Ethereum mining is at a critical point, says Coin Metrics in its latest report on the state of the network. In the document, the analyst Karim Helmy reveals the advances of the research that he carries out with the aim of understanding the role that miners play in this ecosystem that is in the middle of a broad transformation process.
As Helmy explains in his document, to understand the critical state of mining activity in Ethereum, three key elements must be taken into account.
- The first it has to do with the transformation that, of course, occurs in the network as part of the future transition of the Proof of Work ( Proof consensus algorithm of Work ) Proof of Stake ( Proof of Stake ).
- The second key element is related to the implementation of the Ethereum Enhancement Proposal EIP-1559 and how this will impact the income of miners.
- While, the third highlighted point is the growing ac tivity of commercial bots and of the arbitrage technique popularly known as Miner Extracted Value (MEV) or maximum value extracted from mining. This practice is producing negative effects that can unbalance the ecosystem, according to experts.
In their report, Coin Metrics details each of these keys and states that “at this critical point in network development, it is more important than ever to understand the role miners play in the Ethereum ecosystem.”
Miners have more and more ETH, but The mining economy is going through a transformation process.
In his analysis of Ethereum mining activity, Helmy found that mining has increased dramatically over the last year. Consequently, these network workers control an increasing amount of ether (ETH). In fact, the amount of coins that remained in their possession during 2020 increased substantially in relation to previous years. But, there is also the suspicion that much of this activity is carried out by traders and arbitrage bots who are not directly affiliated with the miners.
However, the mining economy is going through a constant process of transformation. This, taking into account that the migration of the proof of stake network has begun. It means that eventually the ultimate goal of completely bypassing the role of miners will be achieved.
In any case, until the Ethereum 2.0 development phases are completed, the network will continue to be proof-of-work compliant. This, in turn, is subject to momentous changes that will impact the block rewards that miners receive, as the report points out.
Ethereum upgrades would potentially alter the profitability of miners
In his analysis, Helmy points out that Ethereum’s upgrade proposal, EIP-1559, which plans to burn a portion of commissions rather than send them to miners, will affect the income that they receive, at least in the short term, after its implementation.
To know how the income of miners will vary in the future, it is It is necessary to know how they behave today, but in trying, the researcher encountered several obstacles that prevent him from determining it accurately. “The income of miners from block rewards is somewhat unpredictable due to the fluid monetary policy of the network and the high volatility of commissions,” he said in this regard.
The analyst adds that the broad role that Ethereum miners play in the ecosystem is not fully captured only in 0 hop streams or « 0-hop «, which corresponds to mining pools; and 1-hop activity or « 1-hop «, which corresponds to miners. This is the formula on which it is based, in its effort to understand how the mining economy works.
But it details that these metrics are not enough to analyze an ecosystem much broader and that continues to expand. Especially, in the last year, when the bots that identify and point to certain transactions waiting in the mempool or Ethereum temporary memories.
A One element that stands out from Helmy’s study are the insignificant flows of transactions from the mining pools . Regarding this, the analyst highlights the importance of looking for metrics that help to evaluate mining activity in all its magnitude.