Now that the Ethereum Blockchain Merge has been executed and the network has moved to proof-of-stake (PoS), the discussion about miners and their future has erupts. At the moment, the Ethereum blockchain market of miners is very divided. The Merge is expected to start a new era in which miners being replaced by validators and coin strikers.
Recent discussions about proof-of-work (PoW) mining and its advantages and disadvantages make it clear that it is worth taking a closer look at this discussion. How will mining change in the coming years, and what are miners doing to prepare for this?
Here are some trends cryptocurrency miners should keep in mind:
Application Renewable Energy
It may sound like a hype word, but the switch to renewable energy within the mining industry is starting to take off.
The hardware used for mining consumes significant amounts of energy. For the companies that mine crypto on a large scale, this involves thousands of miners at the same time. Much has been written about the energy consumption associated with this, and according to a research report, crypto mining consumes up to 110 terawatt hours of energy per year. That is a comparable amount as a small country consumes.
Since Tesla stopped accepting Bitcoin payments, there has been a bigger discussion about mining and its carbon footprint. As a result of the discussion, more and more individuals in the mining industry are opting for more energy-neutral ways of performing crypto mining.
Indeed, one of the reasons Ethereum is moving to PoS is network durability.
One of the clearest trends in the mining industry right now is the transition from carbon-based power – aka polluting energy sources – to renewable, sustainable energy. This trend is likely to continue in the coming years, especially now that the crypto world wants to convince skeptics.
Gradually disappearing of Miners
Probably the most drastic change is that many cryptocurrency developers are moving to PoS. So much that miners may soon be redundant.
That’s not a nice message, but it’s probably a given. Many developers are leaving the PoW model and switching, and miners are already becoming redundant or have to switch to other altcoins. Shareholders with large stakes in the coin/stakes and validators are ready to take their place. It seems difficult for the miners to prevent this.
In any case, miners have to look for new ways to keep making a profit. With crypto mining becoming increasingly unattractive, the future does not look bright.
The hashrate measures the amount of resources needed to continue mining on the Bitcoin blockchain.
According to industry experts, the Bitcoin network hashrate will increase significantly in the coming years. Chinese miners who stopped mining in their own country last year are likely to gradually return through other countries where they continue their work. In addition, new miners are created when the bear market is over and coins become more valuable, and there is more room for profits.
This means that the difficulty of mining will increase significantly, possibly even surpassing the all-time high of 248.11 EH/s earlier this year.
It will probably become more difficult for the miners to make a profit from mining, as it becomes more difficult to mine on the network and the hashrate increases. This is also strongly due to, for example, the consistent rise of the Bitcoin price. If Bitcoin’s rewards are split in half, then miners’ margins can drop significantly.
This means that the companies that incur the least costs and have the most efficient miners are likely to survive in the long run. Smaller margins are particularly detrimental to new, smaller and individual miners. Mining pools may also benefit from this.
Shortage of Chips
Finally, a shortage of chips is expected in the near future.
Mining hardware is built with the same semiconductor chip used for electric cars, cell phones and other electronic devices. Since 2019, the demand for these semiconductor chips has increased by 17%. Increased production of electric vehicles, tablets, smartphones and artificial intelligence devices is driving the demand for the chips.
Despite the chips’ makers reportedly producing at 90% of their capacity, supply has not yet outpaced demand.
This difference between supply and demand makes it difficult for players in the mining industry to make decisions in the short term. On the contrary, it is necessary for miners to be able to plan at least a year in advance, and to place orders early, which is difficult due to the uncertain situation.
According to a report by the US Department of Commerce, the bottleneck for these chips is limited manufacturing capabilities – requiring new long-term solutions. Until then, there seems to be no end to the shortage of chips.