Agam Shah has been covering enterprise IT for more than a decade. Apart from machine learning, hardware and chips, he is also interested in martial arts and Russia.
Ethereum’s software switch has crypto miners
The switch in underlying software protocols to create Ethereum cryptocurrency is rendering mining equipment obsolete, and companies that run server farms are now repurposing the hardware for artificial intelligence and Web3 applications.
Ethereum recently switched its cryptocurrency validation system to “proof of stake”, replacing the older “proof of work” system, which became unsustainable as the energy consumed by the process became a burden on electrical grids. Ethereum mining consumed more energy than Finland does annually.
The merger
“This completed Ethereum’s transition to proof-of-stake consensus, officially abolishing proof-of-work and reducing energy consumption by ~99.95%,” the Ethereum organization said on its website. The full transition to the newer validation system, called “The Merge” was completed on September 15th.
Ethereum, like Bitcoin, uses the blockchain for peer-to-peer transaction processing, eliminating the need for a central clearinghouse. Ethereum generated about 80 terawatt-hours of electrical energy per year as of August 20 and is set to drop to 0.01 terawatt-hours, according to Digiconomist.
The older proof-of-work system rewarded Ethereum crypto to miners who solved complex mathematical problems and added transactions to the distributed ledger. The validation involves running an algorithm and the cryptographic hash function SHA-256, and miners with the fastest hardware had the best chance of earning Ethereum.
Powerful systems
Mining farms increased the speed of generating crypto by regularly upgrading to the latest and greatest hardware, which also required more energy. On top of that, the server farms, which ran 24 hours a day, generated a lot of heat and needed power-hungry cooling systems. Bitcoin, which uses proof-of-work, uses approximately 175 terawatt-hours of electricity, which is equivalent to the annual consumption of Argentina.
Miners scaled up hardware like GPUs, causing shortages and prices to go through the roof. In an effort to target more GPUs to mainstream gaming and commercial audiences, Nvidia and AMD disabled GPU mining features through software updates.
Proof-of-Stake effect
Ethereum’s newer proof-of-stake system gives validation rights to those who stake their own Ethereum crypto. Those who stake more crypto have a better chance of earning validation rights. It is a more energy efficient way to earn cryptocurrency as it virtually eliminates mining.
Ethereum’s move 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 the mining hardware. The availability of hardware may lead to an increase in software development efforts around artificial intelligence and blockchain-powered transactions in the metaverse.
One such company is Hut 8 Mining Corp., which leverages its Ethereum mining hardware to run Web3 applications.
In a filing with the US Securities and Exchange Commission earlier this month, Hut 8 Mining said that 180 Nvidia GPUs in the Ethereum data center “will be designed to spin as needed to provide artificial intelligence, machine learning or VFX rendering services to customers.”
Hive Blockchain Technologies said its older AMD RX580 GPUs, which have been in use since 2018 to mine Ethereum, can be transferred to next-generation ASIC miners to mine Bitcoins. The AMD GPUs have “paid for themselves many times over, thus marking a successful venture in GPU mining,” the company said.
The company also has 38,000 professional GPUs from Nvidia, which have been used to mine Ethereum. Hive is now running a pilot in a Tier 3 data center to move some of those GPUs away from mining Ethereum to providing more cloud computing and AI services.
Bit Digital — which dedicated its server farms to mining Bitcoin — said in an SEC filing this month that it would diversify into Ethereum validation and the proof-of-stake system. The company said an investment as an early staker would give it a better chance to earn Ethereum, which the company said would become the basis for the smart contract system in Web3 applications and economics.
