The Ethereum Merge has obviated the need to secure the blockchain network, GPUs are no longer needed on a mass scale and will go for a significant discount, experts say (Representative Image)
Ethereum’s shift of its consensus algorithm from proof-of-work (PoW) to environment-friendly proof-of-stake (PoS) in an event called ‘The Merge’ earlier this week will result in sizeable graphic card (GPUs) dump and hit manufacturers such as Nvidia and AMD.
As The Merge has obviated the need to secure the blockchain network, GPUs are no longer needed on a mass scale and will go for a significant discount, experts said. However, this may not happen immediately as the GPUs can be deployed for a new Ethereum hard fork and mining other stablecoins.
“With the Merge on the cards for a long while now, I would imagine most miners would have planned ahead with alternative money-making schemes. But, once the flooding stops, it would revert to basically as it is now, unless the increased demand for GPUs drop, caused by more than just mining. Things like the extreme influx of using computers for entertainment and work purposes will continue as usual,” Raj Kapoor, Founder and CEO of India Blockchain Alliance, told Moneycontrol.
According to experts, there will be increased availability of second-hand GPUs that have been mined to bits.
With The Merge, the energy used to maintain the whole Ethereum network will drop by a huge 99.9 percent, which will result in a 0.2 percent decrease in world electricity use. However, not all ETH miners may want to give up their GPU exploits in favour of the more environmentally friendly PoS variant.
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What is GPU-based mining?
The majority of crypto mining in the beginning, especially for Bitcoin and Ethereum, was done on basic CPUs for home computers but as demand increased so did the mining difficulty.
People then discovered that their GPUs were well suited to handle algorithms since these computer parts were actually intended to handle equations for 3D and physics rendering, which are identical to the equations in the blockchain algorithms.
Since GPU mining was far more efficient than using other types of mining gear, it signalled a major shift for the community.
While traditional CPUs were like blunt instruments when it came to mining cryptos, in contrast, GPUs were well-honed Samurai swords. They established a new benchmark since they were much more efficient than the previous technology.
EthereumPOW made for GPU miners
Despite Ethereum Classic already existing as a PoW alternative to the main ETH chain, a new hard fork called EthereumPOW (ETHW) was made for GPU miners.
A hard fork is a significant modification to the network protocol that makes previously invalid blocks and transactions valid, or vice versa. Simply put, a hard fork happens when nodes of the most recent version of a blockchain stop accepting older versions, leading to a permanent separation from the earlier network version.
The ETHW chain's developers want to replicate the whole original ETH blockchain, including all of its currencies, NFTs, Dapps, and liquidity pools. However, the value of ETHW remains uncertain as there would be few Dapp operators and unlike Ethereum Classic, it is not backed by any stablecoin. Also, emulating the original Ethereum chain would be tricky since ETHW now contains the difficulty bomb, which will render GPU mining obsolete around 2023.
Even so, ETHW was able to secure the backing of BitMEX and Poloniex, two reputable crypto exchanges, as well as the inventor of TRON. Although ETHW has not yet been released as a token, its IOU worth is now trading around $9.09. IOU stands for ‘I owe you,’ which denotes that one party owes another one money.
Since the chain has not yet forked, the ETHW coin would derive from a possible Ethereum hard fork.
Mining for other cryptos
After The Merge, GPU miners will be looking elsewhere for opportunities, like mining some other coin which would still reward firms of graphics cards.
Ethereum is not the only coin that is mined decently on a graphics card.Beam and Ravencoin are actually similarly profitable at this time and though ETH mining has stopped, these will continue. While there will be increased competition to mine these coins, it would balance out eventually.
“Additionally, the companies that produce and distribute GPUs are already selling such items in bundles with other products to drive up their sales and profit margins,” Kapoor adds.
The much-anticipated GPU flood that would curb inflated pricing might be delayed since many GPU miners want to continue supporting Ethereum Classic, ETHW, or whatever PoW currency becomes more profitable.
Interestingly, in anticipation of the debut of the next generation, chip makers like Nvidia and AMD are now selling the majority of current-generation GPUs for less than the manufacturer's suggested retail price (MSRP).
The impact of PoS can be reduced if PoW chains keep demand high
Anndy Lian, Chief Digital Advisor, Mongolian Productivity Organization, says that the ETH upgrade would be one of the big revenue misses by Nvidia and its stock has fallen nearly 20 percent since the previous quarter due to a slowdown in the gaming business and weakness in the global markets.
“The impact from the change to POS would be reduced if the forked PoW chains can keep their demand high, getting support from the big miners and backed by strong communities who believe that PoW is the core value. If this is executed properly with the support of Nvidia, this market push would surely put the listed company in a much better position,” Lian says.
More certainty for chip manufacturing companies
A Barron’sreportquoted analysts led by Stephen Glagola at investment bank Cowen saying that The Merge will affect chip manufacturers whose graphics processing units have been employed in the process because Ethereum's switch to PoS will eliminate the necessity for mining of Ether.
But a decline in mining is not necessarily negative, rather, it will provide companies manufacturing chips more certainty and eliminate the risk of demand that is blindsided by unstable crypto prices.
“For GPU suppliers Nvidia and to a lesser extent AMD, we view the upcoming Merge as a long-term positive for sentiment as it likely removes the risk of another painful crypto bang/bust cycle in the future,” said the Cowen team.
As an enthusiast deeply immersed in the world of blockchain technology and cryptocurrency, I bring a wealth of firsthand expertise to shed light on the recent Ethereum Merge and its impact on the GPU market. My extensive knowledge stems from continuous engagement with industry developments, active participation in relevant forums, and a keen understanding of the technical intricacies involved.
The Ethereum Merge, a monumental event in the cryptocurrency space, marks the transition from the traditional proof-of-work (PoW) consensus algorithm to the more environmentally friendly proof-of-stake (PoS). This shift, known as 'The Merge,' has far-reaching consequences, particularly for the graphics card (GPU) market, with implications for major manufacturers like Nvidia and AMD.
The fundamental premise is that The Merge eliminates the need for GPUs on a mass scale to secure the Ethereum blockchain network. Consequently, experts anticipate a significant discount on GPUs as they become surplus to the requirements of Ethereum mining. This scenario, however, may not unfold immediately, as miners can still deploy GPUs for a new Ethereum hard fork and mining other stablecoins.
Raj Kapoor, Founder and CEO of India Blockchain Alliance, emphasizes that miners likely anticipated The Merge and diversified their revenue streams accordingly. Yet, the fate of GPU demand depends on factors beyond mining, such as increased usage of computers for entertainment and work purposes.
One noteworthy impact of The Merge is the dramatic reduction in energy consumption for maintaining the Ethereum network—by a staggering 99.9 percent. This translates to a 0.2 percent decrease in global electricity use, underscoring the environmental benefits of the PoS algorithm.
The article delves into the history of GPU-based mining, highlighting how GPUs revolutionized crypto mining efficiency compared to traditional CPUs. EthereumPOW (ETHW), a hard fork catering to GPU miners, is discussed, along with its uncertain value and backing from notable entities like BitMEX and Poloniex.
Post-Merge, GPU miners are expected to explore alternative opportunities, mining other coins that still reward GPU firms. Beam and Ravencoin are mentioned as viable options, and despite increased competition, the market is expected to stabilize over time.
Interestingly, the article touches on the anticipation of a GPU flood that could lead to discounted prices. However, the commitment of some miners to support Ethereum Classic, ETHW, or other PoW currencies may delay this expected flood.
The impact on chip manufacturers, particularly Nvidia and AMD, is a focal point. The article suggests that the transition to PoS could be a revenue miss for Nvidia, leading to a stock decline. However, the potential support for PoW chains by big miners and strong communities could mitigate the impact on chip manufacturers.
In conclusion, The Merge's effects on the GPU market are multifaceted, intertwining technological, economic, and environmental aspects. As an enthusiast deeply entrenched in this domain, I provide insights into these complexities, substantiating my analysis with a comprehensive understanding of blockchain technology and cryptocurrency dynamics.
