When Ethereum mining will end

2 semanas ago 0 16

The ETH cryptocurrency was created by a team of programmers led by Canadian developer Vitalik Buterin. The ethereum market is the second largest in terms of capitalization, and the coin is considered the most technologically advanced digital asset. Transactions in the Ethereum network are much faster than in other blockchains with PoW consensus. But the most important advantage of etherium is the ability to deploy automated algorithms(smart contracts). It is only mined on video cards. However, there is an opinion in the crypto community that the era of Ethereum mining on GPUs is coming to an end. When etherium mining will end, no one knows. The answer to this question depends primarily on the transition of the network from the Proof-of-Work consensus mechanism to the Proof-of-Stake algorithm.

Etherium mining

When Ethereum was launched, the target block mining time was 15 seconds and the reward was 5 ETH. Thus, every minute, miners confirmed 4 blocks, which amounted to 240 chain elements per hour, or 5,760 per day. However, according to Etherscan reviewer metrics, the network is mining an average of 6,400 to 6,600 blocks per day in June 2022. It takes about 13 seconds to mine one blockchain element. In 2017, after the Byzantium hardfork, the reward per block decreased from 5 to 3 ETH (by 40%).

Later, in February 2019, as a result of the Constantinople hardfork, payments to miners were reduced once again – from 3 to 2 ETH (by 33%). In April 2022, the reward per block was 2 ETH. The Ethereum community assumes that payments for mining 1 blockchain element will be reduced again – from 2 to 0.5 ETH (by 75%). This will be done to preserve the purchasing power of the cryptocurrency to bring its inflation rate closer to bitcoin. But this initiative has not yet been passed.

When Ethereum mining will end — Daily rewards for miners

All ideas to change the block mining time or the size of the reward for mining are spelled out in the EIP (Ethereum Improvement Proposals). This document covers the technical specification of the prescribed update and the reason for it.

EIP is a common way to request and make changes to the Etherium network (similar to Bitcoin’s BIP). Not only the development team, but any member of the community can submit a request to add new features to the blockchain.

This is how application standards and network updates are discussed and developed. There are several EIPs regarding block mining time, appropriate reward, number of coins and consensus. But these proposals are still being discussed and not every proposal will be implemented.

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For example, to ensure the economic sustainability of the Ethereum platform, co-founder Vitalik Buterin introduced an EIP and proposed to severely limit the supply to 120 million units. This is 2 times the amount of ETH sold on the crowdsale. Later, the specialist also proposed to limit the issuance of etherium to 144 million, which is only 2 times the number of coins generated in the genesis blockchain. But both EIPs are yet to be adopted.

Over the years, developers and community members have proposed solutions for Ethereum issuance, but none have been implemented. As of April 2022, the issuance of ETH is still unlimited.

Advantages and disadvantages of Ethereum moving from PoW to PoS

Proof-of-Stake is likely to lead to significant changes in ETH supply in the short term. Once the merger occurs, the level of issuance will depend on the amount of active bets. Etherium issuance is expected to decline by about 90% from the current annual supply (from 4.3% to 0.03-0.04% of total issuance). The second deterrent to deflation is the implementation of EIP-1559, which is responsible for burning all transaction fees, reducing coin issuance.

At the ETHGlobal hackathon, etherium developers invited decentralized applications to try a test network on PoS between April 16 and May 16, 2022. Node operators, software developers and infrastructure providers are currently testing the Kiln Testnet Merge. The creator community behind Kiln Testnet Merge says the transition to the core network is scheduled for June 2022. Since the rewards for the transaction confirmation process will no longer be in the hands of the most powerful miners, a fairer consensus environment will emerge. There are currently over 300k validators on the test network, 37% of which are individuals.

Benefits

EIP-1559 reduces the profit margins of miners. Efirium will become more scarce and hence there will be an increase in its price over time.

Disadvantages

There are several ambiguous issues to be resolved by the mining community:

The Merge will not reduce gas fees on the Ethereum blockchain, as it is only linked to the consensus mechanism that protects the network. This is a stage to move to a future sharding update (at which point the gas fee will become lowered).
In fact, a new token will be issued – ETH2. However, the Ethereum Foundation is dropping the terms Eth1 and Eth2. Subsequently, it will be possible to exchange the ETH1 token for ETH2. The conversion is only one way. This can be confusing. Ether mining on the video card will stop when most of the already mined ETH is transferred to layer 2 (ETH2). However, it will be possible to make transactions with both layer 1 and layer 2 tokens.
The scammers tricked users by offering to exchange their ETH for fake ETH2 tokens. The attackers insisted that it was necessary to transfer valid coins before launching the new network.
Some staking platforms provide ETH cryptocurrency with the ETH2 ticker (hosted by Beacon Chain). And users don’t realize what this asset is. In fact, they don’t actually receive the ETH2 token. There is no such altcoin. It simply represents a user’s share in a pool of a particular liquidity provider.

Bottom line

Since the network’s inception, the development community has made many attempts to reduce inflation. The first steps involved reducing the reward for mining the blockchain. Later, in 2021, the creators proposed to burn coins, and thanks to this, the inflation rate in the network was reduced to 4%. Stage 0 (merge) in theory should be the beginning of the end of GPU mining of etherium. Testing the new layer will help eliminate the bugs associated with running the network without mining. When the full transition from PoW to PoS happens, the demand for graphics cards from miners will decrease. However, nodes will still be generating blocks and releasing new ETH to the market for a long time. Therefore, the transition to Ethereum 2.0 will not be an obstacle for mining the second most capitalized cryptocurrency.

Frequently Asked Questions

💡 What does the transition to PoS mean for the Efirium network?

In theory, it is the cessation of mining using specialized hardware.

❓ Which pool is ideal for mining etherium?

Ethermine. It is the pool with the highest total hash power among all the mining nodes.

❗ Is inflation a good thing for cryptocurrency?

No. Because an increase in supply lowers the price of the asset.

🔍 Why is the transition to Ethereum 2.0 split into several stages?

This is due to the complexity of moving the blockchain from the PoW consensus mechanism to the PoS algorithm.

🍴 Is Ethereum 2.0 a fork?

It is the same Ethereum network, but it will consist of two layers: Eth1 → Execution layer, Eth2 → Consensus layer. Execution layer + Consensus layer = Ethereum.

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Author: Saifedean Ammous, an expert in cryptocurrency economics.