According to developers’ plans, the Ethereum blockchain will switch to the Proof-of-Stake (PoS) mining algorithm in 2022. This will mean the end of ETH mining using specialized equipment. The number of tokens stored in a user’s account will now play a key role.
Features of Ethereum mining in 2021
Initially, the Etherium blockchain uses the Proof-of-Work (PoW) consensus algorithm. With this network mechanism, the creation and verification of new blocks takes place by solving mathematical problems. This process requires enormous computing power. It can be performed with special equipment:
processors;
video cards;
ASIC (integrated circuit of special purpose).
It is worth mentioning that in this case we don’t mean the processors and graphics cards of an ordinary PC. Such equipment has a much higher performance and is created especially for mining. This equipment provides the level of computing that is needed to solve the cryptographic task.
As soon as the task is solved, the created block is accepted into the general chain. And whoever manages to get the solution is paid a reward. The same principle of adding blocks is used in the Bitcoin blockchain.
The main disadvantage of Proof-of-Work is that it forces miners to buy expensive equipment. Unlike the VTS blockchain, Ethereum developers made this process more affordable, as this network uses a slightly different hashing algorithm – Ethash. However, with the growing popularity of the Ethereum cryptocurrency, the complexity of its mining has increased significantly, and already requires huge power as well.
Today, only ASICs need to be used to mine VTCs, and it is desirable to build farms of them to get high hash rates. But AMD and Nvidia graphics processing units (GPUs) are also suitable for mining Ethereum coins. So you will have to spend money on “hardware” anyway.
It should be noted that the process of mining in Ethereum blockchain is gradually ceasing to be fair. Miners with funds to spare are buying special integrated circuits designed to mine ETH. This gives them the ability to mine blocks faster than users with GPUs.
As a result, regular GPU miners began to under-earn, and some of them switched to mining other assets. Many users began to express their indignation over the fact that Ethereum’s technical document says that the network is resistant to ASIC mining, but in reality it is different.
The only way to compete with ASICs is to build farms, which not everyone can afford. The alternative is to pool their technical capacities by forming mining pools.
Ethereum transition to PoS
The developers of Ethereum are aware of the problem with the complexity of mining and plan to replace the consensus mechanism. Around Q3 2022, the Ethereum blockchain will switch to the Proof-of-Stake (PoS) algorithm.
This is an alternative way of adding a new block to the chain. When it is used, there is no need for powerful hardware – no complicated tasks are needed anymore. Any users, including those with ordinary PCs or smartphones, can participate in coin mining.
Despite the fact that the difficulty of buying expensive equipment will be gone, there will be a new problem – the need to have a large sum for steaking and mining, because when using PoS there is a greater chance to mine a block from someone who holds a lot of coins. That is, asset share is used as proof (instead of problem solving). Accordingly, users will now have a new goal: to get more Ether tokens to increase their chances of profit.
In addition to changing the proof-of-work algorithm to proof-of-share, the second version of Ether will feature sharding. This is what is called splitting a single set of data and storing it as multiple bases. The main advantage of sharding is that it can increase the speed of transactions by 64 times.
The updated network will be called Ethereum 2.0, and validators will be responsible for its security.
What ETH miners will do in 2021
Those mining Ethereum 1.0 coins need to think about switching to a new consensus mechanism. Until the end of this year and the first half of next year, ASICs and video card farms will still be able to bring in ETH. But then the PoW mining method will no longer be available. As a result, the purchased equipment will have to be used for mining in other networks. Some experts are focused on switching to cryptocurrencies such as Ravencoin and Ethereum Classic.
If the goal is to mine exactly ETH, it is already worth stocking up on coins, which can then be steiked (frozen). Without blocked tokens, it will not be possible to mine Ether and be rewarded for the validator’s work.
Validators are members of the network who check the generated blocks against the requirements of the blockchain. To get this status, you need to block 32 ETH. At the current ETH/USDT exchange rate, that’s about $140,000. And at the ETH/RUB exchange rate, that’s more than 10 million rubles.
If the validator lets a bad block into the system, he will lose all the blocked coins. For this reason, none of the validators are interested in violating the requirements in favor of any member of the network. All of this should make the Ethereum 2.0 blockchain noticeably safer.
According to Ethereum developer Tim Beiko, miners should already begin the process of abandoning the use of asics and video cards. The gradual transition to working with the new consensus mechanism will be less painful than an abrupt change in the way of mining.
Certain changes have already been made this year. In August, developers launched an update to EIP-1559. Now the work with gas is automated. In addition, the process of burning Ether tokens has been launched, by which the number of coins in circulation is reduced. And this is one of the ways to encourage miners to give up working in PoW mode.
Pros and cons of switching to PoS
The introduction of the Proof-of-Stake consensus algorithm in Etherium has a number of important benefits:
The system will become more reliable due to the operation of validators;
mining will be available to users with any equipment;
avoidance of powerful equipment will reduce the level of electricity consumption during block mining by about 99.95%;
Ethereum 2.0 blockchain will become noticeably faster;
the opportunity to increase one’s chances of mining blocks at the expense of expensive hardware will be neutralized;
new roles (validators) will appear in the system, providing additional income in the form of a commission for the work performed;
the effect of decentralization will increase due to sharding;
commissions will be reduced several times.
The transition of Etherium to PoS has its disadvantages:
The need for startup capital to mine blocks. When using PoS, the efficiency of mining is directly affected by the number of blocked tokens;
the lack of ability to quickly withdraw the invested funds. Users planning to own tokens in Ethereum 2.0 need to be prepared for the coins to remain blocked for 1-1.5 years. The reason is the time it takes to fully merge the first and second versions of the Ethereum blockchain. Until this merger is complete, it will not be possible to withdraw their tokens;
low stacking yields. In a PoS-based network, the return on blocked tokens will be in the range of 1.8%-18.1% per annum. According to Ethereum developer Justin Drake, the average stacking return would be 5% per year. For example, on the Binance platform, you can find fixed stacking at a rate of up to 100% p.a.
Some disadvantages can be bypassed. For example, using services that allow you to stack small amounts in ETH. But there is still a risk that some users will lose interest in mining in PoS format.
The low yield can be compensated by a significant increase in the value of tokens of the second version of Ethereum. The main problem of Ethereum 1.0 comes down to low bandwidth and high commissions. All of this prevents the project from scaling. Against the backdrop of such disadvantages, second-tier networks are gaining popularity, as well as competing blockchains (lighter and cheaper).
After switching to PoS and implementing sharding, Ethereum’s efficiency will reach a new level. The network will become much faster, commissions will be greatly reduced. According to analysts, such changes will allow the blockchain to gain an even stronger foothold at the top of the altcoin ranking.
ETH mining after the merger
The Ethereum blockchain upgrade should solve 3 key problems of the existing network:
low transaction speeds due to the massive nature of the system;
decreased stability of the blockchain;
high requirements to the technique for mining ETH.
Thus, by implementing the Proof-of-Stake consensus mechanism, the competition between miners will be neutralized.
Those who want to be a validator, but do not have 32 ETH in their account, can use the services of cryptocurrency services that provide staking with minimal amounts. For example, the Binance Staking site has a special staking pool. The minimum amount to participate in it is 0.0001 ETH. In dollars, it is 0.44 USD. Profits are distributed according to the shares of participants. Another advantage of working through the exchange is that from time to time you can receive bonuses, provided full verification. The yield of such pools is 5-20% per annum.
Those who have 32 ETH can become network validators directly. In this case, coins are better stored in a hardware wallet – you don’t need to use them anyway. To get validator status, you need to go to the official website of the project.
There you will need to do the following steps:
click on the button “Become a validator”;
study the instructions (10 sections), clicking “I accept”;
choose one of the suggested Eth1 clients and configure the node;
read the 10 sections of the Ethereum 2.0 manual again;
select Eth2 client and configure the node;
specify the number of validators to run: each will cost 32 ETH;
choose the operating system of your device and the OS to run the node;
connect a cryptocurrency wallet.
After that, the user will become a validator and will be able to receive ETH cryptocurrency for confirming blocks.
In the second network, the scheme for generating new blocks will be different, but the principles of entering mining will remain the same: either a large starting capital or joining a pool for mining.
