants in the network, known as validators, will need to pledge large amounts of existing ETH to validate blocks, which will create more ETH and earn rewards.
The three-step transfer process began on December 1, 2020, with the launch of Beacon Chain. Step 0 of the process was the beginning of the transition to PoS, when validators started staking their ETH for the first time. However, Ethereum mainnet was not affected by phase 0.
The total difficulty of the terminal is set to 58750000000000000000.
This means that the ethereum PoW network now has a (small) fixed number of hashes left. pic.twitter.com/9YnloTWSi1
— vitalik.eth (@VitalikButerin) August 12, 2022
The total terminal difficulty is set to 587500000000000000000. This means that the Ethereum PoW network now has a fixed (approximate) number of hashes to mine. https://t.co/3um744WkxZ expect the merge to happen around September 15th, although the exact date depends on the hashrate. pic.twitter.com/9YnloTWSi1 — vitalik.eth (@VitalikButerin) August 12, 2022
Phase 1, the integration of Beacon Chain into the current Ethereum mainnet, was scheduled for mid-2021. However, due to several delays and unfinished work from the developers, it was postponed to early 2022. It is expected that Phase 1 completed in the third quarter of 2022 with the merger. This step will eliminate PoW-based miners from the ecosystem and make many existing PoW-based projects redundant.
In Phase 2 and the final phase of the transition, Ethereum WebAssembly or eWASM will be integrated and key scalability features will be introduced, such as sharding, which developers and co-founder Vitalik Buterin believe will help Ethereum achieve processing speeds comparable to centralized payment. processors.
In anticipation of the merger, there has been much discussion about what will happen to the PoW-based blockchain after the mainnet to PoS transitions. Many centralized exchanges have expressed their support for the merger, but have said that if a PoW-based blockchain gains popularity among miners, the exchanges will list the hard-forked blockchain and support it.
Estimating the Likelihood of a Successful Hard Fork
Chandler Guo, an influential bitcoin (BTC) miner, was one of the first to back the Ethereum PoW blockchain after the merger. In a July 28 tweet, Guo shared a screenshot of Chinese miners saying that Ethereum’s PoW blockchain is coming.
ethpow will be coming soon pic.twitter.com/v9eAbWO2BZ
— Chandler Guo (@ChandlerGuo) July 27, 2022
ethpow coming soon pic.twitter.com/v9eAbWO2BZ
— Chandler Guo (@ChandlerGuo) July 27, 2022
However, Buterin criticized those who proposed this hard fork, saying it would just be a ploy for miners to earn easy money without benefiting humanity. Perhaps more importantly, much of the decentralized finance (DeFi) ecosystem appears to have no intention of supporting the Ethereum PoW blockchain, which is reason enough for Ethereum proponents to take a conservative approach to the merger.
Shane Molidor, CEO of crypto exchange AscendEX, believes there is a definite risk of a hard fork, and PoW miners have already expressed interest, Cointelegraph said:
“Some Ethereum miners may believe it is in their best interest to execute the new Ethereum blockchain PoS to PoW in order to continue using their expensive mining hardware. If this were to happen, ETH holders would likely receive an “ETH PoW” in addition to their original ETH holdings combined with PoS.”
He added that if a hard fork doesn’t happen, other PoW-based blockchains like “Ethereum Classic and GPU-intensive apps like Render Network will likely get hashrate from older miners.” PoW of Ethereum”.
Daniel Dizon, CEO of the ETH cashless stack protocol Swell Network, thinks otherwise and sees a very low chance of a successful fork. He explained to Cointelegraph that even if miners manage to hardwire the PoW-based blockchain and keep it alive, it is unlikely that they will remain as profitable as they were before the transition to PoS. :
“Ultimately, the value of Ethereum as a network goes far beyond its simple consensus mechanism. It extends to highly defensible attributes, such as its user base, developer activity, ecosystem, infrastructure, capital flow and more.”
He said that a fully PoS-based version of Ethereum continued to have the support of the majority of the public and wider society, given the improved environmental, social and corporate governance outcomes following the merger. Additionally, he said that major DeFi protocols will choose not to recognize the PoW version of Ethereum in favor of Ethereum’s post-merger blockchain, which is another major pain point for the hard fork.”
The Ethereum mining industry is worth $19 billion, according to an estimate from crypto research group Messari. The report states that mining alternative PoW cryptocurrencies will not be economically viable for most existing Ethereum miners. The total market capitalization of GPU minable cryptocurrencies, excluding ETH, is $4.1 billion, or about 2% of ETH’s market capitalization. ETH also accounts for 97% of the total daily income of GPU-minable cryptocurrency miners.
Major mining pools are moving to staking
The transition is less drastic for mining pools compared to individual miners, because pooled companies have never generated their own computing power and never invested money in mining equipment that is soon obsolete. However, these companies have human capital, that is, the infrastructure necessary to organize a pool of resources, find new consumers and maintain the satisfaction of thousands of existing customers. Ether mining pools have already made good progress in transitioning to staking pools.
Ethermine, one of the largest Ether mining pools, announced a beta version of Ethermine Staking in April. Almost half of the hashrate, or computing power, currently used to mine Ether is shared between Ethermine and F2Pool.
The second largest Ether mining pool, F2Pool, announced the end of the PoW-based mining era during the second week of August. The company said whether or not it supports the Ethereum fork is no longer a matter. He will let the mining community decide.
Dizon thinks that the impact on mining pools will be huge and that many of them may move to other PoW-based blockchains, but most will be focused on the betting industry: “We are seeing that many mining pools have focus their operations towards Ethereum stacking, which is expected to grow exponentially after the merger.”
Also Read: Merger: Top 5 Misconceptions About Ethereum Early Upgrade
Will Szamosszegi, CEO and founder of bitcoin mining platform Sazmining, told Cointelegraph that the idea of an Ethereum fork is very ideological – many Ethereum enthusiasts consider the costs of the PoW protocol to be greater than its benefits:
“One problem Ethereum miners will face after the merger is that the cost of their overhead may be higher than the revenue they could earn mining options other than Ether. Instead, they could invest their computing resources in Web3 projects that their mining algorithms and hardware can support.”
Ethereum Classic vs. fork the PoW version of Ethereum?
Antpool, the affiliate pool of mining platform giant Bitmain, has announced that it has invested $10 million in development and applications for Ethereum Classic. Shifting ETH valuation to a PoS model will change the way ETH gains value, from mining to staking, and allow investors to earn passive income – like interest from a coin bank, savings in fiat.
Sazmining COO Kent Halliburton told Cointelegraph, “Ethereum miners are currently divided on what to do after the merger. Some will continue to mine Ethereum Classic, which will still use a proof-of-work consensus mechanism after the Ethereum merger. Other miners direct their resources towards high-end crypto projects.”
Also Read: Economic Design Changes Will Impact ETH Post-Merge Value According to ConsenSys Executive
Ethereum Classic (ETC) seems to be a more significant choice for many Ether miners than the hard-forked Ethereum blockchain. Some on Twitter reminded Chinese miner Guo, who made it clear that he intended to fork a PoW-based blockchain, that ETC could be a better alternative to a token from a fork.
With just under a month to go until the official merge, miners and PoW-based mining pools have already started looking for alternatives. Many believe that the chances of seeing the blockchain fork are negligible, since there is no certainty about its value even after a successful fork. Others predict a rise in mining activity on Ethereum Classic. Ether mining pools appear to be the least affected by the transition, as many are focused on the growing staking ecosystem.