The crypto mining space is approaching an important inflection point. There are currently two dominant proofs of work-based coins, Bitcoin and Ethereum. Bitcoin’s consensus rules are immutable and historically could not be changed by some of the largest exchanges and miners in the space.
Ethereum is constantly changing and the biggest change could come as early as the second quarter of 2022.
What does ETH 2.0 mean for crypto miners?
Ethereum is expected to move from a proof of work-based consensus protocol to proof of stake (PoS), meaning graphics card miners will no longer be useful for adding blocks to the Ethereum blockchain.
However, the Ethereum community has been discussing this transition since 2016 and is constantly being pushed back. At the Ethereum Core Devs Meeting #124 on October 15, a proposal to push the December 2021 “difficulty bomb” was discussed.
Given the specialized nature of Ethereum mining, our guess is that those miners will exit the market entirely.
The difficulty bomb exponentially increases mining difficulty at a given block height, and it essentially freezes the chain and forces a hard fork. The difficulty bomb is now estimated to take place around June 2022, and many in the community expect the transition to proof of stake to finally happen.
When this transition takes place, it will be very destructive to miners currently mining Ethereum. These miners will have to transfer their graphics cards to mine other coins that are profitable with their equipment, and those coins are significantly smaller than Ethereum, and are probably less profitable for mining. It is entirely possible that if this transition to PoS takes place, as announced recently, the graphics card market will be flooded with cheap used chips from miners.
What this means for crypto miners is that Ethereum miners have a very high risk of their machines becoming obsolete overnight. Their cash flows would dry up immediately and the resale value of their GPUs will drop significantly. Knowing this risk, a large majority of the capital invested in crypto mining goes specifically to Bitcoin mining.