As Ethereum mining is going away, miners are not happy, Bloomberg reports

    20 Jun 2022
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    The shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) will cut power consumption sharply – and leave some expensive technology searching for new uses, write Olga Kharif and David Pan on Bloomberg.

    The Ethereum mining community is a diverse bunch, geographically and demographically. There’s a 28-year-old translator in Ukraine, running computing hardware on his balcony to earn cryptocurrency so he can buy clothing and other necessities. In Argentina, a retiree uses her gaming PC to double her monthly pension. A college student in Canada has mined enough to buy a BMW motorcycle and a modified 2006 Dodge Charger SRT – and pay for gas every month.

    As many people even outside of the blockchain world know, a crash in the crypto markets has made the past few months quite painful for anyone whose financial well-being is tied to the currencies. As of June 15, the price of Ether was down about 70% for the year. At the same time, a lesser-known factor – a tectonic shift known as “the Merge” – is set to end Ethereum mining altogether, cutting off earnings for as many as 1 million people. “This will be a huge financial hit and almost a complete loss of a good source of income,” says the Ukrainian translator, who asked to stay anonymous for fear of being robbed.

    Bitcoin and Ethereum, the two largest cryptocurrency networks by market value, both record transactions using a process known as proof-of-work, where so-called miners dedicate computer resources toward solving difficult math problems to add blocks of transactions to a public ledger. The miners receive payments in cryptocurrency as a reward. Bitcoin mining, which generally involves specialized gear, has become industrialized; and as mining has moved to data centers, participation by regular people has basically been eliminated. But Ethereum mining relies on the kind of graphics cards found inside typical gaming PCs, and many regular folks can still do it.

    Proof-of-work is just a contest to make computers work hard, which means it uses an enormous amount of energy. The environmental toll it takes is one of the primary criticisms of cryptocurrencies. Since Ethereum’s beginnings, its developers have been preparing for a shift to an alternative model called proof-of-stake. Under such a system, people would set aside, or “stake,” a certain amount of Ether, the cryptocurrency of the Ethereum blockchain, to win rewards for running software that properly batches transactions into new blocks and checks the work of other validators. Proof-of-stake could cut the power consumption of the Ethereum network by about 99%. It would also put miners out of a job, a significant blow given the capital investment that goes into setting up operations. Ethereum miners have spent approximately $15 billion on graphics processing units (GPUs), according to Bitpro Consulting, and that doesn’t include ancillary costs like wiring and transformers.

    The Merge is expected to take place in August, though no official date has been given. It’s already been pushed back multiple times, and many miners hope that’ll happen again. “I don’t think they’re going to be able to pull it off” anytime soon, says Aydin Kilic, chief operating officer at Hive, an industrial Ethereum miner. But other people involved with Ethereum see the Merge as inevitable. “The odds of it not happening this year are very low,” from 1% to 10%, says Tim Beiko, a computer scientist who coordinates Ethereum developers. “The thing I want to avoid is someone buying a mining GPU today and the Merge happens this summer,” making it almost worthless.

    Despite all this, miners are actually expanding their operations. Prices on GPUs have dropped by more than half since the start of the year, leading to a surge of purchases. Ethereum’s hashrate – a measure of how much mining power is supporting the network – has almost doubled in the last year, according to tracker Etherscan. Even in the current crypto price slump, mining Ethereum is more profitable than supporting any other major coin, including Bitcoin. “I would guess that people are trying to get as much as possible before it ends,” says Slava Karpenko, chief technical officer of 2Miners, an organization that helps smaller miners pool their resources to support Ethereum. The group’s number of active users has climbed 70% since November, to about 120,000, he says.

    Still, recouping costs has become more challenging because of Ether’s price drop. Mike Lam, a 38-year-old engineer from Ontario who’s been mining for a year, has earned only about $5,000 worth of crypto on his initial $30,000 hardware investment; he also pays about $650 in monthly electricity costs. Aaron Petzold, 24, a recent college graduate who’s mining Ethereum at his parents’ house in Wisconsin, says he’s about four months away from recouping his investment of more than $28,000. “My hope is I am going to continue mining until the end,” he says. “It’s a lot of uncertainty. No one really knows what’s going to happen. There are a lot of people who I think are in denial.”

    Miners won’t be left with nothing. After the Merge, their mining setups will still be powerful computing devices that can be put to use elsewhere, and some are planning to mine other coins or find alternative uses for the gear. After the Merge, Petzold is considering using his rigs for an aspect of digital video production known as rendering, which can require significant computing resources. “There are other uses for the cards: You can make it into a render farm, you can do different machine-learning options,” he says. “They are just not going to be as profitable as mining has been.”

    Canadian mining pool operator Flexpool is looking to add more coins for its members to mine and plans to deploy its developers to code for other crypto projects, says an executive who asked to be identified only as Chris for fear of getting robbed. “It’s like a typewriter company,” he says. “No one is buying typewriters anymore, so you have to shift into other businesses using the capital you made in typewriters.”

    Others, like Ivan Zhang, 35, and Karol Przybytkowski, 36, plan to sell their stable of graphics cards and use their upstate New York facility to host the gear of other miners for a fee. But with many Ethereum miners likely to rush to sell right after the Merge, GPU prices are expected to decline further. Bitpro plans to stop buying graphics cards within weeks, says Mark D’Aria, its chief executive officer. “My perspective is, no matter what we pay today it is going to be way less after this event,” D’Aria says. “We are just going to sit there and watch that happen and then pick up the pieces.”

    Some miners are hoping to do better by moving to mine other coins that require GPUs, such as Ethereum Classic or Ravencoin. The more miners who flock to any coin, the harder it is to make a profit. But crypto breeds optimism, and miners are building the rationale for why their operations will be the ones to survive. Mikel-Angelo Chalfoun, 30, pays $9,000 a year for a warehouse in Dubai to house and power his 76 graphics cards. He says he’ll be able to outcompete miners with higher costs. “No matter how cheap crypto will become, no matter how harsh the crypto winter will be, I am good, I will never mine at a loss,” he says.

    Other miners just feel betrayed. “Up until the Merge, they need the miners! It’s kind of weird,” says Lam, the Canadian engineer, who runs 50 graphics cards in his basement. “They need us. They need us up until the point they toss us away.”

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