Ethereum miners before the "Merge": mining until the last moment

Author: Qin Xiaofeng, Odaily Planet Daily

This year, the most critical time point in the Ethereum ecosystem (and even the entire blockchain technology field) is the "Merge" between ETH1 and ETH2.

Although the official date for the "Merge" has not been provided, according to Vitalik Buterin's prediction, if everything goes smoothly, the "Merge" could happen as early as August. At that time, Ethereum's consensus mechanism will shift from Proof of Work (PoW) to Proof of Stake (PoS), and the ETH1 difficulty bomb will also be activated after the merge is completed (in mid-September).

The impact of the "Merge" will be comprehensive, and this article will focus on the Ethereum miner community, which is at the forefront. With just over a month remaining until the expected merge date, what is their survival status? What measures have they taken in response to the mainnet merge? Will Ethereum miners, who have persisted for seven years since the first Ethereum block was mined in July 2015, become unemployed due to a lack of mining opportunities? The reporter of this article has communicated with several miners to clarify these questions.

1. "At least we can mine for another year"

As the merge approaches, Ethereum miners are not as anxious as the outside world imagines and remain optimistic about the future of mining. Many miners even frankly state that they do not believe the "Merge" will proceed as scheduled, conservatively estimating that "mining can last at least another year."

"I think the likelihood of Ethereum completing the merge this year is very low, and it might not even happen next year. If you look at the previous PoS tests, you'll find various bugs constantly appearing," miner Lao A told Odaily Planet Daily. "According to Ethereum's usual pattern, the merge in August will likely be postponed."

The situation Lao A mentioned does indeed exist. In early June of this year, the Ropsten testnet merge encountered various bugs such as concurrency vulnerabilities, block proposal issues, and synchronization problems, causing 14% of validators to drop offline during the transition. Fortunately, it was ultimately completed successfully as scheduled. After learning from this experience, the development team completed the Ethereum Sepolia testnet merge in early July; currently, the last testnet merge before the mainnet merge (Goerli) is also on the agenda, but the specific time has yet to be determined.

According to Ethereum founder Vitalik Buterin's prediction, if everything goes smoothly, the merge could happen as early as August; if other issues arise, it may be postponed to September or October. Ethereum developer Tim Beiko stated that the merge is expected to take place between late August and November, and only catastrophic events or failures could prevent this year's merge; due to the technical issues involved, it is almost impossible to provide an exact date for the merge.

The uncertainty of the specific timing of the merge is one of the motivations for Ethereum miners to continue their efforts. Additionally, many miners believe that even after the merge is completed, PoW mining will not immediately cease but will continue to exist for a long time, existing in a "PoS + PoW" coexistence model.

"After the merge is completed, there will be a period of time to verify security; projects will not immediately migrate to PoS, and the PoW chain will still require miners to maintain operations. This cycle is long and could last one or two years," miner Lao Jia believes, predicting that the ETH1 difficulty bomb expected to explode in September will also be postponed, and miners will not face a situation of having no coins to mine.

Moreover, miners are not optimistic about the future of PoS. "Once ETH transitions to PoS, it will completely become a digital bond, which may attract regulatory intervention from the U.S.," Lao A revealed. Several major mining machine manufacturers have expressed concerns about the regulatory challenges of PoS in the future. "As regulation enters, community consensus may split, which could ultimately lead to a fork in Ethereum. For me, mining one ETH could yield airdrops of other forked coins, so I don't have to worry about profit issues."

2. After the price drop, ASIC chip machines have stronger risk resistance

The positive outlook for the future has prompted Ethereum miners to expand their operations.

Data from Etherscan shows that after China shut down mining farms in June last year, Ethereum's total network hash rate dropped to 480 TH/s; since then, the total network hash rate has steadily increased, reaching a new historical record of 1126 TH/s on May 13 this year, with a maximum increase of over 130% in the past year.

The rising hash rate is partly due to the arrival of mining machine futures ordered in early last year, as large mining farms continue to expand production; another part of the hash rate comes from individual miners, especially in the second half of last year when ETH prices soared from $2200 to $4800 (in November 2021), driving FOMO among retail investors. Slava Karpenko, CTO of the mining pool 2Miners, which serves small miners and individual investors, stated that since last November, the number of active users in the organization has increased by 70%, reaching about 120,000.

However, in the past month, Ethereum's total network hash rate has seen a slight adjustment. Current data shows that the total network hash rate is reported at 930 TH/s, down 17% from its peak.

The decline in hash rate is mainly due to the sharp drop in ETH prices, which fell from $3000 in early May to below $1000, hitting a low of $880, with a maximum decline of over 70%, forcing some mining machines to shut down as they fell below the shutdown price. Glassnode data shows that ETH miners' revenue in May decreased by 27% compared to April ($1.39 billion) and dropped by 57% compared to the same period last year.

However, several miners interviewed by Odaily Planet Daily stated that they began hedging when prices were between $2000 and $3000, so the short-term price decline has little impact on them. Additionally, they believe that the current ETH price is severely oversold and is in a bottoming phase, so they have not chosen the "mine-sell" model and are gradually starting to hold coins.

In addition to using financial tools for hedging, some miners have chosen to upgrade to more efficient ASIC mining machines since last year to enhance their risk resistance, with models like the A10, A11 from Bitmain, and the Pineapple V1 from HIVE being particularly popular.

Taking the E9 as an example, antpoolminer data shows that its hash rate can reach 2400M, with a power consumption of 1920W, far exceeding that of an RX580 8-card setup (240M, 1200W), and its power consumption per unit hash rate is 1/6 of the latter; the E9 is also currently the most profitable mining machine, with a daily mining revenue of 53 USDT and a shutdown coin price of 88 USDT.

In fact, the shutdown price of ASIC mining machines generally falls between $100 and $200 (for Ethereum), so the impact of price drops on them is minimal. Some miners, including Lao A, have gradually replaced some of their mining machines with ASICs since last year (Lao A chose to replace 100%). According to BitPro CEO Michael D'Aria, the current ratio of ASIC to GPU mining machines in the network is about 1:9, meaning only 10% of the hash rate comes from ASICs; Michael Carter, host of Bitsbetipping, believes that the proportion of ASIC hash rate is higher than 10%, possibly reaching 20% to 30%.

As ETH prices decline, the resale prices of GPU mining machines in the second-hand market have also nearly halved, and even NVIDIA's stock price has started to fall, dropping from $286 to $152 over the past three months, a cumulative decline of 47%. Pierre Ferragu from New Street Research added that miners have purchased graphics cards worth about $3 billion since early 2021, and these graphics cards "are now flooding into the second-hand market."

Regardless, as the market declines, it becomes more challenging for miners to recoup their costs. Many miners have also suggested that now is not an ideal time to buy graphics cards or enter the market with ASIC mining machines, especially for retail investors, who should avoid heavy asset investments.

3. Mining until the last moment

"I was the 'retail investor' who bought mining machines at last year's peak, and now I still have a year to break even." Miner Xiao C purchased two A10 mining machines last year, saying, "I hope I can continue mining until the last moment. There are many uncertainties involved; no one really knows what will happen."

Fighting until the last moment is the current choice of Ethereum miners, as it is both an emotional commitment and a consideration of interests. After all, compared to other PoW coins, Ethereum mining revenue is still considerable. Once the day truly arrives when there are no coins left to mine, miners will not really be unemployed.

For ASIC mining machines, they can only choose to mine ETC, which shares the same hash algorithm as Ethereum. Due to the limited future options, although ASIC machines have excellent performance, their proportion in the total network hash rate is not large.

(GPU mining)

For GPU mining machines, there are relatively more options. First, they can continue to mine other PoW tokens (ANON, ETC, Zcash, Zclassic, ZEL, etc.)—of course, the more hash rate is diverted, the greater the competition and the lower the revenue. Secondly, GPUs can also provide high-performance computing, rendering, and other services for Web3 middleware protocols. For example, Hut 8 will open its data centers to operate as node operators/providers for Web3 protocols like Render Network.

"These GPUs have other uses: you can turn them into a rendering farm, or you can make different machine learning choices. They just won't be as profitable as mining," miner Petzold explained.