What Happens to the Ethereum Miners After the Merge?
The recent announcements by the Ethereum team about the merger have created a lot of new excitement for the network. While the merge has been delayed multiple times in the past, the number of successful testnet mergers that have happened this summer suggests that Vitalik Buterin’s team is confident that the merge will happen in September.
As exciting as this is, there are a lot of aspects of the merger that are still being analyzed. Most importantly, what will happen to the countless number of miners around the world that will no longer be able to produce Ether?
What is the Merge
The merge to a Proof-of-Stake consensus mechanism on the Ethereum blockchain has been in development since it was first mentioned on Ethereum’s original whitepaper in 2014 (the paper has evolved since that time).
Essentially, the team at Ethereum has developed a new blockchain called the beacon chain which has been running parallel to the Ethereum mainnet. The merge will happen when the current Ethereum mainnet merges from its Proof-of-Work blockchain over to this Proof-of-Stake beacon chain to carry on as the official Ethereum blockchain.
Once this happens, it will no longer be possible for nodes to continue mining the Ethereum blockchain. All transactions on the network will move to a new set of nodes called validators which will approve transactions and earn revenue through gas fees. Staking 32 Ether will be required for users to operate their own validator which needs to be online 24/7 to effectively join the network.
To help expand this network of validator nodes, companies like Figment are offering services to help institutions stake large amounts of Ether through their business so that corporations can be more involved with web3 after the merger.
Proof-of-Stake vs Proof-of-Work
The merge to a Proof-of-Stake blockchain carries many benefits. The most notable improvement to the Ethereum network will be the increased transaction speed. Currently, the Proof-of-Work consensus on Ethereum is quite slow and subject to traffic congestion (especially during hyped NFT mints).
As the network moves to the PoS model, validators, layer 2 networks, ZK roll-ups, and sharding will all combine to create an extremely fast system. Buterin himself claims that, in its ideal state, the Ethereum PoS network will be capable of achieving 100,000 TPS (transactions per second) which is necessary for full-scale adoption.
Environmental concerns will also be put at ease as the CO2 footprint from Ethereum will be drastically reduced because mining will come to a halt on the Ethereum network; removing the network's need for extreme electrical demand.
What is bitcoin halving?
Once mining on the Ethereum network stops, there is going to be a sudden increase in the number of mining nodes available for other networks. Obviously, bitcoin will become the main choice for many miners for two key reasons.
The first reason for Bitcoin is clear - bitcoin is the largest and most valuable blockchain network. It is the original cryptocurrency and has been the primary driver of the crypto market for the past decade.
However, a more subtle reason is that the bitcoin halving doesn’t happen until May 4, 2024, which gives miners plenty of time between September 2022 and May 2024 to extract as many mining rewards as possible before the coinbase is reduced by half.
While increasing the number of miners on the bitcoin network won’t alter the algorithm of the lottery mining system, it still allows for miners to maximize their profits before the next halving.
What happens to miners after halving
Following the halving in 2024, many nodes may be set to other networks for mining because of greater profit potential. Bitcoin is the largest and most valuable network, but the blockchain itself has limited capabilities beyond acting as a currency.
Other networks such as Kadena are looking to provide a blockchain with stronger utilities and features such as smart contracts that are lacking on the bitcoin network. Although this is a step up from bitcoin, it’s hard to imagine why users will look to these alternate proof-of-work blockchains which will continue to carry the stigma of environmental harm.
Moreover, considering the massive improvements to the Ethereum network through its PoS merge, there might not be a strong desire for many people to switch to these lesser chains. Only time will tell; but as it stands, Ethereum’s merge will provide all the improvements that PoW networks like Kadena offer with a larger user base already in place minus the environmental concern (however warranted that may be).
For miners, this means that the bitcoin network will most likely remain the beneficial choice for a large number of nodes about to be cut off from the Ethereum network. With the halving, using more miners might be necessary to keep profits stable as coinbase rewards are reduced to 3.125 BTC per block.
