Multimillion-Dollar Bet: What's Driving ETH Miners So Crazy?

This investment may seem strange, given that the Ethereum system is anticipated to migrate from proof-of-work (POW) to proof-of-stake (POS) in five months, and POS mining does not require such advanced machines. The rising demand might be attributed to expectations that the migration will be delayed. What's exactly driving ETH miners so crazy？

• Freezing Mining with the Ice Age

Ethereum Improvement Proposal (EIP) 3554 introduced the difficulty bomb that adds artificial miners to increase mining difficulty, making mining operations less profitable. This period has been referred to as the “Ice Age.”

As ethers price rises, it may become more difficult to transition the network to proof-of-stake, said Ethan Vera, chief operating officer of Seattle-based mining company Luxor.

Besides technical challenges and security issues for assets on Ethereum, potential resistance from the ethereum mining community could be another factor that slows the networks migration to POS.

• Institutional Players

Ethereum mining has more individuals and fewer large-scale miners than bitcoin mining.

Relatively low energy consumption compared to bitcoin miners combined with the small amounts of heat and noise from ethereum mining rigs make it possible to mine ETH on graphic processing units (GPU) at home.

More than 90% of ethereum mining machines are based on GPUs, which is also a common hardware used by gamers, DAria said.

However, crypto mining heavyweights are on the move to break into the industry and make profits that are bigger than they would be from bitcoin mining.

A public crypto mining company, Hut 8, purchased $30 million worth of specialized Ethereum miners from GPU maker Nvidia in May. The company said all miners are expected to be delivered and installed into its Alberta facilities by the end of August. It plans to have 1,600 GH/s hashrate with a 4MW power usage.

• Faster pay

More powerful ethereum miners, which shorten the payback period on such mining operations and increase profits, are coming to the market.

It is estimated the payback period for Ethereum mining could be as short as four months if miners use the latest generation of ASICs. For bitcoin mining, depending on the price they are paying for the operations, the public companies are looking at a years time frame for payback.

• Profit margins

Daily miner revenue in U.S. dollars has rather increased by 7.1% and hit a two-month high, according to data from Coin Metrics. The network has burned about 33% of the new coin supply growth since the update, which is 22,708 ETH and worth $76.1 million.

Besides priority fees (gas fee minus the base fee burnt), block subsidies (similar to Bitcoin block awards) and maximal extractable value (MEV) are the other two sources of revenue for miners. MEV is the amount of money an ethereum miner can make by helping traders to insert, leave out or reorder transactions in a block.

Miners are already expecting gas fees to go down in the long run as more scaling solutions on Ethereum roll out, which will reduce congestion and transaction fees.

Ethereum mining tends to have low operating costs compared to bitcoin mining. While GPU miners are expensive and it is more labor-intensive to run the machines, low power consumption could make up those costs and reduce the overall cost even lower than bitcoin mining.

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