The Merge: Ethereum Miners' Dilemma

According to New York City-based crypto intelligence platform Messari, the Ethereum network mining industry has a valuation of $19B. However, there is a caveat; thousands of Ethereum miners' may be left with millions of dollars worth of computer hardware that will be obsolete after the Merge.

The Merge will be executed on Ethereum’s main network when the total difficulty reaches 58750000000000000000000 on or before September 15, 2022. At that time, Ethereum' will migrate to a proof-of-stake consensus mechanism and the $19B Ethereum mining industry will collapse.

A Rude Awakening

Before the Merge crosses the threshold from Proof-of-work (PoW) to Proof-of-stake (PoS), the long-delayed difficulty bomb will be allowed to run its course, effectively raising the bars on the mining difficulty and consequently disincentivizing miners to continue their operation on the PoW chain.

Ethereum Miners' will have to deploy their hardware elsewhere but the question remains, are there any alternatives that will grant them the same level of profitability as mining Ethereum?

For members of the Ethereum mining community, there is a sense of deja vu about the upcoming Merge. The EIP-1559 upgrade which was chaperoned by the London hard fork reduced miner profitability by burning gas fees and, as a result, decreased the circulating supply of ETH. However, the EIP-1559 upgrade left miners with an alternative to augment their revenue through  Miner Extractable Value (MEV) solutions.

Unfortunately, the same cannot be said about the Merge as it is a total overhaul of the proof-of-work running on the ETH mainnet. Miners have been considering a variety of approaches to address the rude awakening, including plans to fork the blockchain to keep them in business or mine other GPU-compatible coins like Ethereum Classic (ETC)

One of the proponents of the Ethereum PoW fork, Chandler Guo confirmed his intentions in a tweet captioned, "ETH PoW will coming soon. ETC cooperative issued an open letter to Guo, stating the proposed fork would be a herculean task and a better alternative would be to keep mining on Ethereum Classic (ETC)‌‌‌.       ‌

Daniel Dizon, CEO of Swell Network explained to Cointelegraph that the chance of a successful fork is rather small and the profitability of the resulting ETH PoW chain is not guaranteed. He said,

Ultimately, the value of Ethereum as a network goes far beyond simply its consensus mechanism. It extends to highly defensible characteristics, such as its user base, developer activity, ecosystem, infrastructure, capital flow, and more.

A Difficult Choice

ETH miners are left with few good options and none offers the same level of remuneration accrued on Ethereum PoW. What if they deploy their hardware to mine Bitcoin instead? Eth miners use GPUs for mining but Bitcoin miners, use ASICs. The incompatibility of the mining systems rules out this option.

Let's assume the mining systems of Bitcoin and Ethereum were compatible, would Bitcoin mining yield equal levels of remuneration as Ethereum mining? Well, according to Arcane research, Ethereum mining is more profitable than Bitcoin mining.

Miners could also deploy their resources to several GPU mineable coins like Ethereum classic, and raven coin but they offer substantially lower profit margins. For example, Ethereum Classic miners made $318 million in revenue in 2021 compared to Ethereum Miners' staggering revenue of $18.4 billion.

Conclusion

There is no easy answer as to how Ethereum Miners' will survive the long winter ahead. Although Coinbase exchange has stated that they will consider listing forked tokens after the merge, the success of the fork is uncertain as many developers have shown solidarity with the PoS Ethereum. It would be difficult for miners to come close to generating the revenue produced by mining Ethereum after the PoW-PoS transition is effective.