December 5, 2022

Upcoming Ethereum Merge Could Have Potential Risks For Miners

As the Ethereum network will soon undergo major transitions after the Merge, miners are asking how it can affect them. That’s because the new network will rely on proof-of-stake to validate transactions.

This can make GPU mining obsolete, or at the very least, highly unprofitable. Since its inception, the network’s mainnet relied on proof-of-work to validate transactions. This kept miners on their toes at all times.

Now, the Beacon Chain, or proof-of-stake layer, relies on builders who pair transactions, as well as validators who authenticate transactions. The validator or builder’s ability to verify or select blocks will depend on how much cryptocurrency they own.

Merge Combines Both Layers For Sustainability

To ensure the safety of the network, the Merge combines both chains so the network will fully rely on proof-of-stake. This will make Ethereum mining an unprofitable way to get rewards.

This is mostly because validators have a higher incentive to ensure network preservation. Before the Merge, the network held 95 percent of the overall GPU hashing power, giving miners the opportunity to get rewards and verify transactions.

With proof-of-stake, the validator’s own cryptocurrency is at stake. This prevents them from acting maliciously.

Ever since the Merge, the Ethereum hash rate has gone down considerably, reaching zero. Usually, a lower hash rate for a blockchain means that the network needs less computing power when verifying transactions and adding them to the blockchain.

With Ethereum, a low hash rate means that miners have either moved to mining other proof-of-work cryptocurrencies, or they’ve turned off their mining equipment.

How the New Consensus Mechanism Works

If a validator wants to start operating on the network, they have to deposit 32 Ethereum tokens to a smart contract. Once they do so, their cryptocurrency is locked and they’re ready to start staking.

The deposited Ethereum acts as collateral, so in the event that a validator acts maliciously, the staked cryptocurrency will be destroyed.

Besides running a validator node, there are other ways to stake Ethereum tokens. Users can use a staking service provider, be part of a staking pool, or do so through a centralized exchange.

How the Proof-of-Stake System Benefits the Network

Validators are responsible for checking a block’s signature after executing a transaction on the block. This helps in confirming its legitimacy.

When the block is valid, the validator votes for the block throughout the network or sends an attestation.

With proof-of-work, the difficulty of mining would decide on block timing. But with proof-of-stake, tempos are divided into slots and epochs, which are 12 seconds and 32 slots long respectively.

For every slot, a validator is selected randomly. During this slot, they have to create a new block for the transaction and then send it to other nodes of the network.