Ether Miners Pile Up Losses As ‘Merge’ Shifts Them To Altcoins

Ether miners are racking up losses after switching to lower-value cryptocurrencies such as Ethereum Classic and Ravencoin, in the wake of an Ethereum network upgrade that rendered many of their operations redundant.

The upgrade, known as the “Merge,” replaced high-performance graphics cards used by Ether miners by investors deploying Ether to secure the Ethereum network and validate transaction data encrypted by the blockchain.

The tokens that the miners are now trying to mine still work according to Ethereum’s old consensus mechanism, which is called proof of work. This means that miners can still use their graphics processing units (GPUs) to earn these coins. However, miners must compete to be the first to solve a math puzzle and win a limited number of coins as a reward. The more miners there are, the smaller the reward. Subsequently, an influx of computing power from Ether miners has driven mining revenues below zero for the other major alternative coins.

Those who mine Ethereum Classic for a profit “operate at negative 30% to 40% of gross profit margins, even the best operators,” estimates Ethan Vera, chief operations officer at crypto mining company Luxor Technologies, which used to provide Ethereum mining services. About 25% of the computing power flows from Ether miners to other coins, Vera calculates, using data from MiningPoolStats, a website that tracks computing power as reported by major crypto mining companies.

It will be easy enough for miners to switch to Ethash alternatives and other GPU minable coins after the merge. The problem is, there’s a limit to how much computing power these other networks can absorb before the average miner becomes unprofitable — and it’s not much, writes Colin Harper, head of content and research at Luxor.

“As it stands, I expect some of that compute power for Ethereum Classic to disappear from the network, because it’s not profitable to mine, even for those with good equipment and cheap power,” said Vera.

As many as a million people were mining Ether with more than $10 billion dollars worth of mining equipment before the merger, which was completed early Thursday morning, New York Time.

Following the merger, some large-scale Ether miners such as HIVE Blockchain Technologies Ltd. and Hut 8 Mining Corp. plan to use their facilities for other purposes, such as high-performance computing. However, most Ether miners don’t have the same ability to scale or the business set-up to pursue it, Vera said.