One of many greatest narrative trades in crypto for the reason that market stopped taking place in mid-June has been the renewed optimism in a merge of Ethereum’s (ETH-USD) proof of labor mainnet and proof of stake Beacon Chain; now scheduled for mid-September. However a barely underappreciated part of transferring from proof of labor to proof of stake consensus is the miners who have been beforehand securing the PoW community now not have the identical incentive in a PoS mannequin as a result of the transaction validation mechanism is totally totally different.
For Ethereum miners, that is notably problematic as a result of ETH mining continues to be accomplished with GPUs reasonably than with the ASIC machines required by most different PoW networks. Ethereum miners cannot merely change to securing Bitcoin (BTC-USD) as a result of their machines aren’t able to profitably mining it. A few of the ETH miners are actually upset concerning the change to a PoS mannequin, and there’s a proposed fork of Ethereum that’s reportedly choosing up a bit of little bit of steam. According to Decrypt:
Ever since a outstanding Chinese language Ethereum miner introduced his intention to withstand the upcoming Ethereum merge and create a brand new, parallel community and cryptocurrency, the concept has begun to achieve some traction.
This effort is led by ETH miner Chandler Guo and has help from Tron (TRX-USD) founder Justin Solar. Solar additionally owns the Poloniex alternate and has stated the alternate will help the laborious fork known as EthereumPoW (ETHW-USD). I will flat out say that I do not assume ETHW goes wherever. The Ethereum group broadly is not supportive of the laborious fork and Circle has already said it will not help USDC that lives on a forked PoW Ethereum chain. I have been sharing my ideas about ETHW with BlockChain Response subscribers, and you may be a part of the service with a free two-week trial to get entry to that deeper rationale.
For this text, although, there are two questions HIVE Blockchain (NASDAQ:HIVE) traders ought to contemplate going ahead:
- What’s the post-ETH merge income affect on HIVE?
- What are the viable alternate options for HIVE’s GPU machines?
Impression on HIVE Blockchain
With ETHW wanting extra like a stunt than a viable possibility for displaced GPU miners, the logical query is what will probably be accomplished with these machines. That is of great significance to HIVE Blockchain particularly as a result of a big portion of the corporate’s mining income has traditionally come from mining Ethereum. In HIVE’s monthly production updates, the corporate refers back to the ETH that it mines as “BTC Equal.”
Mining Manufacturing | BTC | BTC Equal | ETH % of Whole |
---|---|---|---|
January | 264 | 161 | 37.9% |
February | 244.4 | 132.6 | 35.2% |
March | 278.6 | 168.8 | 37.7% |
April | 268.8 | 189.5 | 41.3% |
Could | 273.4 | 185.8 | 40.5% |
June | 278.5 | 142.3 | 33.8% |
July | 279.9 | 185.2 | 39.8% |
Supply: HIVE Blockchain
The year-to-date month-to-month common for HIVE is 38% of the corporate’s mining manufacturing coming from Ethereum. That is a big portion of HIVE’s mining income that’s scheduled to vanish in mid-September and in need of promoting the GPU machines, it seems the best-case situation concerning income from alternate options goes to be supply fragmentation.
HIVE’s Submit-Merge Technique
In the course of the July production update, HIVE elaborated on its technique for GPU machines following a theoretical profitable merge of Ethereum to proof of stake:
HIVE’s GPU fleet is comprised of two sorts of playing cards, our legacy fleet comprised principally of RX580s, and may be repurposed for different GPU mineable cash. The second kind being our information heart grade playing cards, specifically our Nvidia fleet which we introduced final yr after we joined the Nvidia Companion Community; these playing cards produce other purposes in high-performance computing (HPC) purposes. HIVE has been growing a brand new platform for our information heart grade playing cards to create new streams of income. The Firm foresees the creation of new streams of revenues from GPUs, corresponding to offering HPC companies for rendering, AI, ML, molecular modelling, and so forth.
Let’s take the GPU mining angle first. The unlucky actuality for HIVE is most GPU mineable cash should not typically utilized in DeFi or different on-chain actions. Thus, there may be not a big demand for the cash that may necessitate larger coin costs and by extension worthwhile mining. Many appear to imagine when Ethereum’s merge is full, the GPU mining machines will shift to a different cryptocurrency that may be profitably mined with the identical {hardware}. On the floor, the apparent alternative seems to be Ethereum Traditional (ETC-USD) and that coin has seen one of many strongest rallies in crypto due to that hypothesis; up 200% since mid-July.
To be clear, HIVE is already mining ETC at its Iceland facility. But it surely’s a small MW facility in comparison with the remainder of the corporate’s operational footprint.
Is ETC Mining Scalable?
Transferring all GPU capability from Ethereum to Ethereum Traditional whereas sustaining miner profitability is at the moment not potential. It will take an ETC worth 50 occasions larger than present ranges to equal the quantity of miner income generated at the moment from mining Ethereum. Due to the coin worth variations, the block reward income distinction from Ethereum to Ethereum Traditional is excessive. Because the starting of July, the every day common income to miners from Ethereum is $21.3 million. For Ethereum Traditional, it is simply $487k. And that ETC determine is benefiting from a big spike within the coin’s worth over the previous few weeks.
When you have a look at a a lot longer-term view, ETC miner income as a share of ETH miner income has been trending decrease for some time and has averaged simply 1.7% yr so far. With out a coalition of ETH miners and builders working collectively emigrate Ethereum actions from DeFi and NFT gross sales over to Ethereum Traditional (or ETHW), we’re unlikely to see sturdy basic demand for Ethereum Traditional for transactions and gasoline fee.
This chart reveals the every day adjusted transactions of each Ethereum and Ethereum Traditional in keeping with Messari. Whereas ETH is usually above one million every day transactions, ETC has solely eclipsed 100k in a day twice within the final yr. The purpose is, there is not sufficient exercise on Ethereum Traditional to justify larger coin costs and with out exponentially larger ETC costs, GPU miners will not discover a income savior in Ethereum Traditional post-ETH merge. The cash simply is not there.
Different Choices?
In fact, HIVE has already famous in its personal technique verbiage that pivoting to different GPU mineable tokens is not the one a part of the plan. They may also look to utilizing the machines for various computing actions altogether; together with rendering and AI. One theoretical match is Livepeer (LPT-USD) (OTCQB:GLIV). Final month, I used to be capable of chat with Livepeer co-founder Doug Petkanics for the BlockChain Response podcast. In our conversation, he talked about how the GPU chips which can be used for Ethereum mining can be utilized for different functions like transcoding video on the Livepeer community:
People who find themselves mining cryptocurrencies utilizing GPUs, or graphical processing models, the kind of system that is used to mine Ethereum, for instance, they will proceed utilizing the portion of these models which can be used to hash cryptocurrencies. However these GPUs occur to have video encoding chips on them that may’t hash cryptocurrencies; they simply sit there doing completely nothing. And what Livepeer permits them to do is say, ‘oh, when video encoding must be accomplished, we are able to make further cash for that with out disrupting our cryptocurrency mining.’ And that is actually highly effective. It is nearly a no brainer worth proposition to those miners.
Video transcoding and rendering are definitely very fascinating potential purposes, however like ETC, there may be not a lot of a income footprint prepared and ready for displaced ETH miners. In keeping with Livepeer’s website, the community has paid out a bit of over $203k in charges. That is not going to get it accomplished for firms like HIVE that traditionally generate a number of million {dollars} on a month-to-month foundation.
Abstract
Ethereum miners are in an extremely powerful place, and HIVE Blockchain is not any totally different. Finest-case situation for HIVE in September can be if the merge is but once more delayed. However with the success of the testnet merges, it appears more and more extra possible that this time is for actual and the merge goes to happen when builders say it’ll. Whereas I believe HIVE Blockchain management is heading in the right direction with their pondering as to the best way to monetize the corporate’s GPUs post-merge, the truth a minimum of within the crypto market is that there would not look like a viable possibility. I believe if the corporate can discover non-crypto companies which can be prepared to pay for computing companies, HIVE can recoup a minimum of a portion of the income it is about to lose from Ethereum’s shift to full proof of stake consensus. But it surely’s in all probability going to be a really bumpy experience, and shareholders should be ready for that. I do not personally maintain HIVE shares. But when I did, I might look to take some publicity down.