As the Ethereum blockchain awaits the Merge and its full transition to proof-of-stake (PoS), a broader discussion about miners and their future has emerged. As things stand, the Ethereum blockchain market is incredibly fragmented. The Merge is expected to usher in a new era in which validators and coin stakers replace miners. Miners who have spent much resources on ETH mining equipment may be rendered obsolete.
Recent discussions about proof-of-work (PoW) mining and its benefits and drawbacks make it worth considering the market’s future. How will mining change in the coming years, and what can miners do to prepare?
Here are a few trends that cryptocurrency miners should be aware of:
Renewable Energy Application
Although it may sound like a buzzword, the shift to renewable energy is gaining traction in the mining industry.
Mining rigs consume a significant amount of power. Large-scale mining operations employ thousands of miners at the same time. Much has already been written about the energy consumption associated with cryptocurrency mining. According to one report, crypto mining consumes up to 110 terawatt-hours of energy per year — the same amount of energy as a small country.
Since Tesla stopped accepting Bitcoin payments last year, there has been a broader discussion about mining and its carbon footprint. As a result, many in the mining industry advocate for more carbon-neutral mining operations.
Indeed, one of the reasons for the Ethereum blockchain’s transition to PoS is environmental concerns.
One of the most significant trends in the mining industry is the shift away from carbon-based power and toward renewable energy sources. This pattern will likely continue, particularly as market participants seek to disprove industry skeptics.
Perhaps the most significant consequence of many coin developers’ shifting to PoS is that miners may soon become obsolete.
It’s an unpleasant truth. Many coin developers are abandoning the PoW model. Miners are becoming obsolete as a result of this shift. Stakeholders and validators have taken their place. This pattern is likely to continue in the future.
Miners will have to find new ways to stay profitable. But with mining becoming less appealing, miners’ future does not look promising.
The hashrate measures the resources needed to conduct mining operations and secure the Bitcoin blockchain.
According to industry experts, the hashrate of the Bitcoin network will significantly increase over the next year. Chinese miners who left the space last year are expected to gradually return, moving out of the country to other countries that welcome miners. At the same time, new market entrants are expected, particularly once the market downturn has passed and coins become more profitable.
All of this means that mining difficulty will rise significantly, possibly exceeding the all-time high of 248.11 EH/s, set earlier this year.
Miners will most likely have difficulty logging profits from their activity as mining difficulty and hashrate rise. However, this will depend on the Bitcoin price moving consistently over time. If this occurs, rewards could be cut in half, with competition eventually eating away at the high margins that miners have enjoyed thus far.
This means businesses that can keep costs low and use the most efficient machines will survive in the long run. Smaller margins will disproportionately affect new individual miners, potentially leading to the rise of mining pools.
Finally, there is expected to be a severe shortage of chip availability in the future.
Mining rigs are built with the same semiconductor chip used to build electric cars, mobile phones, and other devices. Since 2019, demand for these semiconductor chips has surged by 17%. Increased production of electric vehicles, tablets and smartphones, artificial intelligence devices, and other items has resulted in a surge in demand, and mining rigs are catching up.
Even though semiconductor manufacturers reportedly produce at 90% capacity, supply has not increased to meet demand.
Because of this disparity, mining industry players cannot afford to make short-term decisions at this time. Mining companies will need to plan their operations at least a year in advance, place orders early, and wait the period out.
According to a report by the US Department of Commerce, the primary bottlenecks appear to be thin production capacity — which will necessitate long-term solutions. Chip shortages are expected to persist until those solutions are found.