The Transition of Ethereum and the New Landscape for Proof-of-Work Mining Post-Merge

On September 15, 2022, Ethereum’s historic transition to proof-of-stake (PoS) marked the end of an era characterized by GPU-based proof-of-work (PoW) mining that had been part of the network since its launch on July 30, 2015. This shift not only transformed Ethereum but also triggered ripple effects throughout the cryptocurrency landscape. As the dust settled, many GPU farms that had long powered Ethereum suddenly found themselves in search of new homes.

Aftermath of the Ethereum Merge

Proof-of-Work vs. Proof-of-Stake

At its core, PoW requires miners to solve cryptographic puzzles through extensive computational processes, securing the integrity of networks like Bitcoin by making block creation costly in terms of energy and resources. In contrast, PoS replaces this labor-intensive method with a financial stake. Validators lock up native tokens as collateral and are randomly selected to produce blocks, significantly reducing energy consumption.

The GPU Exodus

Ethereum’s PoW network peaked at around 1.24 petahashes per second (PH/s) in mid-June 2022. Following the Merge, the vast majority of this hash power went offline, leaving over 1.2 PH/s in limbo. As a consequence, GPU miners pivoted, migrating their hash power to several leading PoW chains.

In the weeks following the Merge, GPU mining enthusiasts turned their attention to four key networks:

• Ethereum Classic: Hash power surged from 26 terahashes per second (TH/s) to a staggering 236 TH/s, an 808% increase.
• Ravencoin: The network saw an ascent from 2.76 TH/s to 16.88 TH/s, a jump of 511%.
• Ergo: Witnessed growth from 14.46 TH/s to 99.59 TH/s, equating to a 589% rise.
• Flux: Experienced an increase from 1.34 megaHashes per second (MH/s) to 9 MH/s, a 571% boost.

The transition away from Ethereum into these niche networks spotlighted the continued viability of GPU mining, despite inevitable losses in the Ethereum ecosystem.

The Shift to Alternative Algorithms

Freed GPUs could not migrate to Bitcoin due to its SHA-256 PoW, which relies on ASIC miners, rendering GPU mining unfeasible. Instead, miners flocked to GPU-friendly algorithms that allowed them to leverage their existing hardware effectively:

• Ethash (Ethereum Classic): A memory-intensive mining algorithm designed to keep GPU rigs profitable by mitigating ASIC usage.

• KAWPOW (Ravencoin): Featuring dynamically changing calculations that ensure GPUs stay relevant against specialized hardware.

• Autolykos v2 (Ergo): Optimized for straightforward GPU operations, making mining attainable without specialized equipment.

• ZelHash (Flux): Aimed specifically at utilizing GPU mining, enhancing efficiency and profitability.

PoW Chain Survivors

Kaspa (KAS)

Positioned as an alternative to Bitcoin, Kaspa is branded as "digital silver." With its name derived from the Aramaic word for silver, it utilizes a unique GHOSTDAG protocol, aiming for rapid transaction speeds and the ability to produce one block per second, with ambitious hopes of scaling up to 100 blocks per second.

Monero (XMR)

Launched in 2014, Monero has established itself as a leader in privacy and fungibility. Utilizing comprehensive anonymity features, including ring signatures and stealth addresses, Monero employs the RandomX algorithm, designed specifically for equitable mining. This enables fast and affordable transactions, free from censorship.

Ravencoin (RVN)

An offshoot of Bitcoin, Ravencoin was launched on January 3, 2018, to facilitate peer-to-peer asset transfers. It operates with a limited supply of 21 billion coins and one-minute block intervals. The KAWPOW mining algorithm allows for GPU-based mining, successfully deterring ASIC centralization.

Ergo (ERG)

Emerging in July 2019, Ergo utilizes the Autolykos algorithm tailored for GPU mining. In addition to enabling complex smart contracts, Ergo offers robust privacy features, positioning itself as a versatile platform for decentralized apps.

Flux (FLUX)

Flux, another mineable PoW cryptocurrency, is designed to power a decentralized cloud infrastructure catering to Web3 needs. With an extensive node network and significant computational capacity, Flux aims to provide a flexible ecosystem for both resource payment and collateralization.

Contemporary Mining Economics

Understanding mining profitability is critical for survival in the industry. Factors such as token prices, network difficulty, and electricity costs play significant roles. While ASIC mining offers advantages in energy efficiency and cost through industrial setups, GPU mining’s profitability is frequently swayed by market fluctuations. Following Ethereum’s shift, a significant drop in GPU pricing occurred, leading many miners to pool their resources to mitigate income variability.

Geographic Shifts & Regulatory Climate

As Bitcoin’s hashrate continues to expand, miners face growing pressures to relocate to areas with advantageous energy conditions and regulatory clarity. Countries like Paraguay have begun to emerge as mining hubs due to their abundant cheap hydroelectric power, while Kazakhstan has attracted miners since China’s mining ban in 2021, benefiting from deregulated energy environments.

Navigating Energy Politics and Regulations

GPU-based altcoin miners are also adapting to the regulatory landscape. With intensifying compliance pressures in the U.S. and Europe, some miners are looking toward regions with lenient regulatory oversight or surplus energy. Strategies include solar partnerships in Paraguay and repurposing flared gas in the Middle East, highlighting the necessity of aligning mining operations with available energy resources.

Dual-Use Computing Models

In a landscape characterized by tightening profit margins, many mining operators are exploring dual-use strategies. Companies like Hive Digital Technologies have taken to utilizing their GPU arrays for machine-learning tasks during market downturns, allowing them to switch back to PoW mining when conditions improve. This flexibility not only enhances capital efficiency but reduces reliance on erratic mining revenues.

Simultaneously, TerraVerde Energy integrates Bitcoin mining with solar infrastructure, ensuring efficient use of surplus energy through real-time optimization. Such innovations indicate a broader trend of merging policy, energy economics, and decentralized infrastructure.

PoW’s Enduring Security Model

Despite the increasing focus on environmental issues, proof-of-work remains the most battle-tested consensus mechanism in blockchain technology.

• Externally Verifiable Work: PoW necessitates actual, measurable computational efforts, making deceit and manipulation nearly impossible.

• Censorship Resistance: For an attacker to disrupt block production, a huge investment of energy and capital is required, making censorship economically unfeasible.

• Permissionless Participation: Accessible to anyone with standard hardware, PoW reduces the risk of centralization and gatekeeping.

• Proven Resilience at Scale: Bitcoin’s hashrate continues to demonstrate the unparalleled security and global participation found within PoW networks.

Through innovations in dual-use computing, geographic relocations, and adaptability to regulatory changes, PoW remains a crucial component of the cryptocurrency ecosystem, demonstrating its ongoing relevance.