The End and Glory of Ethereum's PoW Mining Era
The Ethereum network completed its landmark "Merge" (The Merge) upgrade on September 15, 2022, transitioning its consensus mechanism entirely from Proof of Work (PoW) to Proof of Stake (PoS). This shift marked the official end of Ethereum's eight-year PoW mining era, where miners no longer needed to perform complex calculations using graphics cards (GPUs) to validate transactions and earn rewards. However, prior to this historic change, Ethereum miners experienced a lucrative "golden age."
DeFi Boom Drives Revenue Peak
The peak period for Ethereum PoW mining revenue primarily occurred between 2020 and 2021. During this time, the explosive growth of Decentralized Finance (DeFi) significantly boosted transaction demand on the Ethereum network. With the rise of DeFi activities like liquidity mining, network transaction volumes surged, leading to persistently high Gas fees (transaction fees), sometimes reaching hundreds of dollars. For miners, this directly translated into substantial profits, with transaction fees dramatically increasing their share of income from the traditional 5%-10% to, at times, even exceeding the basic block rewards.
Data shows that 2021 was a record-breaking year for Ethereum miners, with the global Ethereum mining industry generating nearly $19 billion in total revenue that year.
Impact of EIP-1559 Proposal
Before "The Merge," the Ethereum network implemented the EIP-1559 proposal in August 2021. This upgrade brought significant reforms to the transaction fee mechanism:
- It introduced a "Base Fee," which is burned and no longer goes to miners.
- Users can pay a "Priority Fee" (tip) to miners to expedite transaction processing.
Despite predictions that miner revenue would decrease by 20% to 35% after EIP-1559's implementation, miners continued to receive block rewards and user-paid priority fees, maintaining high overall earnings driven by the DeFi boom.
"The Merge": End of PoW Mining and Miner Transition
The "Merge" upgrade in September 2022 definitively ended Ethereum's PoW mining. Faced with this major transition, many miners began planning their strategies about a year in advance. Key directions for transformation included:
- Shifting to other PoW tokens: Some miners redirected their hash power to other PoW-based cryptocurrencies, such as Ethereum Classic (ETC), Ravencoin (RVN), Flux (FLUX), or Ergo (ERGO), seeking new mining opportunities.
- Selling GPU hardware: A large number of miners opted to sell their graphics card equipment used for mining. In the six months leading up to The Merge (as of May 2022), the resale value of popular mining GPUs, including RTX 3090 and 3080, fell by an average of 47%.
- Transitioning to high-performance computing services: Some large mining companies, such as Hut 8 and HIVE Blockchain Technology, planned to transform their mining equipment into data centers to provide high-performance computing (HPC) services.
This transition also significantly impacted GPU manufacturers. For example, NVIDIA's revenue from mining chips (CMP) related businesses decreased by 66% year-over-year in Q2 2022, reflecting the sharp decline in demand for mining graphics cards.
Ethereum Price Context
During Ethereum's PoW mining era, its price experienced significant fluctuations, providing an important backdrop for miner profitability:
- In early 2017, Ethereum's price was approximately $10.
- In early 2018, it surged to a high of $1400.
- By late 2018, it dropped to $85.
- In early 2021, the price was around $700.
- By late 2021, it reached $4000.
- On the eve of The Merge (September 2022), Ethereum's price was around $1650, and it later fell to $1333 after The Merge.
Although Ethereum's PoW mining era is now history, it left an indelible mark on the development of cryptocurrency, not only bringing substantial economic returns to miners but also laying the foundation for the network's technological evolution.
