Profiting from ETH2 delays | The HIVE newsletter
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Since inception, the Ethereum network has had a long-term goal of switching to a proof-of-stake (PoS) consensus mechanism. If, or when, Ethereum PoS launches, mining ETH would soon become obsolete.
PoS promises a greener footprint than the current proof-of-work (PoW) system, and potentially greater capacity in the long run. And if it works as designed, it could be a fine system one day.
But this is a monumental task, and the PoS "merge" continues to face ongoing delays. Most recently, it was supposed to happen in December of 2021. And many times before that. Just take a look at this 2019 article by Julia Magas in Cointelegraph.
Initially, the bomb was supposed to explode after Ethereum would be ready to work on the new algorithm called Casper, and provoke the so-called Ice Age — a transitional stage during which mining new coins would become difficult and unprofitable...
However, due to the delay in the development of the PoS mechanism, the transition to Ethereum 2.0 is constantly being adjourned. At the same time, the difficulty bomb has been about to explode several times and the Ethereum team has been constantly delaying it by conducting hard forks, so as not to frighten miners supporting the stability of the network ahead of time.
Keep in mind, that was written over two years ago. I recommend reading that entire article, which gives invaluable insight into how ETH miners have been constantly threatened with "difficulty bombs" that will force a switch to PoS, only to see the PoS merge delayed again and again.
The Ethereum community is now hinting that it could occur in June of 2022. We'll see if it happens, but the likelihood of further delays seems high. And that's not to downplay their efforts in any way. The task they have undertaken is massively complex, and a lot of truly brilliant people are working on solving it.
Vitalik Buterin, Ethereum's primary founder, recently said Ethereum was approximately 50% complete, and that it would be at 60% once the merge happens. He gave a timeline of six years for the overall current roadmap. There's still a lot of work to be done, including on PoS.
In the meantime, as of 12/22/21 HIVE is mining around 65 ETH per day worth approximately $195,000 at $3,000/ETH. We continue to install new ETH mining capacity from prior orders at our Icelandic and Swedish operations, where we use clean, green hydro and geothermal power. Things are running smoothly in Europe thanks to our excellent team led by Johanna Thornblad.
And of course, HIVE is simultaneously ramping up BTC production in a big way, and expanding our data center campus in New Brunswick to accommodate all the new equipment. On Monday January 10th we released updated production figures for the month of December. A few highlights:
Mining ETH Built HIVE
HIVE has been mining ETH continually since 2017. It fueled the company's expansion into the much larger company we are today. For example, that cash flow allowed HIVE to buy GPU ONE and its large Bitcoin mining operation, then dramatically expand the campus.
Here are some recent pictures from our data center campus in New Brunswick.
New miners going in.
HIVE is now a much more diversified company with significant value in our data center campus and other assets. In November 2021 we produced BTC valued at $13.2M , and ETH valued at $10.4M.
Possibly due to the uncertainty surrounding the ETH PoS merge, many of our competitors have decided not to mine ETH.
HIVE smartly decided to take a different approach. It's funny because I remember talking to HIVE Chairman Frank Holmes about this issue in 2019. I asked how worried he was about PoS (which I heard was right around the corner). Frank said something to the effect of "they keep putting it off, and we think that'll continue".
Frank was onto something back then, so I asked him for a comment on this newsletter, and here's what he had to say about the state of the ETH PoS merge today.
"We think there's still a lot of time left to profitably mine ETH. Ethereum moving to PoS is taking longer than expected, and we have positioned HIVE to be a leading miner since 2017.
Mining ETH is highly profitable, and there's a lot less competition than with BTC. The margins are significant, with a rapid hardware payback period.
Ethereum scaling solutions are maturing, ramping up network throughput, which is critical for further adoption. We believe scaling ETH should be the top priority. That's what's going to drive real adoption."
-Frank Holmes, Chairman of HIVE Blockchain
Frank makes a good point about ETH scaling initiatives, which we covered in a previous newsletter, Scaling Ethereum to Meet Soaring Demand. In order to bring on millions of new users, Ethereum needs lower fees and higher throughput capacity. This seems like much more of an immediate concern.
As we pointed out in the previous newsletter, some of the best venture capitalists in the world are lining up to back promising layer 2 scaling solutions such as Matter Labs and StarkWare. Technical talent seems more likely to flow to these exciting scaling solutions as opposed to ETH PoS clients (they need 4-5 unique and secure clients for security reasons). And ultimately, technical talent is what moves any crypto project forward.
My guess is that PoS will happen eventually, but that for now, it will continue to take a backseat to scaling. Time will tell, but we believe HIVE is well positioned for any eventuality.
Thanks for reading!