Just 40 days after Ethereum’s hashrate hit an all-time high, the key metric has plunged 17% in the last 10 days, according to data from Glassnode, a blockchain and intelligence provider. That’s the worst drop in a 10-day span in Ethereum’s history.
The cause: China, probably.
Ever since the Chinese government in May started warning miners about minting cryptocurrencies and cautioning the country’s financial giants to steer clear of Bitcoin and its ilk, Ethereum’s rate has dropped to 457 trillion hashes per second, the lowest level since March 28. Bitcoin’s hashrate has slid to half its all-time high on May 13, according to Glassnode.
Hashrate is a metric that represents the amount of mining resources dedicated to securing the Ethereum network. Miners must run inputs through hash functions to secure the blockchain and collect the two ETH reward in return. Miners also earn a portion of their revenue from fees charged to users of the Ethereum network.
Hashrate is loosely correlated with ETH’s price — as the cryptocurrency gains value, mining becomes more profitable, attracting mining resources to the network and goosing the hashrate in a virtuous circle.
William Foxley, editorial director at Bitcoin mining firm Compass Mining, believes the relatively higher drop for BTC hashrate is because the cryptocurrency’s miners use application-specific integrated circuits (ASICS) as opposed to graphics processing units (GPUs). Ethereum miners generally use the latter.
“GPUs can be placed in small locations less likely to be found by the government,” Foxley told The Defiant, referring to miners who may continue operations despite China’s crackdown.
“Sparkpool has experienced a nearly 30% drop in hashrate since the mandate was issued,” Foxley said. China-based Sparkpool is Ethereum’s second largest mining pool contributing roughly 19% of the blockchain’s total hash rate at the time of writing.
MEV activities. That’s now subsided, he says. The portion of miner income from transaction fees has hit a seven-day moving average low of 12.16% on Jun. 19, according to Glassnode. This is the lowest percentage in a year, meaning that miners are currently more dependent on the two ETH mining rewards, that, given the drop in hashrate, should be easier to capture.
“Where things get interesting is for China-based Ethereum miners, who not only had to bear EIP 1559’s reduced fees, but now also a geographic transition out of larger industrial setups,” Foxley said.
The time gap until the advent of ETH 2.0 doesn’t help. That will shift Ethereum from the mining-based Proof-of-Work consensus mechanism to Proof-of-Stake, rendering mining ETH obsolete. But even in the short-term it’s going to be a rough few months for Chinese Ethereum pools like Sparkpool, Foxley says.
For now, savvy Ethereum miners can still take advantage of a silver lining — the lower hashrate will give them a larger portion of the total rate. They will have to make their peace with lower transaction fees and a lower ETH price. That’s not helpful when you’re looking to maximize profits.