What Should GPU Owners and Miners Know About the Shift to Proof-of-Stake?
You might have heard that Ethereum, the second largest cryptocurrency by market cap, is going to switch from the Proof-of-Work to the Proof-of-Stake model sometime in 2018. The upgrade to the network is known as Casper, and it promises to be a real game changer. There are concerns that it won’t be profitable to mine Ethereum at all in a year or two. Is this time enough to pay off a mining rig?
In this article, we will explain the difference between the two systems and how the transition from “work” to “stake” will affect those who use GPUs for mining.
What is Proof-of-Work (PoW)?
Proof-of-Work (PoW) and Proof-of-Stake (PoS) are the two best-known consensus algorithms in cryptocurrencies. They are both methods for verifying the authenticity of transactions without the need for a centralized third party.
PoW is the protocol underpinning most of the cryptocurrencies, including Bitcoin, Ethereum (for now), Litecoin and many more. If a coin is minable, that means it’s using a PoW system.
Simply put, PoW is an algorithm for protecting distributed systems from attacks (DoS attacks, spam mailings, etc.). Its two main points are: the need to perform a complicated and time-consuming task and the ability to verify with much fewer resources and time.
The PoW algorithm depends on energy-intense computations. Miners’ GPUs are rapidly solving cryptographic hash functions that verify the blockchain. This process — the actual mining — is rewarded with new crypto-coins. Without miners, many crypto-networks wouldn’t exist, since miners pay for electricity to do the computations in exchange for tokens.
PoW engendered the massive development of specialized equipment for mining since the computing resources spent on hashing blocks are enormous. Moreover, with the network growth, each transaction requires a lengthier confirmation process, and the hash function becomes more and more complicated. Thus, transactions become unbearably slow and expensive. For example, one bitcoin operation requires the amount of electricity that 1.57 American families consume for an entire day. And the bills for it are paid with ordinary money. Moreover, recent research shows that by 2020, bitcoin transactions may consume as much electricity as a small country like Denmark. Rather quickly PoW has turned cryptocurrencies into a monster, gulping electrical power in pursuit of the profitability.
The Shift to Proof-of-Stake (PoS)
The purpose of the Proof-of-Stake algorithm is the same of the Proof-of-Work, but the way to reach the goal is different.
With PoS, miners are no longer rewarded for solving the math problems. The creator of a new block is chosen depending on his assets, also defined as a stake. The process of mining become redundant. The number of coins no longer changes. Since there is no block reward, miners, now called forgers, take the transaction fees. Coin owners will show how much they own by running something called a master node. To create a master node, you have to secure a certain amount of cryptocurrency to prove you own it.
Metaphorically speaking, the PoW model is gold mining in the mountains with powerful equipment. It requires significant time and energy costs. On the other hand, PoS is saving your gold in a bank cell somewhere in the Swiss Alps. However, you can’t withdraw the deposit for a while.
The massive energy consumption of the PoW model is a big concern of cryptocurrency developers. Thus, the Ethereum community wants to exploit PoS as a more eco-friendly and less expensive way to maintain a distributed registry. The upgrade called Casper has been in work since 2014. The release date is still unknown, but Ethereum CEO Vitalik Buterin is all for the switch to PoS. Casper will fundamentally change the way the Ethereum network functions as an economic model. Transactions will become much faster. Furthermore, a fixed amount of coins means no inflation, scarcity or rise in prices.
It’s not only Ethereum developers thinking about introducing the Proof-of-Stake model. Cardano also updated its roadmap, setting out plans to switch to a PoS as early as Q2 of this year. Other currencies may turn their eyes away from mining in the nearest future as well.
What does this switch mean for miners?
With the PoS model, miners will become obsolete and GPUs unremunerative. Even if some cryptocurrencies still use PoW, the profitability of mining falls. We can expect an ample supply of used GPUs, so it would be hard to sell one; they will flood the market.
However, there are some alternatives so as not to let your GPU stay idle. You could repurpose your mining rig to play PC games or donate the computing power to SETI@home, a project analyzing radio signals for signs of intelligent extraterrestrial life. But you can also earn money on it. There are a lot of cool distributed computing projects that want to use your GPU for its original purpose — rendering and massive computation. For example, Altumea is a distributed supply-and-demand marketplace where you can rent your GPU’s computing power to engineers, scientists or artists who need complex calculations. The demand for cloud computing is growing, and renting your capacities to decentralized projects is more profitable than working with a data centre. Moreover, the tokens of decentralized systems like Altumea will be protected by an Etherium-based blockchain. It seems like a reliable way to recoup your investment in mining equipment. And the closer the PoS shift is, the more such projects we can expect.
