The “Merge” killed Ethereum mining, what does this mean for other blockchains?

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Ethereum is a popular cryptocurrency and is the second largest blockchain network after bitcoin. It distinguishes itself from bitcoin by being open source. In other words, anyone can use it to program a blockchain-based digital technology, several examples of the use of Ethereum are NFTs, decentralised finance and smart contracts.

Before the “Merge” Ethereum used a proof-of-work (PoW) concept, i.e. a group of participants would run software to prove that the encrypted number was valid – this process is called mining. For their contribution, these miners were rewarded in a cryptocurrency called Ether. The mining process required a large quantity of processing power from GPU, which intern, required large amounts of electricity. This process was, however, very profitable at the cost of the environment. One main criticism of blockchain was the huge amount of electricity required to keep up the network. In Ethereum’s case, it was 78 Terawatt hours each year, for comparison that is equivalent to the power consumption of Chile. Not always is this electricity sourced from green energy, often it comes from fossil fuel power plants (Howson, 2022).

To address the sustainability concern Ethereum moved to a proof-of-sake (PoS) model. This differs from mining in that the block creators previously known as miners now become validators. In short, the validators record the transactions, verify activity, and get paid with transaction fees. The cost of equipment and electricity is not a barrier to entry anymore and anyone with sufficient funds can become a validator. Energy-hungry GPU mining rigs have become obsolete as the new model does not require as complex decryption calculations as previously needed, this will cut emissions by 99% according to the conversation.

The move toward sustainability has pleased environmentalists and has sparked a movement to switch all blockchains from PoW to PoS to reduce their energy consumption. The Merge, however, left many crypto-miners disgruntled, with useless hardware. Second-hand GPU prices have dropped drastically since the “Merge” and Nvidia has announced to its investors, that they will hold back production of their newest GPU to avoid further GPU price crashes.

Reference:

Howson, P., 2022. Ethereum: second biggest cryptocurrency to cut energy use by over 99%, but the industry still has a long way to go. [online] The Conversation. Available at: <https://theconversation.com/ethereum-second-biggest-cryptocurrency-to-cut-energy-use-by-over-99-but-the-industry-still-has-a-long-way-to-go-189907#:~:text=Ethereum%2C%20the%20world’s%20second%2Dlargest,the%20power%20consumption%20of%20Chile.> [Accessed 17 September 2022].