Where will Ethereum’s miners go when they can’t mine on Ethereum anymore? That’s the $19 billion question.
If all goes according to plan, the so-called Merge will take place in late September, completing Ethereum’s transition from the proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) blockchain. This long-awaited event in the Ethereum world will force the network’s mining industry, which research firm Messari estimates is worth $19 billion, to find other ways to make money.
Pioneered by Bitcoin, mining is the process of verifying transactions and racing to solve complicated math problems for the right to record transactions on the blockchain. In return for dedicating time and resources to performing this task, winning miners receive a fixed amount of newly issued currency. The Merge will replace this recordkeeping system with staking, which requires less computational power and energy.
One option being bandied about for mining pools is redirecting their expensive, powerful, specialized computers to Ethereum Classic. This is the splinter network that emerged from the 2016 hard fork, after a hack in which $60 million was stolen from one of the earliest decentralized autonomous organizations (DAO) on the Ethereum network. Ethereum split into two chains. The new one, which rewrote history like the DAO hack never happened, took the Ethereum name. The initial version continued on as Ethereum Classic.
For most of its history, Ethereum Classic has operated in its namesake’s shadow. But last month, ETC, its native token, surged 150%, and its market cap as of Aug. 4 was about $5 billion (still dwarfed by nearly $200 billion for Ethereum proper).
Varying Degrees of concern
Miners are signaling a variety of approaches to adapt to a post-Merge Ethereum.
AntPool, the mining pool affiliated with mining rig giant Bitmain, for instance, last month announced that it had invested $10 million into the development and apps for Ethereum Classic, while Ethermine, the largest Ethereum mining pool, announced a beta version of EtherMine Staking, a staking pool service. Then, there were rumors that Ethereum miners would hard-fork, or make a radical change to, the network in protest of the Merge. But the likelihood of that happening and being successful is extremely slim.
Luxor Technology, the full-stack bitcoin (BTC) mining software and services provider, also has made investments in Ethereum mining, despite the upcoming possibility of a change of consensus mechanism.
Luxor put together a PoW advocacy group aimed at keeping the blockchain on this consensus mechanism, Ethan Vera, the co-founder, and chief operating officer of Luxor told CoinDesk.
Vera said that the group came to fruition because of concerns about the transition to PoS. “While there are varying degrees of concern, the commonality is that there has not been enough testing of PoS transition yet,” he noted.
“The chance of an unsuccessful Merge is non-zero, which is very worrying to people who have invested time, social and financial into Ethereum,” Vera said.
There are billions of dollars at stake, and the Ethereum Foundation, the nonprofit that oversees network software development, is moving too fast in its process to switch to PoS, causing enormous risk for miners and those holding ETH, Vera added.
Although Vera said he believes Ethereum is best served on PoW if the transition to PoS is successful his company “will be happy for the ecosystem and still supportive personally and as a company.” He added that “we are highly interested in Ethereum intellectually as a project and all the interesting applications built on it.”
Vera wouldn’t say whether Luxor believes Ethereum Classic would be a better alternative, just that it would coordinate with its partners to determine where its mining practices will turn.
