Ethereum’s miners continue to benefit from lucrative payouts for their efforts in 2021, while the blockchain smart contract platform is closer to moving away from their consensus on proof of work. The past few months have been phenomenal for much of the cryptocurrency space as Bitcoin (BTC), Ether (ETH) and various other coins have seen tremendous appreciation in value. The increased transaction and user volume has also directly benefited the cryptocurrency mining ecosystem.
Ethereum miners in particular have made serious profits due to the success of decentralized finance projects running on their blockchain. These various DeFi platforms have increased the volume of transactions and activity on the Ethereum blockchain, which has resulted in skyrocketing fees and longer processing times. While the end users have to bear the brunt of the increased transaction fees, the miners have smiled all the way to the bank.
As a result, Ethereum miners posted record sales of over $ 830 million in January 2021. That hadn’t been the case since the first few weeks of 2018 before ether, bitcoin and the broader cryptocurrency markets collapsed after the spectacular highs in December 2017.
ETH mining outperforms Bitcoin
While Bitcoin tops the cryptocurrency list by market capitalization, BTC miners don’t enjoy the same level of profitability as Ethereum miners. Philip Salter, operations manager at Genesis Mining, told Cointelegraph that while mining Ethereum is currently “super profitable”, current miners and potential newcomers still need to be aware of the initial barriers to entry.
“The margins that you can achieve with ETH are much higher than the margins that you can achieve with BTC. However, this does not mean that it is more profitable overall. The reason for this is that ETH mining hardware is more expensive than BTC mining hardware. So you have a higher upfront cost that you need to break even. “
Salter noted that Litecoin (LTC) and Dash Mining are also lucrative, but are still not on the same playing field as BTC and ETH. He added that all other cryptocurrencies mined using graphics cards are not as profitable as mining ETH.
Pylon.finance’s pseudonymous founder, OxGrimReaper, also weighed on the current mining climate and the currently superior profitability of Ethereum mining, telling Cointelegraph:
“The ETH is currently the most lucrative mining opportunity, especially due to a GPU and hardware lock in retail. We are also in the middle of the Chinese New Year, which means there is no production in factories. The barrier to entry is currently higher than ever before. “
The founder of Pylon.finance also said that while bitcoin mining is less lucrative than GPU mining, it is easier to get access because users can buy ASIC mining machines, which are essentially plug-and-play. are capable. However, GPU mining has several barriers to entry, including the cost of GPUs, the technical knowledge required to set up a system, and operational considerations.
OxGrimReaper also agreed that the success of DeFi platforms played an important role in the profitability of Ethereum’s miners. Ethereum gas fees paid to miners to complete a transaction have skyrocketed along with the increased use of DeFi platforms, and he says this is a positive sign for miners:
“Front-running bots on AMMs are an important catalyst for the war on gas. But of course, a war on gas means high business costs. High gas is a good indicator that a miner is making money. Gas hit an all-time high this year, while mining also hit an all-time high. In addition, transactions in the ETH ecosystem reached an all-time high this year. These are all strong indicators of a healthy mining ecosystem, especially for those who already have infrastructure in place. “
The ETH miners have some time to prepare for Eth2
Currently, ether miners continue to benefit from the high fees and high volume of transactions while maintaining the blockchain. This is despite the ongoing, slow transition to Ethereum 2.0, which will signal the beginning of an end to Ethereum mining as soon as the mainnet merges with the proof-of-stake beacon chain that started in December 2020.
The move away from the current PoW protocol that Ethereum is currently running on aims to make the blockchain more scalable, secure and sustainable. However, this will also end the profitable enterprise for Ethereum miners. With the full transition to Eth2 still in sight, miners will carefully consider improvements to their operations as Eth2 development continues:
“Moving from Ethereum to PoS has been an option for a long time, but it always seems to be around two years later. Miners will assess the risk of this before investing in new hardware. “
Salter added that the upcoming Ethereum Enhancement Plan EIP-1559, which suggests burning a large chunk of transaction fees instead of giving them to miners, is a more pressing concern, is having a significant impact on the profitability of ETH mining: “If this is accepted, it will result in a significant reduction in mining premiums – up to 50% less. Such drastic changes often affect the Ethereum ecosystem and create uncertainty for investors. “
Ethereum’s transaction fees continued to skyrocket in February 2021. Blockchair data estimates that the average transaction fee for Ether was up to $ 50, compared to Bitcoin’s average of $ 30 per transaction.
Meanwhile, OxGrimReaper said their operations could easily be switched to other cryptocurrencies that use GPUs instead of ASICs that are used to mine cryptocurrencies like Bitcoin:
“There are more than 10 coins that our GPUs can profitably mine without any problems. We are now doing this with the 4G cards that are obsolete on Ethereum. Ravencoin is mined with some profitability. For us, the protocol isn’t as important as the arbitrage between power and compute hash rates. “
Still, cryptocurrency commentators like Lark Davis, aka “The Crypto Lark,” have stressed the need for Ethereum developers to accelerate the transition to Eth2 and give users a break from the astronomical transaction fees for Ethereum.
While many users have used DeFi platforms like Uniswap and 1inch to perform simple swaps between trading pairs, the fees for these services and transactions get exorbitantly high for the average user, making it difficult to bring new people into the DeFi sector.