Reasons why Bitcoin miners and Ethereum should be taken seriously[Column]| coindesk JAPAN | Coindesk Japan

Maximalist doctrine does no good for anyone.

Much has been said about the impact (and its inevitable decline) of Bitcoin maximalists as a cultural force. But less has been said about how ideology drives financial markets, including how it affects institutional investors’ capital allocation decisions.

This is worth verifying. As for crypto asset allocation, it is now ripe for a revolutionary shift towards the Ethereum blockchain.

Ethereum Opportunities

Bitcoin (BTC) miners in particular may find new opportunities as the potential value of the Ethereum blockchain is unlocked. This opportunity could help offset and reverse the shrinking profit margins that have dominated the mining industry since 2022 and may continue for some time yet.

Bitcoin mining rewards will be halved from 6.25 BTC to 3.125 BTC next year, making it more difficult for miners to turn a profit. Unless, of course, it’s offset by higher prices or less competition in the network.

In fact, some predict it will, and much has been said about the supply and demand mechanism of the Bitcoin blockchain and its implications for mining economics. But simply put, at that moment of halving, the miner’s income is instantly halved.

At first glance, the Ethereum blockchain might not seem like a candidate for adding value to Bitcoin miners. The move to Proof of Stake (PoS) has completely eliminated the role of mining. Ethereum validators are rewarded through a PoS model, but that mechanism is currently not implemented in Bitcoin.

The bitcoin mining industry holds large amounts of bitcoin as a reserve asset that has limited use as a financial instrument other than cashing it out to cover operating costs or holding it for the long term in hopes of recovering its value. I’m sleeping

Ethereum is ever-changing

In contrast, the Ethereum blockchain and its possibilities are constantly changing. Developers have backed a wide range of use cases, including decentralized exchanges (DEXs), stablecoins, and NFTs.

The successful PoS transition by “Merge” in September 2022 was a milestone in blockchain history. Going forward, the Ethereum blockchain is undergoing several upgrades, including the “Shanghai” upgrade in March and subsequent sharding to set the prerequisites for mass adoption by relieving network congestion. .

The future of the Ethereum blockchain has never been more exciting, and the growth of Layer 2 systems such as Polygon, ZK Rollup, Optimism and Arbitrum will further increase Ethereum’s scalability.

Despite criticism from some environmental groups, Ethereum is becoming more and more environmentally friendly. According to Ethereum co-founder Vitalik Buterin, after the merge, Ethereum’s energy consumption is estimated to have decreased by 99.95%, and global electricity consumption has also decreased by 0.2%.

Combined with the previous EIP (Ethereum Improvement Proposal) 1559, the merge will dramatically reduce Ethereum (ETH) issuance, and many believe that Ethereum supply will be deflationary in the long term. Since the implementation of EIP1559 in August 2021, 2.8 million Ethereum, equivalent to 8.8 billion dollars (approximately 1.14 trillion yen, converted to 1 dollar = 130 yen), has been burned, increasing the rarity of Ethereum. This, in turn, increases long-term value.

Aiming for coexistence

A PoS blockchain like Ethereum could be a welcome addition to the Bitcoin mining business. You can also convert Bitcoin rewards into Ethereum and stake them to receive rewards.

A staked Ethereum acts like an interest-bearing asset, compounding over time. This creates a flywheel effect between Bitcoin and Ethereum. From there, miners can also devise more imaginative ways to create value. What was originally a wealth management tool may become a new business through innovation and development.

Both Ethereum and Bitcoin have unique advantages and limitations. Bitcoin is the original proof-of-concept (PoC) for decentralization and has proven its resilience in tough market conditions that test its function as a store of value.

Ethereum, on the other hand, is relatively versatile and encourages innovation. Continuous improvements are being made to expand its capabilities and fix its shortcomings towards its vision of a “digital future on a global scale”. Going forward, both Bitcoin and Ethereum are expected to play an integral role in the international financial system and society in general.

The two concepts Proof of Work (PoW): Bitcoin and PoS: Ethereum can coexist. Bitcoin miners are uniquely positioned to realize how the two complement each other to generate revenue, monetize underutilized energy, and enable a decentralized future.

Mr. Sam Tabar: Chief strategist at Nasdaq-listed bitcoin mining company Bit Digital.

*Opinions are those of the author and do not necessarily reflect those of Bit Digital.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
| Image: Mining equipment (Eliza Gkritsi/CoinDesk)
｜Original: Why Bitcoin Miners Need to Take Ethereum Seriously