Why would you mine Ethereum today? Because, as is ever more clear these days, no one can agree on anything and plans will always be pushed back. ETH 2.0 will happen, just not on schedule nor as planned. This gives us a nice window to mine it with less institutional competition.
Let’s roll back the clock.
It’s January 2017, Bitcoin has just broken it’s previous all time high of $1100 and this newfangled cryptocurrency called Ethereum is only $10 and about to run up 16,000% over the next 365 days. It’s faster, able to do more, and most importantly way “cheaper” than Bitcoin, meaning that you can still be an “early adopter” because you missed the Bitcoin boat. It’s founder speaks tech-ese and captures the hearts of mom’s-basement-dwellers around the world.
Ethereum is the Facebook to Bitcoin’s Myspace. You can build so much more on it, roll out smart contracts more effectively, and it scales soooo much better! For what it’s worth, we did build some pretty incredible stuff. Eth really was a flagbearer to the Cambrian explosion of new cryptocurrencies that defined the ICO boom of 2017, most of which have been forgotten to time. Since then, only Bitcoin has recovered and approaching it’s previous all time high, tons of money has been lost gambling (it’s speculating, Marie!), and the SEC has started catching up to the limitless fraud during that insane mania.
In 2017 the cracks were already showing in Ethereum. 15 transactions/second is still very, very slow. Developers had already tried and repeatedly failed to effectively drop a difficulty bomb & mining ice age. Consensus is that Ethereum can not scale in it’s current form. It has to be upgraded. Thus, ETH2.0 was born. The solution to all our problems!
It’ll be ready “over the next 3 to 5 years, timeline subject to change”.
ETH2.0 will switch from a Proof of Work (PoW) to Proof of Stake (PoS) algorithm, meaning it will no longer be mined and it will have tons of extra capabilities, transaction throughput. The rollout is proposed to occur in 4 stages:
Phase 2: fully formed shards <—Ethereum no longer mined.
Now it’s 2020, the modern era. Biden’s going to save the world from a whole bunch of stuff and the Ethereum testnet still has big oopsies. Oh, also we pushed back the difficulty bomb because no one could agree on it. Also, we’re not exactly on track to hit the required ETH staking for the Phase 0 Beacon Chain with less than 2 weeks to go til launch.
The spectre of ETH 2.0 looms over GPU miners. No one wants to develop ASICs for an algorithm that is planned on being phased out (also it’s just really hard to design a memory-intensive ASIC). How much should you worry if you’re mining Ethereum? What’s your runway look like?
If I could predict, Ethereum will always have a mining component and the Proof of Stake (Phase 2) will be a contentious hard fork, sometime in 2022 at the earliest. It’s also likely both will exist for the sheer reason that everyone will have to meet in the middle and compromise.
Let’s look at the incentives to make this ETH 2.0 transition happen:
- Ethereum cannot facilitate the inevitably Decentralized Finance future on the base layer in it’s current form. There is tons of money to be made
- Proof of Work is extremely energy intensive. Ethereans & many entities say it is necessary we transition away from PoW to PoS.
- ASICs will eventually be developed for any PoW algorithm, dominating GPU mining.
- Tons of reputations on the line, across the Ethereum Foundation to Vitalik himself.
Incentives against ETH 2.0 or not aligned with the proposed timeline + model:
- It’s an entirely new cryptocurrency. Likely all existing projects built on ERC20 will have to either be massively upgraded or die.
- Basically have to rebuild network effect from 0 and you are competing against Lindy effect
- It’s extremely expensive. Costly and contentious development and a huge financial risk, especially if most of your net worth is in Ethereum.
- Phase 0 requires you to stake your Ethereum for 2 years for minimal interest. Who would do that when all indicators are that we’re entering into another massive bull run?
- $2 billion in GPU mining assets don’t want this to happen yet.
Long story short, ETH 2.0 has to happen. It’s just not going to happen on the proposed timeline. We’ve got some great years of GPU mining ahead of us.