Why Ethereum Classic’s third ‘halving’ puts pressure on miners’ profits – DL News

Ethereum Classic — a 2016 fork from the main Ethereum blockchain — just completed its third halving, reducing the tokens paid out to miners on the network by around 20%.

The reduction on the $4.4 billion blockchain occurred at block 20,000,001, or 12:00 am London time on May 31.

Miners now earn 2.048 ETC for every successful block they mine, compared to 2.56 ETC previously.

Investors often see the reduction in a token’s supply as a positive — the token should increase in value if the supply decreases while demand stays the same.

Such events can be double-edged swords, as they also impact the profitability of miners.

“Mining revenue will decrease if price remains at the same level,” Red Luo, a content manager at crypto mining pool operator F2pool, told DL News.

Ethereum Classic’s ETC token trades at around $29.70, down 5.8% over the past week.

Miners usually turn off their machines when they are no longer profitable, hurting the network’s decentralisation.

F2pool runs the biggest Ethereum Classic mining pool, with over 44% of the network’s known hashrate.

Can miners stay profitable?

Some Ethereum Classic miners subsist on thin margins.

With a 20% reduction in rewards, small miners, or those in areas with more expensive electricity, may stop mining because it’s no longer profitable.

The reduction could also hurt large miners running older, 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 reduced rewards should not significantly impact the network’s hashrate.

The 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 that blockchain more secure because it would take more miners — and cost more in energy and time — to attack the network.

How Ethereum Classic works

Ethereum Classic is a Proof of Work blockchain. It split from the main Ethereum network after the DAO hack in 2016.

Like Bitcoin, Ethereum Classic requires miners running powerful computers to solve complex equations, which, when solved, allow them to add blocks of transactions to the blockchain.

In return, successful miners receive token rewards.

Solving these equations is difficult. Many miners choose to team up in so-called mining pools and split 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 refer to it as a “halving,” because it resembles Bitcoin’s halvings.

Bitcoin halvings cut the rewards paid to miners in half about every four years.

Ethereum Classic halvings occur every five million blocks, or about every two years.

Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.