Transitioning to ETH 2.0: What Will Happen to Miners?

Marcel Deer
By Marcel Deer
Head and shoulders photo of Michelle Meyer
Edited by Michelle Meyer

Published August 16, 2022.

Two Ethereum coins in the middle of a background featuring code in different colors.

That’s the central question right now in the DeFi community, a question that’s worth 19 billion dollars. If the plan proceeds smoothly without hang-ups, the merge should occur towards the end of September. So what does this merge mean for Ethereum miners?

This transition has sparked debate within the community, with many comparing the pros and cons of proof of work (PoW) and proof of stake (PoS) as September grows closer.

The Importance of Blockchain Consensus

Two primary elements of blockchain technology are immutable records and, of course, decentralization. Hence, this database in which computers on the network, referred to as "nodes", maintain a shared manner.

All of these nodes are ledgers of information. They contain all of the transaction history within that blockchain. Blockchain technology is also a type of DTL, or "distributed ledger network". You cannot destroy this network by taking out a central server. Blockchain technology achieves decentralized security and reliability in various ways.

Blocks are linked through a protocol where no existing block can be edited or removed. Adding new blocks is virtually the only way to modify the blockchain. Any node can do it automatically without any type of central authority.

A consensus mechanism is required to prevent non-compliant nodes that may cause frequent hard forks. This mechanism also guards against false transactions like double-spending and DDoS attacks.

Key Takeaways:

  • A consensus mechanism is a method of validating entries into and keeping the database secure.
  • The consensus mechanism chosen (either PoW or PoS) will heavily impact how and who keeps that database secure.

What Is the PoW Method?

Mining is a competitive process that adds and verifies crypto transactions that use the PoW method. This mechanism will require network members to solve an arbitrary puzzle to prevent attacks on the database. This puzzle is said to be updated every two weeks to keep optimum security.

PoW also requires participant nodes to prove that the work has been completed and submitted. Doing so qualifies them to add new transactions to the blockchain. The participants needed to verify these transactions are known as "miners". Thus the transaction verification process is commonly called "mining".

Miners also earn crypto without putting money down and are rewarded for completing blocks of verified transactions and adding them to the blockchain.

What Is the PoS Method?

PoS differs from PoW because it involves nodes that willfully stake their crypto for validation purposes. These are referred to as "stakers", while the process is commonly called "staking". The larger the stake and the longer the length, the better chances of that staker being allowed to validate transactions.

That being said, cryptocurrencies within this network are already created, meaning no "mining" is taking place. Therefore, there’s also no need for puzzles. This is a big debacle for ETH miners because what once earned them passive income will no longer be an option.

Stakers can earn money verifying transactions, but they will be chosen algorithmically based on what they have staked in collateral.

Why Is This Causing Concern Among the Community?

The competition between miners to solve that cryptographic puzzle to validate transactions helps them earn relatively effortless rewards. Moreover, these miners don't have to put any assets down to participate in this process.

PoS utilizes algorithmically chosen validators and compensates them with those crypto rewards. To stake on ETH 2.0, these individuals will need to "stake" assets to qualify to be selected to validate transactions on the blockchain.

PoW is well-established and tested. It has been used in many cryptocurrency projects in the past and present. On the other hand, high-energy costs strain the environment, along with increasing centralization of mining operations, and low transaction throughput will probably make it obsolete when considering the bigger picture.

The PoS algorithm offers a more scalable blockchain and higher transaction throughput. However, many users question the effectiveness of its security compared to completely decentralized PoW algorithms.

What Will Miners Do Once ETH Transitions to PoS?

One option is for miners to sell their GPUs to gamers on eBay or other platforms and become a validator on the Ethereum network. Validator nodes only require a stake of 32 ETH minimum, opening the door to rewards, tips, etc. This may be a good tactic before September rolls around.

Miners who may not be able to afford running a validator node have the option of staking their ETH in the pool, earning rewards through a different means.

Graphics processing units (GPUs) are the most common method of mining crypto, being able to hook up 9 GPUs when crypto mining. Yes, we are talking about the same GPUs used in PC gaming. CEO of BitPro, Michael D’ Aria, estimated that around 90% of miners are GPU-based, the remaining 10% being ASIC-based.

GPU mining of PoW coins will surely collapse if the merge is successful. The GPU-mineable coin market cap, excluding ETH, sits slightly above $4 billion, about 2% of Ethereum’s cap. PoW coins will only be profitable for a small portion of miners who can access cheap energy sources, but moving to an alternative consensus PoW blockchain might be the choice for some.

Larger-scale miners with the knowledge, time, and assets may be able to switch over to high-performance node operators for Web3 protocols or high-performance data centers. Miners may also utilize their existing GPUs for platforms like LivePeer, Akash, or Render Network.