JPMorgan: Ethereum Miners Face an Abrupt Change Following the Merge

Ethereum Classic miners are likely to be among the main beneficiaries of the shift to proof-of-stake validation, the bank said.

AccessTimeIconAug 11, 2022 at 11:27 a.m. UTC
Updated May 11, 2023 at 6:03 p.m. UTC
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Ethereum miners are facing an abrupt change after the network moves to a proof-of-stake (PoS) consensus mechanism from a proof-of-work (PoW) system and their role effectively ends, forcing them to seek alternative income streams, JPMorgan (JPM) said in a research report Wednesday.

This switch, also known as the Merge, is the first of five planned upgrades for the blockchain, and is provisionally expected to take place in September.

Ethereum mining is dominated by GPU (graphics processing units) rigs, which are more flexible than those used for bitcoin mining and can be more easily reconfigured to mine for other coins. GPU rigs can be used for mining compatible cryptocurrencies such as Ethereum Classic, Ravencoin and Ergo as well as for gaming, it said.

Ether (ETH) mining is popular because of its profitability, the bank said, and a shift to mining other cryptocurrencies could mean a hit to profits in the near term. In addition, the sudden influx of large mining pools to a different coin could squeeze margins for the incumbents, the report added. Those ether miners using ASIC (application-specific integrated circuits) equipment have few alternatives beyond Ethereum Classic.

Ethereum Classic (ETC) miners could be among the main beneficiaries of the switch, JPMorgan said. That’s because there’s likely to be a surge of secondhand mining rigs available from ETH miners that have decided to become validators on Ethereum 2.0.

There are signs this shift to Ethereum Classic is already taking place, with a noticeable increase in the hashrate since mid-July, the bank said. Some investors also view Ethereum Classic as a “hedge against any potential disruptions in the Ethereum blockchain during the shift from PoW to PoS,” according to JPMorgan.

The most likely outcome after Ethereum moves to PoS may be that miners distribute their rigs across different networks that support GPU mining, as well as other applications to get “salvage value,” the note said, adding that as the transition approaches, mining pools will likely transition relatively smoothly.


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Will Canny is CoinDesk's finance reporter.

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