When Will Ethereum Mining End?
The Ethereum to Ethereum 2.0 migration has begun. Let’s take a look at what this means for Proof of Work mining, what Proof of Stake is, and how soon the migration will be completed.
PoW vs PoS
Ethereum currently uses a Proof of Work (PoW) blockchain consensus mechanism. Proof of Work is the set of rules for the way a miner does the work, and the work is the mining. In this case, a miner races in a trial-and-error fashion to find the correct value or “nonce” to create a block of transactions to be added to the blockchain. Once a miner successfully creates a block, they are rewarded with 2 ETH and all the transaction fees on that block. Ethereum 2.0 is a Proof of Stake (PoS) system with Block Validators, who will randomly be assigned to create a block, and give an attestation, or a seal of approval, to blocks when not assigned a block to create. This will require less computing power because there’s no competition. To become a block validator you must stake ETH and will earn interest on your staked ETH.
What made the developers decide to make changes?
This was apparently always the plan, with the developers stating it’s a key part of the community’s strategy to scale Ethereum with the Eth2 upgrades. Ethereum 2.0 claims to be more scalable, with the capability to sustain thousands of transactions per second. It also claims to be more secure and more sustainable, aiming to lower the environmental impact of ETH mining as a whole.
That sounds like a good thing, so what’s the problem?
Well, to become a block validator you need to stake 32 ETH, which many miners do not have. At nearly $1,800 for 1 ETH, you’d need about $58,000 worth of Ether. Many miners are very skeptical of the migration, some even outright angry, having spent a lot of time, money, and effort on the old PoW system and hardware to be a part of it, many of whom are just unable to participate in the new PoS system.
The PoS system also requires the block validators to be online constantly, and not being online can result in penalties including losing some or all of your staked ETH.
Phase 1: The Beacon Chain
The Beacon Chain finally kicked off December 1st, 2020, after nearly three years of predictions, with the earliest kick-off predictions of 2017. The Beacon Chain is, essentially, a PoS network inside the current Ethereum blockchain. The early block validators staked their 32 ETH, which was then locked with a deposit contract until the merge with the main Ethereum chain comes.
Those that embraced the new Beacon Chain and had nearly $50,000 worth of ETH to pledge for an unknown amount of time to become block validators are making on average 11–12% interest annually, which is a pretty good number. But, as more ETH moves to the 2.0 blockchain, that interest rate will decrease rapidly.
Phase 2: Sharding
Sharding is essentially dividing up a database between multiple servers, in this case, a proposed 64 shards. This is expected to reduce the computational load, allowing things like cell phones to access Ethereum clients. The expectation is for the Beacon Chain to be sharded in 2021. Hopefully, sharding the database will increase the speed of transactions and help control the excessive ETH gas prices as of late.
Phase 3: Docking
Docking means merging ETH1 and the Beacon Chain to create Ethereum 2.0. When this happens ETH1 will become a shard of Ethereum 2.0. This is the point when mining will no longer be viable and have been entirely replaced with PoS.
Skepticism Around Ethereum
There are quite a few decisions the developers of Ethereum have made and continue to make that make miners and other users of the Ethereum blockchain skeptical. One of the earliest ones was that Ethereum was supposed to be ASIC resistant, something which was very appealing to a lot of miners since ASICs can easily outperform most at-home mining rigs, making it very difficult for smaller at-home miners to get their foot in the door. When ASICs were beginning to be developed for the Ethereum and Monero blockchains, Monero took emergency action to try and prevent this from being successful. The Ethereum developers decided that it wasn’t a pressing issue and didn’t take emergency measures; they actually never took any measures.
After abandoning small miners by taking such a passive stance on ASIC miners, the Ethereum developers decided to proceed with the migration to ETH 2.0, essentially turning their backs on smaller miners again.
Why proceed with the migration then?
Less than 10%, if any, ETH developers mine. There doesn’t seem to be much reason other than altruism for the Ethereum developers to consider smaller miners in decisions. On the other side, a Proof of Stake network may be very appealing to the developers, who more than likely have quite a share of ETH. In the PoS system, the more ETH(2.0) you have, the more you make.
So when’s the end of PoW and mining?
Well, with the history of the Ethereum developers missing deadlines and the uncertain nature of the migration, probably not until at least 2023. Until then, there’s plenty of ETH left to mine.
Oh, and if you’re wondering about EIP-1559 … it has been approved by the Ethereum developers, against basically every Ethereum miner's opposition, and is set to reduce ETH mining profitability by ~30% in the next Ethereum London Hardfork.
This article is not intended to be taken as financial advice. If you found this article helpful please subscribe to VoskCoin here on Medium, YouTube, and check out the VoskCoin website!
