Ethereum’s softswitch jams crypto miners


The shift in underlying software protocols to the Ethereum cryptocurrency is rendering mining equipment obsolete, and companies that operate server farms are now repurposing hardware for artificial intelligence and Web3 applications.

Ethereum recently switched the cryptocurrency validation system to “proof of stake”, which replaces the old “proof of work” system, which has become unsustainable as the energy consumed by the process has become a constraint for electrical networks. Ethereum mining consumed more energy than Finland consumes annually.


“This completed Ethereum’s transition to proof-of-stake consensus, officially deprecating proof-of-work and reducing power consumption by approximately 99.95%,” the Ethereum organization said on its website. The full transition to the new validation system, called “The Merge”, was completed on September 15.

Ethereum, like Bitcoin, uses blockchain for processing peer-to-peer transactions, eliminating the need for a central clearinghouse. Ethereum generated around 80 terawatt hours of electrical energy per year as of August 20 and is expected to drop to 0.01 terawatt hours, according to Digiconomist.

The old proof-of-work system rewarded Ethereum cryptography to miners who solved complex mathematical problems and added transactions to the distributed ledger. Validation involves running an algorithm and the SHA-256 cryptographic hash function, and miners with the fastest hardware had the best chance of winning Ethereum.

Power hungry systems

Mining farms accelerated the speed of crypto generation by regularly upgrading to the latest and greatest hardware, which also required more energy. Additionally, the server farms, which operated around the clock, generated a lot of heat and required power-hungry cooling systems. Bitcoin, which uses proof of work, consumes around 175 terawatt-hours of electricity, which is equivalent to Argentina’s annual consumption.

Miners scalped hardware like GPUs, causing shortages and skyrocketing prices. In an attempt to direct more GPUs towards mainstream gaming and commercial audiences, Nvidia and AMD have disabled GPU mining features through software updates.

Impact of Proof of Stake

Ethereum’s new proof-of-stake system gives validation rights to those who stake their own Ethereum crypto. Those who wager more crypto have a better chance of getting validation rights. It is a more energy efficient way to earn cryptocurrency as it virtually eliminates mining.

Ethereum’s transition to proof-of-stake has affected companies that have made massive investments in server farms dedicated to cryptocurrency mining. These companies are now finding ways to reuse mining hardware. The availability of hardware could lead to increased software development efforts around artificial intelligence and blockchain-based transactions in the metaverse.

One such company is Hut 8 Mining Corp., which is pivoting its Ethereum mining hardware to run Web3 applications.

In a filing with the U.S. Securities and Exchange Commission earlier this month, Hut 8 Mining said 180 Nvidia GPUs in its Ethereum-operated data center “will be designed to spin up on demand to provide artificial intelligence, machine learning or VFX rendering services to clients.

Hive Blockchain Technologies said its older AMD RX580 GPUs, which have been used since 2018 to mine Ethereum, could be transitioned to next-generation ASIC miners to mine Bitcoin. AMD GPUs have “paid off multiple times, marking a successful venture in GPU mining,” the company said.

The company also owns 38,000 professional-grade GPUs from Nvidia, which have been used to mine Ethereum. Hive is currently running a pilot in a Tier 3 data center to transition some of these GPUs from mining Ethereum to offering more cloud computing and AI services.

Bit Digital – which has dedicated its server farms to mining Bitcoin – in a filing with the SEC this month, said it would branch out into Ethereum validation and the proof-of-stake system. The company said investing as a first mover would give it a better chance of earning Ethereum, which the company says will become the basis for the smart contract system in Web3 apps and economy.

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