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The Effects of the Merge on Ethereum Miners

When they can no longer mine on Ethereum, where will the miners go? The $19 billion query is this.

If everything goes as planned, the so-called Merge will conclude Ethereum's transition from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) blockchain in late September. This eagerly anticipated occurrence in the Ethereum community will force the network's mining industry, with an estimated $19 billion in market value according to research firm Messari, to find alternative sources of income.

The process of verifying transactions and competing to solve challenging math problems in order to be the first to record transactions on the blockchain was invented by Bitcoin. Miners who succeed in completing this task are rewarded with a set quantity of newly created currency in exchange for their time and resources. Staking, which requires less computational effort and energy, will take the place of this record-keeping system after The Merge.

One suggestion made for mining pools is to switch Ethereum Classic as the target for their expensive and potent specialized computers. This is the network that split off from the main Ethereum network in 2016 following a hack in which $60 million from one of the first decentralized autonomous organizations (DAO) on the Ethereum network was taken. There are now two chains of Ethereum. The new one adopted the Ethereum name and rewrote history to make it appear as though the DAO hack never occurred. Ethereum Classic is a continuation of the original version.

Ethereum Classic has operated in the shadow of its namesake for the majority of its existence. However, its native token, ETC, increased by 150 percent last month, and as of August 4, its market cap was about $5 billion (still dwarfed by nearly $200 billion for Ethereum proper).

Miners are indicating a range of strategies to adapt to an Ethereum after the Merge.

For instance, Bitmain-affiliated mining pool AntPool disclosed last month that it had invested $10 million in the creation of apps and development for Ethereum Classic, and Ethermine, the largest Ethereum mining pool, revealed the beta release of EtherMine Staking, a staking pool service. Then, there were rumors that Ethereum miners would oppose the Merge by hard-forking, or fundamentally altering, the network. But the chances of that happening and succeeding are incredibly low.

Despite the potential for a future change in the consensus mechanism, Luxor Technology, a provider of full-stack bitcoin (BTC) mining software and services, has also made investments in Ethereum mining.

According to Ethan Vera, the co-founder and chief operating officer of Luxor, the company established a PoW advocacy group with the goal of preserving the blockchain's use of this consensus method.

Vera claimed that worries about the switch to PoS were the driving force behind the formation of the group. “While there are varying degrees of concern, the commonality is that there has not been enough testing of PoS transition yet," he said.

According to Vera, "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 mentioned that there are billions of dollars at risk, and the Ethereum Foundation, the nonprofit that oversees network software development, is moving too fast in its process to switch to PoS, posing a significant risk to those holding ETH.

Although Vera stated that he thinks Ethereum is best served on PoW, his company "will be happy for the ecosystem and still supportive personally and as a company" if the switch to PoS is successful. We are very interested in Ethereum intellectually as a project and all the fascinating applications built on it, he continued.

Vera refused to say if Luxor thought Ethereum Classic would be a better choice, only that it would consult with its partners to decide how its mining operations will change.

The first publicly traded miner, Hive Blockchain (HIVE), also discussed with CoinDesk its difficulties with Ethereum in the post-Merge era. Aydin Kilic, president and chief operating officer of Hive, responded, "This would depend on the use case of Ethereum Classic," in response to the question of whether Ethereum Classic would increase in value for miners in the post-Merge era.

"Currently, approximately 95% of the [decentralized finance] projects exist on the Ethereum blockchain. If [non-fungible token] and DeFi developers realize that a secure proof-of-work layer 1 blockchain is the best playing field for their code based projects, then we would expect to see a rise in applications on the Ethereum Classic blockchain. We believe there is intrinsic value in a broadly decentralized proof-of-work coin, which Ethereum Classic stands to become, if the Merge does take place, " according to Kilic. 

So far, it is unclear whether Ethereum Classic will prosper after the Merge. The only thing that unites them all appears to be their desire for Ethereum to succeed, regardless of the consensus algorithm they choose, though they appear to prefer that it remain a PoW mechanism.


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