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Ethereum is a blockchain platform with its own cryptocurrency, called Ether (ETH) or Ethereum, and its own programming language, called Solidity.
As a blockchain network, it is a decentralized public ledger for verifying and recording transactions
It was launched in July 2015, since then it is being mined. Then from where this question ‘still mineable?’ came from, you’ll get to know, in this post.
Why future of Ethereum mining is questionable?
Ethereum like Bitcoin currently uses an energy-extensive process called ‘mining’ to create and distribute cryptocurrency.
Ethereum is being mined since 2015 by thousands of miners across the globe. But it will undergo a major change at the beginning of 2022. This will fundamentally change how the network operates and how new ETH is created.
ETH blockchain since its launch uses the proof of work algorithm (a cryptographic concept of adding valid blocks to the chain). Its core developers have been working on changing the network’s consensus protocol from proof of work (PoW) to proof of stake (PoS).
Shifting from Pow to PoS also means shifting from miners to validators, making this upgradation a piece of bad news for some miners.
Proof of Work (PoW) to Proof of Stake (PoS)
In proof of work, within every 10 minutes, a new block is created, containing various transactions which must be independently verified.
To verify these transactions, thousands of people across the globe use their computational power to solve a cryptographic algorithm.
Thousands of individual devices compete to become the first to solve the cryptographic algorithm. The one who is able to do this first gets the reward.
To simplify, it requires all of its miners to attempt to solve a complex sum, with the person who owns the best hardware device determined as the winner.
This is not a fair system because those with the most powerful and expensive hardware devices always have the greatest chances of winning the reward.
Also, such hardware is really energy-intensive, making electricity the lifeblood of Ethereum’s PoW mechanism.
In proof of stake, you need to put coins into a specific wallet, to have the opportunity to validate transactions.
The wallet freezes the coins, indicating that they are being used to stake the network.
Thus, the individual that creates the next block is based on the coins staked, making it a fairer method to choose the winner.
The winner here is not given a block reward, rather is entitled to get transaction fees.
Most PoS blockchains have a minimum requirement of coins required to start staking, which is a large upfront investment.
When the current PoW chain will merge into the PoS chain and kick off Ethereum 2.0 in earnest which is possible at the beginning of 2022, according to Ethereum core developer Tim Beiko, mining will be effectively turned off.
Impacts of the shift
Imapct on the environment:
Concerns regarding the environmental impact of cryptocurrency mining have been a major barrier to its mainstream adoption around the world.
After Bitcoin, Ethereum being the second-largest blockchain network has also received its fair share of criticism on regard to its energy consumption.
However, the transition to Ethereum 2.0 will the network’s energy consumption by at least 99.95% as per estimates.
Impact on Ether:
After being shifting to Point of Work, Ether could see a further boost in adoption
“The new upgrades will bring fresh incentives for all stakeholders, as well as a lot of scaling potential. This will increase investor awareness and activity around Ethereum’s native currency, which could push its price further up,” said Patrick Moore, long-time crypto investor and creator of CryptoWhat.
Impact on the crypto industry:
Ethereum’s upgrade can have an adverse impact on Bitcoin’s reputation due to its increased focus on the energy-hungry PoW mechanism.
Jordan Spence, the Chief Marketing Officer at MyCrypto said, “I anticipate that conversations surrounding the inefficiencies of Proof of Work will increase, and there will be more pressure to figure out a better solution for Bitcoin and other PoW chains.”
The impact of the Ethereum transition has the capacity to go beyond Bitcoin and Ether to affect the entire Crypto landscape.
Ethereum’s high scalability, low gas fees, and negligible carbon footprint will add an extra degree of competition in the smart contract space, forcing its competitors to innovate towards faster, more efficient networks.
“Mass adoption for Proof-of-Stake is just around the corner, which will bring a sea-change across the industry. We anticipate a large influx of interest from financial institutions that will begin to offer staking services, both from within and outside the crypto world,” said Konstantin Richter, CEO, and Founder of Blackdaemon.
Ethereum mining coming to an end.
After this merge, Ethereum will no longer be mineable. The traditional process of mining will be replaced by the process of staking.
While the upgrade to Ethereum 2.0 has a lot of backers, not everyone is happy about the change.
“There are some miners who are against it, but it’s in their final interest to be against it,” said Beiko.
Once the protocol has fully migrated to a proof of stake model, there will not be any revenue to be made from Ethereum mining.
Don’t worry miners.
Miners don’t need to worry. It is not like that you will not be able to earn from mining anymore.
You have a few options for what to do next.
There are a lot of chains that support GPU-based mining, so you can simply choose to start mining other cryptocurrencies like-
- Feathercoin – https://feathercoin.com/
- Dogecoin – https://dogecoin.com/
- Monero – https://www.getmonero.org/
In case, you are not interested to leave ethereum you too can upgrade yourself to a validator.
How to become a validator?
Materials required are:
A three-year commitment to staking 32 ETH and maintaining a validator node.
- 32 ETH (plus<1 ETH for gas costs)
- $717.12 (three-year reserved instance pricing for an m5.xlarge instance) + $120 (one year’s cost of 100 GB of storage, conservatively assuming nearly full storage capacity) = $837.12 paid over the course of the year to AWS.
- MetaMask Extension
- Infura Account
Steps-
- Acquire 32 ETH on MetaMask, Walkthrough Launchpad
- Configure AWS instance (three-year commitment, can be less but you save money with more time plus you are locked in), harden security features
- Import verification keys, run Teku, setup monitering
“We have seen mining pools use their profits to set up validators on ethereum. We have also seen them offer pooling services for their users who might not have 32 ether but still want to validate the network.” also said Beiko.
Point to be noted
If you misbehave as a validator in the network (either out of malice or ignorance or happenstance), you are penalized.
In Ethereum 2.0 it is called slashing.
On the other hand, if you behave correctly as a validator, you get the rewards associated with the network.
The incentive/disincentive is different from proof of work, where are only incentives for miners to not sabotage the network and behave correctly.
Pros and cons of Proof of Stake
Pros:
Decentralisation-
As I mentioned above, in PoW the person with the best hardware device has more chances of winning. And you that for the best device you need to pay the best price, which is not pocket friendly for many individuals.
And this resulted in giving birth to centralized organizations buying thousands of devices (known as ASICS) that generate the highest mining power, such operation is known as a mining pool.
Mining pools have made mining an unfair system, leaving almost no chances for an average individual to win a mining reward.
But, PoS is different. It prevents groups of people from joining forces to dominate the network just to make profits, leading to decentralization.
Here, those who contribute to the network by freezing their coins are rewarded proportionately to the amount they have invested.
Electricity consumption-
Proof of Work blockchains use large amounts of electricity. This is because the cryptographic sum that miners have to solve is incredibly difficult.
Not only is this bad for the environment, but it also slows down the rate at which cryptocurrencies can increase their real-world adoption. This is because electricity bills are to be paid using fiat currency.
Proof of Stake neither needs highly complex sums to be solved nor energy-hungry hardware devices, meaning that the electricity costs to verify transactions are substantially lower.
51% Attack
A 51% attack is used to describe an unfortunate event when a group or a person gains more than 50% of the total mining power.
If this happens in a Proof of Work blockchain, it will allow the person to make changes to a particular block. If this person is a criminal, they can alter the block for their gain.
And as mentioned in the first advantage, PoS supports decentralization, leading to negligible chances of suffering such attacks as no one is likely to stake 51% of the total amount of cryptocurrency in circulation.
Cons:
Risk of double-spend attack-
Proof of Stake allows people to verify transactions on multiple chains, making them vulnerable to double-spend attacks.
This happens when somebody transfers funds to somebody else, but before the transaction is confirmed, a hacker manages to spend the funds again.
Helps the rich getting richer-
PoS helps the rich getting richer as the more money you have, the more coins you can buy to stake, and more will be the return on your investment.
Final thoughts
By now you might have understood that both PoW and PoS have their own positives and negatives. But this is to accepted by all the miners that this shift is going to take place for sure. And they should be mentally ready for what to do next. After all, this step is being taken for good.
