Ethereum’s shift of its consensus algorithm from proof-of-work (PoW) to environment-friendly proof-of-stake (PoS) in an event called ‘The Merge’ earlier this week will result in sizeable graphic card (GPUs) dump and hit manufacturers such as Nvidia and AMD.
As The Merge has obviated the need to secure the blockchain network, GPUs are no longer needed on a mass scale and will go for a significant discount, experts said. However, this may not happen immediately as the GPUs can be deployed for a new Ethereum hard fork and mining other stablecoins.
According to experts, there will be increased availability of second-hand GPUs that have been mined to bits.
With The Merge, the energy used to maintain the whole Ethereum network will drop by a huge 99.9 percent, which will result in a 0.2 percent decrease in world electricity use. However, not all ETH miners may want to give up their GPU exploits in favour of the more environmentally friendly PoS variant.
What is GPU-based mining?
The majority of crypto mining in the beginning, especially for Bitcoin and Ethereum, was done on basic CPUs for home computers but as demand increased so did the mining difficulty.
People then discovered that their GPUs were well suited to handle algorithms since these computer parts were actually intended to handle equations for 3D and physics rendering, which are identical to the equations in the blockchain algorithms.
Since GPU mining was far more efficient than using other types of mining gear, it signalled a major shift for the community.
While traditional CPUs were like blunt instruments when it came to mining cryptos, in contrast, GPUs were well-honed Samurai swords. They established a new benchmark since they were much more efficient than the previous technology.
EthereumPOW made for GPU miners
Despite Ethereum Classic already existing as a PoW alternative to the main ETH chain, a new hard fork called EthereumPOW (ETHW) was made for GPU miners.
A hard fork is a significant modification to the network protocol that makes previously invalid blocks and transactions valid, or vice versa. Simply put, a hard fork happens when nodes of the most recent version of a blockchain stop accepting older versions, leading to a permanent separation from the earlier network version.
The ETHW chain’s developers want to replicate the whole original ETH blockchain, including all of its currencies, NFTs, Dapps, and liquidity pools. However, the value of ETHW remains uncertain as there would be few Dapp operators and unlike Ethereum Classic, it is not backed by any stablecoin. Also, emulating the original Ethereum chain would be tricky since ETHW now contains the difficulty bomb, which will render GPU mining obsolete around 2023.
Even so, ETHW was able to secure the backing of BitMEX and Poloniex, two reputable crypto exchanges, as well as the inventor of TRON. Although ETHW has not yet been released as a token, its IOU worth is now trading around $9.09. IOU stands for ‘I owe you,’ which denotes that one party owes another one money.
Since the chain has not yet forked, the ETHW coin would derive from a possible Ethereum hard fork.
Mining for other cryptos
After The Merge, GPU miners will be looking elsewhere for opportunities, like mining some other coin which would still reward firms of graphics cards.
Ethereum is not the only coin that is mined decently on a graphics card. Beam and Ravencoin are actually similarly profitable at this time and though ETH mining has stopped, these will continue. While there will be increased competition to mine these coins, it would balance out eventually.
“Additionally, the companies that produce and distribute GPUs are already selling such items in bundles with other products to drive up their sales and profit margins,” Kapoor adds.
The much-anticipated GPU flood that would curb inflated pricing might be delayed since many GPU miners want to continue supporting Ethereum Classic, ETHW, or whatever PoW currency becomes more profitable.
Interestingly, in anticipation of the debut of the next generation, chip makers like Nvidia and AMD are now selling the majority of current-generation GPUs for less than the manufacturer’s suggested retail price (MSRP).
The impact of PoS can be reduced if PoW chains keep demand high
Anndy Lian, Chief Digital Advisor, Mongolian Productivity Organization, says that the ETH upgrade would be one of the big revenue misses by Nvidia and its stock has fallen nearly 20 percent since the previous quarter due to a slowdown in the gaming business and weakness in the global markets.
“The impact from the change to POS would be reduced if the forked PoW chains can keep their demand high, getting support from the big miners and backed by strong communities who believe that PoW is the core value. If this is executed properly with the support of Nvidia, this market push would surely put the listed company in a much better position,” Lian says.
More certainty for chip manufacturing companies
A Barron’s report quoted analysts led by Stephen Glagola at investment bank Cowen saying that The Merge will affect chip manufacturers whose graphics processing units have been employed in the process because Ethereum’s switch to PoS will eliminate the necessity for mining of Ether.
But a decline in mining is not necessarily negative, rather, it will provide companies manufacturing chips more certainty and eliminate the risk of demand that is blindsided by unstable crypto prices.
“For GPU suppliers Nvidia and to a lesser extent AMD, we view the upcoming Merge as a long-term positive for sentiment as it likely removes the risk of another painful crypto bang/bust cycle in the future,” said the Cowen team.
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.