DeFi
Why Ethereum Classic’s third “halving” is putting pressure on miner profits – DL News
- The Ethereum Classic halving reduced the token rewards paid to miners by approximately 20%.
- Automatic reduction means that miners are less profitable than before.
Ethereum Classic – a 2016 fork of the main Ethereum blockchain – just completed its third halving, reducing the tokens paid to miners on the network by around 20%.
The reduction on the $4.4 billion blockchain occurred at block 20,000,001, midnight London time on May 31.
Miners now earn 2.048 ETC for each successful block they mine, up from 2.56 ETC.
Investors often view a reduction in the supply of a token as a positive: the value of the token should increase if the supply decreases while demand remains the same.
Such events can be double-edged, as they also impact the profitability of miners.
“Mining revenue will decrease if the price stays at the same level,” said Red Luo, content manager at crypto mining pool operator F2pool. DL News.
Ethereum Classic’s ETC token is trading at around $29.70, down 5.8% over the past week.
Ethereum Classic’s ETC token is ahead of the network’s third halving.
Miners typically shut down their machines when they are no longer profitable, harming network decentralization.
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F2pool manages the largest Ethereum Classic mining pool, with more than 44% of the hashrate known to the network.
Can miners remain profitable?
Some Ethereum Classic miners survive by slim margins.
With a 20% reduction in rewards, smaller miners, or those located in areas where electricity is more expensive, can stop mining because it is no longer profitable.
The reduction could also harm large, aging miners, less efficient mining machines.
Still, according to Luo, the impact should be minimal.
“We find that most popular machines can operate profitably even after the reward reduction,” Luo said, adding that the reward reduction should not have a significant impact on the network hashrate.
Hashrate is the number of hashes – or guesses – per second of all mining machines trying to solve equations and process blocks on a blockchain network.
A higher hashrate means more computing power is required to process transactions.
This makes this blockchain more secure, as it would require more miners – and cost more energy and time – to attack the network.
How Ethereum Classic works
Ethereum Classic is a proof-of-work blockchain. It separated from the Ethereum mainnet after the DAO Hack in 2016.
As BitcoinEthereum Classic requires miners running powerful computers to solve complex equations which, once solved, allow them to add transaction blocks to the blockchain.
In return, successful miners receive symbolic rewards.
Solving these equations is difficult. Many miners choose to team up in what are called mining pools and share the rewards if one of them solves an equation.
Although Ethereum Classic is programmed to reduce token rewards by 20%, many in the community still call it a “halving” because it is similar to Bitcoin halvings.
The Bitcoin halving halves the rewards paid to miners approximately every four years.
Ethereum Classic halvings occur every five million blocks, or approximately every two years.
Tim Craig is a DeFi correspondent at DL News. Do you have any advice? Send him an email to tim@dlnews.com.