The blockchain update will put an end to a very lucrative business, capable of generating millions of dollars a day. Only certainty, there will be breakage.
Conversion to another blockchain or cessation of activity? Ethereum miners are in a dilemma ahead of The Merge, the major protocol update. In mid-September, the switch from proof-of-work to proof-of-stake on the Ethereum blockchain will take effect and disrupt the activity of its miners. Until then they contribute to the Ethereum ecosystem by validating the transactions grouped within blocks. This system corresponds to the proof of work. To validate a block, they must find the solution to the enigma linked to its creation and its distribution on the network, using very expensive and energy-consuming advanced equipment. As a reward, they are paid in native blockchain tokens: Ether. For example, the 1erLast September, Ethereum miner revenue was $21.73 million for that day alone, according to The Block.
As explained by Julien Gourlet, founder of Ilium, a decentralized finance company that offers independent miners the opportunity to group together in a mining pool, proof of work on Ethereum faces a major problem: its lack of scalability. Currently, only 20 transactions per second are validated on the blockchain compared to 24,000 for Visa, according to howmuch.net. Yet, the number of transactions on Ethereum stood at 5.51 billion on August 31, 2022. As a result, the network is congested and transaction fees are high. It takes nearly $2.77 on average per transaction according to Messariagainst $1.04 for bitcoin, to the delight of miners who are very well paid… Their fate will change shortly since “The Merge lays new foundations in order to solve scalability problems and manage more transactions per second”, indicates Julien Gourlet.
Too many miners, not enough cryptos
Unlike Proof of Work, Proof of Stake does not require any technical skills and hardware since it involves staking to validate blocks of transactions, or immobilizing cryptographic tokens in exchange for rewards. Expensive and energy-intensive mining hardware is no longer of any use on this blockchain. Ethereum 2.0 is a “major change” in the words of Julien Gourlet and will “reconfigure the crypto market” with the replacement of Ethereum miners with validators. One question remains: what future for Ethereum miners?
“The market will reconfigure itself around professional miners”
Certainly, all will suffer heavy financial losses as it is profitable to mine on Ethereum. The computing power reached by the miners of this ecosystem is such that it cannot be absorbed by the mining of others cryptocurrencies. In other words, too many miners, not enough cryptocurrencies to mine. A significant part of independent miners will therefore be forced to stop their activity because the electricity costs and the cost of purchasing machines will be too high compared to the profits generated by mining other crypto-currencies. “The market will reconfigure itself around professional miners,” says Julien Gourlet. Those left behind will not however become validators, “it is a financial product, an activity that has nothing to do”, adds the founder of Ilium, according to whom “a very uncertain period with a lot of chaos is to be expected”. Not only for Ethereum miners who will have to retrain, but also because staking is a less proven security system than mining. All it takes is a grain of sand for the Ethereum 2.0 machine to malfunction.
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What will become of Ethereum miners after The Merge?
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