The Ethereum merger will divest the trillion-dollar mining market. Which POW projects will benefit from this?

On August 30, it was reported that Bitcoin block producers in Texas, the United States, applied to use up to 33 GW of electricity. These electricity demands are 33% higher than the demand that the power grid is prepared to handle in the next 10 years, which is approximately equal to the electricity demand of New York State.

At the same time, according to the current situation of the Ethereum network, the much-anticipated Ethereum merger is expected to take place on September 15. The current Ethereum network computing power is about 899TH/S, which means that these huge sunken computing powers will have to find a new home in half a month.

Today, as the two projects with the largest market capitalization in the crypto world, Bitcoin and Ethereum will each become the leading projects representing PoW and PoS respectively this year , thus bringing the competition and debate between the two into a new era.

The debate between PoW and PoS from an energy perspective

As the beginning of the dream of the crypto world, the PoW mechanism tied the lives and property of block producers to the development of Bitcoin, making block producers the most determined evangelists and defenders of Bitcoin, giving Bitcoin extremely strong vitality, and also becoming the beginning of the madness in the crypto world - early crypto tycoons and leading companies almost all came from the mining field.

The key impact of the Ethereum merger lies in the form of new ETH output in the future: users can participate in Ethereum PoS staking to obtain profit rewards by staking at least 32 ETH.

This means that the main force in maintaining network security will no longer be block producers but validators, and those who want to become validators must stake ETH into the Eth2 staking contract.

In fact, from this perspective, the act of staking at least 32 ETH to obtain rewards can be simply compared to the "Ethereum graphics card production" under the new situation - every 32 ETH can be compared to a mining machine, and the reward generated by the pledge is the block output.

One of the core differences between the two types of "mining machines" is that:

PoW block production requires the participation of physical mining equipment, which actually consumes electricity;

PoS block production does not require physical mining machines, and anyone holding ETH can participate, and the energy consumed is minimal;

Especially against the backdrop of the major issue of carbon neutrality and the surge in global energy prices this year, the biggest narrative difference between PoS and PoW is that the PoS network consumes less energy and is "more environmentally friendly."

As mentioned earlier, in June 2021, the United Nations official website published an article raising the issue of high energy consumption caused by Bitcoin, estimating that the Bitcoin network consumes more energy than countries such as Kazakhstan and the Netherlands.

At the same time, it recognizes the crypto industry's search for low-energy solutions, and uses Ethereum's transition to PoS as a positive example, saying that this can reduce the energy cost of each transaction by 99.95%. So from this perspective, Ethereum's transition to PoS does seem to be an early layout that is in line with the world's mainstream trends.

PoW Block Production on Moore’s Law

Previously, an article titled "Bitcoin becomes the flag of technology" sparked heated discussion. One of the accompanying pictures was very interesting - a graph showing the growth of "Transistor Count" per chip over the past few decades. Under the control of "Moore's Law", it showed a terrifying growth trend visible to the naked eye.

Mapping to the field of Bitcoin block production chips and other mining machines, in the past ten years since Bitcoin entered the mainstream, with the pursuit of the "beauty of computing power" inspired by PoW projects such as Bitcoin, block production hardware has evolved from CPU to GPU to FPGA and ASIC. The chip process has also evolved from hundreds of nanometers to tens of nanometers to today's 7 nanometers or even smaller, gradually approaching the ceiling, and going further will involve the quantum field.

So, after reaching this hidden hard cap, where will the next breakthrough direction be? This is not only a topic of vital relevance to block production, but also an issue that cannot be avoided for the development of the entire industry.

The capital in the circle has always liked to collectively bet on the "halving event". This was the case during the bear-bull cycle from 2018 to 2020. The Bitcoin field is built on this positive momentum. Factors such as growing computing power, new hardware, and the upcoming reward halving will determine the overall growth of the industry and Bitcoin, especially now:

As of the latest block production difficulty adjustment of Bitcoin at block height 751968, the block producer difficulty was significantly increased by 9.26% to 30.98T. This increase is the largest increase since January. The previous largest increase occurred in January, which was 9.32%.

We are now in the middle of a new halving cycle, with a two-year window before the next Bitcoin halving. This may be the first (or second) time that most practitioners and investors in this round will personally witness and experience the Bitcoin halving "event". The exquisite design of the mechanism is bound to leave a deep impression on everyone.

What other projects insist on PoW block production?

After Ethereum switched to PoS, the old projects that still use the PoW mechanism are still listed by market value, including ETC, LTC, BCH, BSV, ETC, DASH, BTG, RVN, etc. Among them, we take stock of some recent hot projects and their development status (especially the projects that theoretically can be transferred to mining by graphics card mining machines after the Ethereum merger - ETC, XMR, RVN, etc.).

• ETC is very popular

As mentioned at the beginning of the article, after ETH switched from PoW to PoS algorithm, the mining machines and computing power that have become sunk costs will inevitably look for a new target, and ETC, which has the deepest historical roots and consistent algorithm, is undoubtedly one of the best choices (but it cannot take on too much).

Therefore, as a related topic of Ethereum merger, ETC has recently been hotly debated as one of the possible options for taking over Ethereum's sunken computing power, especially in the context of the increasingly heated discussion about forks.

Of course, ETC has a historical legacy issue that must be kept under attention: the "The DAO" attack that caused the hard fork of ETH and ETC. The attacker's address currently still has about 3.6 million ETC, with a current market value of over US$100 million. This is undoubtedly a sword of Damocles hanging over ETC's head, and when it will fall remains unknown.

• Zcash’s transition to PoS

Zcash is another old PoW project that chose PoS. As early as August 2021, Zcash development company ECC expressed its consideration of switching Zcash from PoW to PoS mechanism, believing that in PoS everyone can keep ZEC for Staking and become long-term investors, while also providing better security and performance at a lower cost.

In May this year, the initial stage of research on transforming Zcash to Proof of Stake (PoS) was officially launched, including wallet user experience and security, cross-chain interoperability, proof of stake security, ZEC issuance, on-chain governance, and reducing protocol complexity.

It is expected that with Ethereum's exploration of switching to PoS this year, Zcash's transition to PoS will also accelerate.

• XMR enters the tail release era

On June 8, Monero tweeted that the block rewards of Monero have been "mined out", and each block will be completely changed to a fixed block reward of 0.6 XMR. This also means that the income of Monero's block producers will officially be based on transaction fees.

As an old Proof of Work (PoW) project, Monero's move can be regarded as a start for PoW, and it is the first to enter the era of tail release of tokens.

• Lonely Raven

Ravencoin (RVN) was issued in 2018. It became popular at the beginning due to its Bitcoin-style fair issuance mechanism without ICO and pre-block production. However, precisely because it is a pure community project, the project progress is extremely slow, and its price has entered a long bear market in recent years.

But apart from the top PoW projects, its market value and block production computing power have always been among the best among PoW projects. According to data from the crypto51 website, the possibility of RVN being attacked by leased computing power is currently far less than 20%, and the cost of a 1-hour attack is US$4,117, which is even higher than projects such as BSV and DASH.

As an "old project" with a certain computing power depth and block production consensus like ETC, it is expected to take over a small part of the computing power transfer after the Ethereum merger, and it is worth paying attention to its subsequent development.

• Conflux testing the water temperature

As blockchain networks that have received a lot of attention among domestic projects, Conflux, Nervos, etc. are rare new public chain networks that adopt the PoW mechanism.

Last month, Conflux Network initiated a community proposal to change its PoW block production algorithm to Ethash to make it easier for Ethereum block producers to switch computing power to Conflux. However, no further news has been released so far, so it should just be a test of the community's attitude.

summary

When Ethereum switches from the Proof of Work (PoW) algorithm to the Proof of Stake (PoS) consensus algorithm, what will happen to the existing block production equipment? What potential projects do you think are promising?