Three companies already benefiting from the Ethereum merge


Originally, Ethereum used the same consensus mechanism as Bitcoin. It’s called Proof of Work, and it encompasses entire data centers of servers working on ridiculously difficult math problems, gobbling up lots of computing power, with the winner taking home the block reward or a bunch of cryptocurrencies. Bitcoin’s network uses enough energy to power the entire country of Argentina, while Ethereum, a distant second, used just 112 terawatt-hours of electricity, or more than Pakistan uses in a year.

The mechanism also poses significant scaling issues, which has meant network congestion for Ethereum, driving up fees and slowing down processing rates. This crowded out smaller developers as the network became too expensive for smaller transactions and not worth it in terms of scaling for larger ones.

Staking (or proof-of-stake) changes that.

It requires “validators” to insert coins or tokens they own in order to be selected to approve transactions and earn a reward. The probability of getting the reward increases with the amount wagered, but all ether wagered will earn interest, making wagering relative to buying stocks or bonds without the overhead.

Here are three companies that will benefit from the merger.

Hive Blockchain was prepared for Ethereum merger

Hive Blockchain Technologies (TSXV:HIVE) literally mined coins with its GPUs for months to get out before the fusion and did beta testing before the fusion. The idea here is that the company with the most pre-mined and ready-to-stake Ethereum will perform extremely well when staking goes live.

The beta test consisted of a strategy to optimize the hash rate economics of Hive’s 6.5 terahash mining capacity before moving Ethereum to proof-of-stake over various other GPU mining coins.

Before the merger, the company espoused the idea that the competitive landscape for GPU miners would win where the most efficient equipment in terms of energy consumption per coin mined would win. To that end, the company’s data center and crypto-mining facility in Boden, Sweden, was one of the world’s largest sites dedicated solely to mining Ethereum, at a rate fixed at US pennies per kilowatt-hour.

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Total power capacity is approximately 21.5 megawatts, or 16 percent of the Company’s total portfolio of 130 megawatts of green energy (both hydroelectric and geothermal) data center capacity. Now, specifically, out of that 21.5 megawatts, about 14.8 comes from legacy GPU cards (typically AMD Radeon RX580 cards) that have been online since 2018. Switching to ASIC mining with the newer generation ASICS, the company could pull in between 400 to 440 additional petahashes per second when mining bitcoin in that 14.8 megawatt capacity.

“The company’s ETH production from GPU mining (including selective GPU hash rate optimizations) has yielded a total ETH production of 3,010 ETH. In August, we produced an average of 16.7 bitcoin equivalents per day, consisting of approximately 9.4 BTC per day, and our Ethereum production of approximately 97 Ethereum per day. We are pleased to be producing over nine BTC to date, even with a nearly 10 percent increase in Bitcoin difficulty over the past week,” said Frank Holmes, Hive Executive Chairman.

That’s the compromise. The wattage saved to no longer have to actively mine Ethereum is switched to bitcoin mining. The cards that are no longer used to mine Ethereum can be reused for cloud computing and AI applications and rendering engineering applications, as well as for scientific modeling of fluid dynamics.

Hive already has a cloud computing test pilot in a Tier 3 data center, where it will use a subset of its A40 GPU cards for cloud computing.

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3iQ Digital Asset Management and Ethereum 2.0 deviants

Not everyone agrees with the merger. There are some individuals and companies who prefer the old way of doing things. They believe that the new merger will somehow make Ethereum more centralized and therefore more vulnerable to attacks, while others don’t want to lose their proof-of-work cash cow.

One company, 3iQ Digital Asset Management, is taking proactive measures on behalf of investors in the event that there is at least one hard fork of the Ethereum protocol, potentially leading to the production of new tokens.

Founded in 2012, 3iQ is a digital asset mutual fund manager with over C$700 million under management. It was also the first company to offer a bitcoin public mutual fund called The Bitcoin Fund (TSX:QBTC) and a public ether mutual fund, The Ether Fund (TSX:QETH.UN)and last it started the 3iQ CoinShares Bitcoin ETF (TSX:BTCQ) and the 3iQ CoinShares Ethereum ETF (TSX:ETHQ).

Now one waits to see what else will come of this Ethereum upgrade. The merger of Ethereum’s proof-of-work mainnet with the proof-of-stake system Beacon Chain could go two ways. The first would be to find a new PoW blockchain to support existing mining hardware, and the second would be to reject the upgrade entirely and continue mining Ethereum under the previous consensus mechanism, creating an entirely new blockchain.

If miners decided to go with the all-new blockchain, a hard fork (or chain split) would happen, producing a post-merge Ethereum PoS blockchain, and new versions of Ethereum would continue to work on a PoW consensus mechanism. The result would be two different blockchain networks with two different native tokens – Ethereum and some other Ethereum-based proof-of-work tokens.

Of course, 3iQ has no intention of stopping trading QETH and ETHQ and other products involved in ETH exposure, but it does have plans to get involved in potential new assets.

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“3iQ will always put the best interests of our investors and shareholders first. Our world-class team will continue to evaluate all aspects of the merger and potential hard forking of the Ethereum blockchain. We will update investors regularly and continue to explore all possible avenues to maximize shareholder growth while maintaining our funds’ investment objectives,” said Fred Pye, Chairman and CEO of 3iQ.

Coinbase already offers staking

Coin Base (NASDAQ:COIN) is one of the largest cryptocurrency trading companies in the world and is expected to benefit significantly from the Ethereum merger. This is because the company has a much larger market share of ether assets (15 percent) than the 7 percent it has of the other crypto ecosystem, putting it in a much better staking position going forward.

The company also expanded its ETH staking offering in early August, giving potential customers the option to turn to a reputable company with strong security for their staking needs. Finally, the Ethereum blockchain rewards players who engage their coins in the process and penalizes those who don’t, like those who prefer to have downtime. This is exactly what Coinbase offers – a safe place to stake where someone can get results while minimizing risk.

The company expects its additional annual staking revenue from the merger to be $650 million, assuming Ethereum price remains stable at $2,000 with a 5 percent ETH staking yield .

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