On September 15, 2022, ETH successfully moved to Proof of Stake.
Long before the announcement of the merger, there were many speculations on the post-merger world for miners. Talks of forking ETH to keep it Proof of Work. Hopes and dreams that the price would follow the hash-rate (up up and up) once miners pointed their rigs to support altcoins. Many decided to quit mining and sold their GPU earlier in the year while there were still scarcity and high prices - with the benefit of hindsight, they are geniuses.
As it turned out, all of the above became reality. ETHW (or ETHPoW) was created and immediately the price collapsed, and at the time of this writing, it already suffered its first smart contract hack. Miners flocked to Ethereum Classic (ETC) as well as other altcoins like ERGO, RVN, NEOXA, and whatever showed up as "most profitable (sorry, liquidity can be a b*tch)" on WhatToMine, and quickly collapsed the price. All PoW altcoins are unprofitable within a day. For the same cost of electricity, you get more coins buying directly (with the rigs turned off).
What went wrong? Why is the "security" of network did not result in high prices as some have predicted (or hoped)?
Economics 101, supply vs. demand
- There are very little demand for those altcoins
- There are way too much supply of excess hash power
It took ETH years and years to become what it is today. It is still the #2 crypto by market cap and #1 in "usefulness" when it comes to blockchain applications and make-money-quickly NFTs (and lose money even quicker if you HODL those jpgs) and DeFi.
What ETH can do TODAY leads to its market cap, price, and liquidity.
- There is a constant demand for ETH
- The market balances between mining ETH vs. purchasing ETH
- All the other PoW altcoins combined, is barely a tiny fraction of ETH's market cap and liquidity
Mining operation is not free, electricity is not free (for the majority of miners), GPUs, ASICs, and mining rigs depreciate and wear and tear. Miners need to sell some of what they mine to cover the basic costs (with exception of small scale hobbyists)
Without ETH in the equation, the remaining altcoins, many are young, most are speculative, and all of them do not have the liquidity to support constant selling pressure from the miners that just came of ETH.
Looking forward, Proof of Work mining (outside of Bitcoin) will continue to shrink, more rigs will go offline.
Eventually there will be a new equilibrium, where miners are barely making anything, and only those with free/cheap electricity may be ahead with the mining investments.
What do we expect to happen with the price of PoW altcoins?
Not a financial advice, but if you like one of those PoW projects, it is currently cheaper to just buy the coin, for the same cost of electricity you get more of it without the trouble of mining it.
Be cautious that there are still a lot of excess mining rigs out there, as soon as the price for those altcoins pump, miners will turn the rigs back on, mine it, and put downward pressure on the price again.
HINT: selling pressure may continue to depress the price until an altcoin becomes the next ETH, not holding my breath though.
However, steady growth of hash-rate and price can happen, and it could be sustainable if it goes hand-in-hand.
It is going to be a long winter indeed.
When an era ends, a new era begins. Once the dust settles, it may be profitable for hobby miners again. Until such time there is another ETH-like unicorn, then the arms race again.
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That's what many projects don't get to understand. It's not solely about security and sound technology. It is about marketing and community as much. That's what Eth got right. Same as Bitcoin. Toppling over an already existing standard is way too tricky and can sound impossible
Bitcoin will never change from POW to POS because of the high stake on the table.