Crypto mining space is approaching a key inflection point. There are currently two mainstream evidence of work-based coins, Bitcoin and Ethereum. Bitcoin’s consensus rules are immutable and historically could not be changed by some of the biggest exchanges and miners in the space.
Ethereum is constantly changing, and the biggest change could come as early as Q2 2022.
What does ETH 2.0 mean for cryptominers?
Ethereum is expected to transition from a proof-of-work-based consensus protocol to proof-of-stake (PoS), meaning that graphics card miners will no longer be useful for adding blocks to the Ethereum blockchain.
However, the Ethereum community has been discussing this transition since 2016, and it is continually being pushed back. At the Ethereum Core Devs #124 meeting on October 15, a proposal to push the December 2021 “difficulty bomb” was discussed.
Given the specialized nature of Ethereum mining, we bet these miners will exit the market altogether.
The difficulty bomb exponentially increases the mining difficulty at a certain block height, and it essentially freezes the chain and forces a hard fork. The hard bomb is now estimated to occur around June 2022, and many in the community expect the transition to proof-of-stake to finally happen.
When this transition happens, it will be very destructive for miners currently mining Ethereum. These miners will need to transition from their graphics cards to mine other coins that are profitable with their equipment, and these coins are significantly smaller than Ethereum, in addition to likely being less profitable to mine. It is very possible that if this transition to PoS happens as announced recently, the graphics card market will be flooded with cheap used chips from miners.
What this means for crypto miners is that Ethereum miners have a very high risk of their machines becoming obsolete overnight. Their cash flow would immediately dry up and the resale value of their GPUs would drop dramatically. Knowing this risk, a large majority of the capital deployed in cryptocurrency mining goes to mining Bitcoin, in particular.