Ethereum present situation, consensus mechanism and emergence of Ergo as the next GPU mineable coin.
Ethereum developers never cared about GPU miners. Among the core developers, many were against that Ethereum shifting to total proof of stake (POS) consensus mechanism. They believe that total POS consensus mechanism will affect decentralization. So suggested a hybrid proof of work (POW) and proof of stake (POS) consensus model. But majority of the core developers supported POS and so ultimately sooner or later Ethereum will shift to total POS consensus mechanism.
The dominance of ASICs on Ethereum network tends to create three major problems:
GPU rig owners suffer from drastic loss of profits and lose interest in maintaining network operations;
Hash rate and power are concentrated in the hands of the minority;
Decentralization is under threat.
Also, there are miners that have spent a lot of money on their rigs and still haven’t paid them off. The large number of ASICs in the Ethereum network may prolong the already long payback period.
The ASIC problem concerns all GPU mining algorithms. How do developers fight against it? There are different approaches. Among others ProgPoW is a much more elegant solution. Instead of excluding ASICs from the network, the algorithm would make them less effective, or bring them on par with GPUs. As a result, few people will want to spend a large sum of money for minimal advantage, which will benefit good old graphics cards. This way developers will achieve their goals, and GPU miners will no longer be in danger. Everyone’s happy.
GPU miners waited for years for ProgPoW mining algorithm to get implemented on the Ethereum network. ProgPow stands for ‘Programmatic Proof Of Work’. It’s an extension of the current Ethereum algorithm Ethash and is designed to make graphics cards more competitive and minimize centralization.
Now with less than a year left for Ethereum to get totally shift to POS consensus mechanism, it seems unlikely that ProgPow mining algorithm or Ethereum improvement propoal EIP 1057 will ever get implemented on the Ethereum network. At present the transaction fess on the network are given to the miners and it has been decided to burn the txn fess in spite of giving it to the miners in the upcoming London fork expected in July 15th. This has led to a missive protest from the miners community. During the last few months i.e. Q2 2021 the difficulty rose exponentially and after London hardfork when EIP 1559 gets implemented, miners will have no choice but to shift to some other GPU mineable coins.
So what is in London hardfork and which EIPs are going to be implemented:
The Ethereum London Hard Fork, which is the next major hard fork following the Berlin hard fork, is set to go live ”around” July. It is expected to go live on 15th July.
According to the Ethereum Core Dev Meeting #107, which took place on March 5th, it’s likely that a total of six EIPs will be packaged into the Ethereum London Hard Fork. However, the only Ethereum Improvement Proposal that has been officially presented as a part of the Ethereum London Hard Fork so far is EIP-1559. Another potential feature that looks set to be included in the London hard fork is EIP-3238, resulting in something known as the Ethereum ”Difficulty Bomb Delay”.
EIP-1559 "Fee Market Change for ETH 1.0 Chain"
Without a doubt,EIP-1559 is one of the most hotly debated Ethereum Improvement Proposals in recent history. According to EIP-1559’s simple summary, EIP-1559 will contain a ”transaction pricing mechanism” that involves a fixed network fee which is burned, and which dynamically increases or reduces block sizes in order to combat network congestion. You can read more about EIP-1559 from their official website, but essentially, EIP-1559 could overhaul the user experience for gas management on Ethereum and introduce a ”BASEFEE” that depends on the current level of Ethereum network congestion. As such, the exorbitant Ethereum gas fees recently seen could be alleviated.
EIP-3238 "Ethereum Difficulty Bomb Delay"
To understand EIP-3238, we first need to understand what the Ethereum ”Difficulty Bomb” is. The Ethereum Difficulty Bomb is a part of Ethereum that raises the difficulty level of Ethereum Proof of Work puzzles. As such, this would result in longer-than-normal block times, effectively cutting the current rate of ETH rewards for Ethereum miners.
Seeing as this mechanism increases the mining difficulty exponentially over time, it will eventually lead to something known as the ”Ethereum Ice Age”. This is when the Ethereum chain becomes so hard to mine that it becomes unattractive for miners to do so. In extension, the Ethereum Difficulty Bomb will likely encourage the switch to Ethereum 2.0. However, EIP-3238 delays the Ethereum difficulty bomb so that 30 second block times won’t occur until sometime around mid-2022.
So sooner or later after London hardfork GPU miners will shift to some other coin preferably Ergo (ERG), Ethereum Classic (ETC), Ravencoin (RVN), Beam (BEAM). Among these ERG and RVN are the coins most likely miner would shift to.
Ergo(ERG): Consensus protocol of Ergo — Autolykos — is based on the well-known Proof-of-Work (“PoW”) consensus algorithm. PoW was chosen for several reasons including that PoW protocols are widely studied, have high security guarantees, and are friendly to light clients. However, Autolykos has several meaningful differences from Bitcoin's PoW. It is memory-hard reducing the disparity between specialized hardware (ASICs) and commodity GPUs, allowing ordinary people to participate in mining to secure the network and receive the reward. It has storage rent to reclaim lost and forgotten coins, Sigma Protocols, and so much more. If you want to know more about ERG coin then go through the previous blog on Cardano stable coin on Ergo POW blockchain platform or visit the Ergo official website.
Ravencoin (RVN): The current KAWPOW algorithm (formerly X16R and X16RV2 respectively) aims to overcome the problem of centralisation of mining by utilising over the counter graphic processing unit (GPU) memory and compute capabilities. This is intended to allow most consumer grade GPU hardware to mine Ravencoin. The KAWPOW algorithm was derived from ProgPOW and ethhash, with modifications, to improve the distribution of Ravencoin to everyone.
Unique characteristics of Ravencoin
ASIC resistant – Uses the KAWPOW hashing algorithm to discourage the development of ASIC hardware
Fair launch - Everyone has equal opportunity to mine or purchase RVN since day one.
No pre-mine, no ICO, and no coins held for developer or founders rewards.
Community Driven, and True Open Source
To know more about Ravencoin visit their official website.
Decentralization is the core concept of blockchain technology.
Consensus mechanism and mining algorithm are the two most important parameters which very much affects decentralization. Among the various consensus mechanisms POW and POS are most popular and has its own merits and demerits. Achieving true decentralization is still questioned in these two popular consensus mechanism.
In POW centralization of mining power (hash rate) occurs through asic's which affects small gpu miners. Over time, the network rewards proportionally the work done, and bigger workers get paid more often. Increasing puzzle difficulty also leads to big players to use sophisticated equipment, which requires more energy to run. Proof of Work is one of the most secure ways to operate a distributed network, but security and decentralisation come with two costs: one visible i.e. energy, one hidden i.e. electronic waste. Also POW will have severe environment impact if centralization of mining power goes on. Renewable energy sources should be implemented to make POW environmentally sustainable.
In a Proof-of-Stake blockchain, there is no direct incentive to harness more computing power to receive a block reward for processing algorithms. The only way that a POS validator can increase their chances of receiving the block award is to place more of the cryptocurrency on deposit — increasing their stake. There is no direct incentive for them to invest in additional computing power, and hence no driver to increase their demand for electricity. The first concern when discussing Proof of Stake VS Proof of Work is the issue that some people have about Proof of Stake helping the rich get richer. This is because the more coins you can afford to buy, the more coins you can stake and earn. However, this is almost no different from the Proof of Work consensus mechanism, whereby wealthy miners can simply purchase thousands of ASIC devices. More about POW vs POS and consensus mechanisms in future blogs.
Erg as next GPU mineable coin:
The following perspectives are considered and we will discuss only Ethereum miners perspective, Consensus perspective and DEFI perspective. For all other perspectives read the blog from Cryptodrip.
Ethereum miners perspective
Ethereum miners perspective: As discussed above.
Consensus perspective: It is fundamentally true that above all other consensus mechanisms, Proof-of-Work is the most rigorously well-tested and studied. Its also true that PoW can enable centralization by super-efficient or pooled mining resources, but Ergo has preemptively solved these issues with Autolykos (learn more in the forum).
Ergo will also have on-chain voting that can address issues such as energy-consumption as network usage grows.
As an aside, this isn't to say that a Proof-of-Stake mechanism is inferior to PoW, or even superior.
For instance, a PoS mechanism is open to Byzantine attacks from distributed systems and malicious coordination between validators because coins are inextricably linked to network security.
Cardano has solved these issues with Ouroboros, but there is still the issue of network siphoning when financial products from DeFi protocols begin offering more attractive instruments than the inflation rate from staking rewards.
The point here is mainly that all consensus protocols can be improved upon, and just as Cardano has done with PoS, Ergo is doing with PoW.
It is beneficial to recognize that PoW and PoS is not a zero-sum game. They are both growing on non-linear trajectories rather than having superiority over each other. One could look at Autolykos as a superior PoW model to Bitcoin, just as one could look at Ouroboros as a superior PoS model to PeerCoin.
In the end, it's wise to invest in both trajectories — and we believe Ergo is doing a superior job than most in the PoW space.
DEFI perspective: The decentralized finance perspective requires some in-depth research into the stablecoin and DEX landscape as a whole, so while this section may be lengthy, bare with me. It is important to build a foundational understanding of the space to better understand Ergo's unique position in DeFi.
We break this section into 2 main pillars:
StableCoins & the AgeUSD Protocol
Decentralized Exchanges & Automated Market Makers
We are going to discuss only about "StableCoins & the AgeUSD Protocol" for "Decentralized Exchanges & Automated Market Makers" and further reading go through Cryptodrip's blog.
Perhaps surprisingly, the introduction of stablecoins into crypto brought a modicum of distrust in investor sentiment, which largely influenced its sidelining during the 2017 ICO boom.
Speculators and investors alike cycled out of altcoins and into Ethereum, Bitcoin and cash, some never to return again. As regulations and sentiment shifted in favor toward the big stablecoin protocols like Tether (formerly RealCoin) and USDC, the option to sell your profits into a stablecoin and earn a yield became useful.
It's my prediction that this current bull-run will not see the exodus to cash much like we did in 2017 but a shift to stay within the crypto ecosystem via stablecoins.
As it stands, the current stablecoin environment is broken into 4 pillars:
To understand the nuances, its helpful to get some real-world examples of each:
Tether ($USDT) is an example an off-chain collateralized stablecoin as it is pegged to the dollar deposited in central banks.
The un-collateralized algorithmic stablecoin narrative is building momentum as its counterparts have notable flaws. Off-chain fiat collateralized stablecoins are counter-intuitive to the ethos that underpins the crypto industry, yet they currently dominate.
They are also subject to centralization, counter-party risks, and regulatory constraints which was tangibly evident in the latest round of regulation bouts between the SEC and Tether.
MakerDAO ($DAI) is an example of an on-chain-collateralized stablecoin as it is backed by deposits of other cryptocurrencies.
On-chain-collateralized stablecoins also have major flaws which stem from the volatility of the crypto markets. This volatility can cause events much like Black Thursday, a massive liquidation event in the MakerDAO protocol due to the black swan liquidity crisis caused by Covid-19.
Absolutely colossal amounts of ETH were liquidated from MakerDAO vaults with ZERO auction-bids (i.e. free ETH due to network congestion), oracle price discrepancy, and the sharp Ethereum sell-off. The amount of ETH gamed from MakerDAO from ‘keepers’ who took advantage of the volatility in a non-competitive auction is equal to $130 million dollars with today's current ETH prices.
Uncollateralized stablecoins are typically smart contracts on the blockchain and therefore require an oracle to feed data to the smart contract to govern the algorithms, which leaves them open to manipulation.
NuBits ($NBT) is an example of an un-collateralized stablecoin as its price is stabilized via algorithms that respond to price volatility.
In the interest of brevity, let's simply say these are mainly experimental.
AgeUSD protocol is an example of a hybrid stablecoin that is algorithmically stabilized and collateralized on-chain (i.e. crypto-backed).
But, before we discover how the novel AgeUSD protocol works I would like to preface that AgeUSD is not a solution to all the above problems. But, using sound mathematics instead of dynamic transaction handling, AgeUSD aims to provide a higher assurance alternative than existing counterparts.
With that said, we believe it's a serious contender in the pursuit of true stablecoins in the cryptocurrency space. Because of that, we look deeper into what it has to offer and why its uniquely positioned to work well on the Ergo blockchain.
AgeUSD takes a hybrid approach in a design model that focuses on key concepts from traditional finance and legal compliance. Remember, Ergo aims to be a platform for financial smart contract applications, it is in their best interest to develop their suite of products in a legally compliant way.
AgeUSD’s hybrid model is also the first of its kind with two pillars from which the protocol stands on; the stablecoin itself (SigmaUSD) and the reserve coin (SigmaRSV).
So from the above discussion it can be argued that the hybrid POW and POS consensus mechanism model can ideally be the best solution which answers most of the setbacks of the present consensus models.
In our view the next GPU mineable coin which can be truly decentralized and has various use cases and potential is Ergo (ERG) coin. Also it has potential to be in the top10 on Coinmarketcap list based on market cap.
It has drawn much attention recently when EMURGO, a multinational blockchain company tasked with developing solutions for the Cardano blockchain, has announced the launch of a new stablecoin called AgeUSD. The stablecoin, however, won’t be launched on Cardano, but on Ergo, a decentralized blockchain platform.
Announced during the “Ergo Summit 2021” on Jan. 24, the stablecoin will be based on a novel algorithmic design developed on the Ergo blockchain. AgeUSD is a result of a joint partnership between the Ergo Foundation, EMURGO, and IOHK, the company behind the Cardano blockchain platform.
2Miners pool blog: Ethereum ProgPoW Explained
Ivan On Tech Academy blog: The Ultimate Guide to the Ethereum Berlin Hard Fork
The Crypto Drip's blog: "ERGO Deep Dive: The Road to Top 10 Cryptocurrency"
Ergo Official website: Basics