Will Proof-of-Stake Kill Mining?

Over the last few years, the debate regarding Proof-of-Stake vs. traditional mining has been a trendy topic among crypto community members. And this concern became more evident for miners after the appearance of Ethereum 2.0. Since the platform has switched to a Proof-of-Stake (PoS) model, there is no need to mine Ether. As such, mining machinery will probably become out-of-date, leaving miners with fewer alternative options. 

Proof-of-Stake model comes with various benefits and enhanced features. However, a considerable number of people still prefer to rely on Proof-of-Work mining rewards. So, what should they do? Will PoS really kill mining? Or What are the main alternatives Ethereum miners can rely on? These and more questions will find their detailed answers in the article below. So keep on reading, and let’s explore the most exciting aspects of the PoW vs. PoS debate together.

Proof-of-Stake vs. Proof-of-Work 

Before diving into the main differences between the Proof-of-Stake and Proof-of-Work, let’s first understand some key definitions.

General Introduction of Proof-of-Stake

Proof-of-Stake (PoS) is a consensus mechanism allowing network participants (stakers or validators) to validate block data with the risk of their capital. Here, users earn block rewards equal to their total amount of staked coins or money. For instance, if a validator bets 1% of total capital he would earn 1% of the mining rewards.

Theoretically, Proof-of-Stake is less capital-intensive as it comes with no hardware and energy costs. However, some blockchains require a minimum stake. For example, the minimum stake validators are required to make on Ethereum is 32 ETH. Moreover, Proof-of-Stake is designed to rely solely on financial incentives instead of energy consumption to secure and safeguard the network. If the system identifies validators acting maliciously, their capital will be slashed.

General Introduction of Proof-of-Work

Proof-of-Work (PoW) is a consensus mechanism where crypto miners (network participants) are required to expend some effort to solve complex mathematical problems and an arbitrary cryptographic puzzle to prevent malicious uses of computing power.

This traditional form of mechanism is used widely in crypto mining to validate transactions and mine new tokens. Moreover, users can also get native token rewards: Bitcoin miners will be awarded BTC, Ethereum miners with ETH, and so on. 

Ethereum mining, however, is very capital intensive, as users should pay for expensive hardware and GPUs upfront, as well as costly electricity. On the other hand, this Proof-of-Work consensus mechanism ensures network security by making it very expensive for bad actors to control or attack the network.

Why is Ethereum Network Transitioning to PoS? Key Reasons

Proof-of-Work and Proof-of-Stake are two different consensus mechanisms and systems designed to verify and validate crypto transactions and operations. And the main goal they have is the same – to guarantee the legitimacy of transactions and the security of the blockchain. 

The main difference between these two mechanisms is their way of processing operations. Proof-of-Work, or mining in the traditional sense, refers to systems where validators are rewarded for spending energy to protect and secure the network. Meanwhile, Ethereum’s Proof-of-Stake doesn’t have this mining approach. Here, participants earn block rewards by staking capital while they validate the network data.

However, apart from that, there are still a few reasons why PoS has all the potential to make PoW stay in the past. Here, let’s go through the key ones.

Energy Costs

One of the most solid arguments against PoW is energy usage and costs. The competition naturally grows as most blockchain networks reward computers that solve complex math problems. As such, increasingly powerful computers are required for mining, boosting supply costs and bringing down decentralization, as common users cannot compete with governments or corporations. 

To put it simply, in the case of Proof-of-Work consensus, the punishment for verifying fraudulent transactions is high electricity costs. 

Security

When it comes to a decentralized validation system, it is necessary to carefully design a process in which violating the system’s laws brings more significant punishment than the received monetary value. And as no user can fully trust other users, there should be a way of making acknowledged incentives so that validators get a reward for approving only legitimate transactions.  

In both PoS and PoW, this reward is earning cryptocurrency. The main difference is the criteria each uses for choosing which users will be the validators. In a Proof of Work system, users get crypto for deciphering a hash. In the case of Proof-of-Stake, validators are picked randomly among crypto owners.   

Efficiency

Another reason Ethereum 2.0 was created is that the PoW competition model carries another long-term problem: a system that costs enormous amounts of electricity is not only bad for the environment but also requires continuous issuing of millions of ETH or BTC to pay miners. In a nutshell, the PoW system depends on incentives that are both costly and determined to end in a few years.

What Will Happen to Your Mining Rigs?

There are still many users preferring Proof-of-Work to mine Ethereum or other cryptocurrencies. You may be wondering what you should do with your mining hardware if you are also among them. Alternatives indeed exist; however, it is uncertain whether there’ll be a profitable option once the significant amount of hash power goes away from Ethereum. 

As Ethereum has quite more mining power than all of the alternative cryptos altogether, after the merge takes place, all of it will go offline or look for alternative coins to mine. The possible scenarios we can witness after the merge occurs are the following. 

  1. Ethereum Mining Fades Away: The most apparent prospect is that this profitable mining will stop. Alternative coins like Ergo, Ethereum Classic, etc., have relatively fewer hash rates than the Ethereum network, so they are unlikely to grow in value enough to assimilate the hash rate Ethereum will leave behind. The key reason miners can’t just transition to another crypto with mining profitability is related to mining difficulty. It is the mechanism that ensures transaction blocks are minted at a consistent rate.
  2. GPU Mining Finds a New Coin Alternative: Though it is less likely to happen, it is not impossible either. A dedicated mining community’s efforts and interest in the alternative coins can lead to their rise in value and keep them profitable enough to mine. You can see this idea widely discussed in the crypto space. However, the influence the mining community can have is somehow overestimated. Especially when we consider the enormous amount of mining power that will be moved away from the Ethereum network, the amount of growth the alternatives will need seems difficult to achieve. 

So, Will Proof-of-Stake Kill Mining?

To conclude, PoS will surely kill mining, but not overall. For example, PoW is still actual for the Bitcoin network as it is not going over to PoS, but mining is soon to be dead for most other networks. There will be no more block rewards for investing in hardware. Instead, they will flow to those users who control capital.

However, PoW is not obsolete. Many still believe that Proof-of-Work offers greater security, value, and fairness.

FAQ

Are there miners in proof-of-stake?

No. Instead of miners, Proof-of-Stake requires validators to hold and stake coins to earn transaction fees.

Is GPU mining coming to an end?

After the merge and appearance of Ethereum 2.0, GPU mining is slowly yielding its positions. It means it will not take long until mining stops completely. 

Does Ethereum 2.0 kill mining?

Since Ethereum switched to the PoS model, mining cryptos will no longer be necessary. As such, traditional mining eventually fades away, leaving its place for the PoS mechanism.