Moving to POS from POW



Many readers had been obsessed with HIVE Blockchain Applied sciences (NASDAQ:HIVE) after our coverage about a month ago. The one gripe towards HIVE was that about half of HIVE’s earnings are derived from Ethereum (ETH-USD) and that Ethereum is predicted to change from PoW (Proof-of-Work) to PoS (Proof-of-Stake).

We defined that we couldn’t embrace such a dialogue within the earlier protection as a result of depth of the issue. Due to this fact, this text is our long-awaited thesis on HIVE’s pivot away from PoS Ethereum.

HIVE’s Pivot Away From Ethereum

HIVE’s 2022Q1 report launched in Q3 (Famous beforehand as “The Catch“) incorporates administration insights as much as and together with July 19, 2022.

This Administration’s Dialogue & Evaluation incorporates info as much as and together with July 19, 2022.

On fifteenth July 2022, Ethereum builders have already penciled in September as the merge date. Quite the opposite, HIVE said that it believes that Ethereum might nonetheless use PoW within the years to return.

The Firm (HIVE) believes the broader Ethereum ecosystem derives resilience, decentralization and excessive safety by Ethereum remaining as a proof-of-work system, and expects it to stay as such for years to return.

HIVE additionally defended using PoW over PoS, stating that PoW is safer, not as power intensive as the general public thinks, and has much less regulatory threat. However, Ethereum builders confirmed that PoS would cut back power consumption by ~99.95%.

We imagine HIVE’s assertion may be justified as a result of the transition course of (often known as “The Merge”) might undergo additional delays. Initially, the transition to PoS was scheduled for 2019, it obtained delayed until June 2022 earlier than delaying once more till September 19th.

Earlier than the Ethereum Core Developer Assembly on the 18th of August, no person (not even the ETH builders) knew for positive when can “The Merge” be accomplished for Ethereum to transit from PoW (Proof-of-Work) to PoW.

The one key indication we had was the merge completion. It’s mentioned that the merge accomplished needs to be greater than 80% for The Merge to occur in 2022Q2.

We might additionally say that HIVE just isn’t ignorant for persevering with mining ETH although ETH is certain to transit to PoS. As an example, Ethereum Traditional’s (ETC-USD) community hash price elevated 50% after the Ethereum Core Developer on the 18th of August. This implies that many miners have already begun switching to ETH. Nevertheless, switching over proper now would imply HIVE’s GPU mining yield would lower by a 3rd (Fig 4). Therefore, this may justify HIVE’s persistence in persevering with its ETH mining

Fig 1. Proof-of-Stake can reduce energy consumption by 99.95%.

Fig 1. Proof-of-Stake can scale back power consumption by 99.95%. (

The Affirmation

Firstly, the gradual liquidation of HIVE’s Ethereum reserves. Our preliminary ideas had been HIVE will accumulate extra Ethereum such that HIVE might stake its Ethereum reserves for a yield. Nevertheless, HIVE is promoting its Ethereum mined and liquidating its Ethereum reserves in favor of maximizing Bitcoin (BTC-USD) retention and capability enlargement.

Desk 1 exhibits that the ETH reserve is lowering over time whereas the Bitcoin reserve is rising. Which means that HIVE is promoting its reserves on high of all of the Ethereum mined.

Secondly, the proportion of ETH manufacturing over the general manufacturing (BTC + ETH) is lowering QoQ. Finally, ETH manufacturing will likely be zero as HIVE explores GPU mining on ETH options:

HIVE believes there may be intrinsic worth in a broadly decentralized PoW blockchain with Layer 2 good contracts, as the vast majority of such tasks exist on the Ethereum blockchain. If NFT and DeFi builders notice {that a} safe PoW Layer 1 blockchain is the very best taking part in subject for his or her code-based tasks, there could possibly be a rise in Layer 2 functions on the Ethereum Traditional blockchain, after the Merge.

Briefly, what these inform us is Ethereum is pivoting away from Ethereum solely.

Desk 1. HIVE Bitcoin & Ethereum Manufacturing, Reserves, and Manufacturing Distribution


Bitcoins Mined

Ethereum Mined


ETH % Manufacturing




(517 BTC-Equal)

7,667 ETH

3,239 BTC





(501 BTC-Equal)

16,196 ETH

2,568 BTC





(523 BTC-Equal)

23,290 ETH

1,813 BTC





(577 BTC-Equal)

25,154 ETH

1,116 BTC





(542 BTC-Equal)

25,000 ETH

1030 BTC


Supply: Creator, HIVE Filings

The Pivot

There are 3 issues HIVE might do. Out of the three, 2 had been indicated by HIVE themselves.

i. Substitute ETH with different GPU-minable however ASIC-Resistant Protocols

Firstly, HIVE will search for different GPU minable cash/tokens which are additionally ASIC resistant.

HIVE believes there may be intrinsic worth in a broadly decentralized PoW blockchain with Layer 2 good contracts, as the vast majority of such tasks exist on the Ethereum blockchain.

If NFT and DeFi builders notice {that a} safe PoW Layer 1 blockchain is the very best taking part in subject for his or her code-based tasks, there could possibly be a rise in Layer 2 functions on the Ethereum Traditional blockchain, after the Merge.”

In accordance with this assertion, HIVE will search for current layer 2 PoW protocols constructed on high of Ethereum. Nevertheless, there’s a greater likelihood HIVE might begin mining ETC as HIVE has carried out research on ETC mining.

In HIVE’s July Report:

The Firm has already commenced case research, analyzing hashrate economics of Ethereum Traditional and different GPU mineable cash at an industrial scale. HIVE has additionally been performing GPU optimizations all through calendar 2022, that are proprietary and supply the Firm with a aggressive edge.

One other piece of proof to again this thesis is the 50% spike within the ETC community hash price which coincided with the Ethereum Corer Builders assembly on August 18. We now know that the merge progress is 96% completed per week in the past and builders confirmed that Ethereum will transit to PoS in September. Primarily based on the 80% benchmark said above, September 2022 would mark the tip of ETH’s PoW period.

In different phrases, we might additionally say that the spike means that extra miners are anticipating a PoS ETH and are already pivoting to ETC as a substitution.

Due to this fact, ETC stays essentially the most possible protocol for HIVE to mine. We are going to anticipate additional affirmation to start re-evaluating HIVE’s profitability potential.

Fig 2. 50% increase in ETC network hash rate after ETH Core Dev Meeting

Fig 2. 50% improve in ETC community hash price after ETH Core Dev Assembly (

ii. HPC (Excessive-Efficiency Computing)

In accordance with HIVE:

In addition to our crypto-currency mining operations, the Firm has continued its efforts to improve and develop its services to allow HIVE to supply Excessive Efficiency Computing to firms within the gaming, synthetic intelligence and graphics rendering industries.

That is very a lot much like Soluna Holdings’ (SLNH) technique. In accordance with SLNH, crypto mining firms powered by renewable power might supply cloud computing providers at a a lot lower cost (as a lot as 75% decrease) than the likes of Amazon’s (AMZN) AWS (Amazon Net Companies). That is very true since HIVE is one of the most efficient crypto miners.

HPC just isn’t a brand new idea in spite of everything. As an example, 10% of HUT 8 Mining (HUT) income was derived from HPC in 2022Q2, up from about 5% in 2022Q1 and 0% in 2021.

Soluna additionally famous that HPC can hedge towards the crypto bear market.

Fig 2. Soluna hedging against BTC downturn

Fig 2. Soluna hedging towards BTC downturn (Soluna)

Fig 3. Addressable Market of HPC or Batch Computing

Fig 3. Addressable Market of HPC or Batch Computing (Soluna)

Due to this fact, we count on HPC to contribute sizably to HIVE’s high line within the close to future.

Nevertheless, one factor to notice is that earnings from HPC will not be as scalable as crypto mining as a result of HPC earnings are merely a hard and fast % markup from the price of income.

Desk 2: All-in Enterprise Price Per BTC or Equal Mined

Supply: Creator

iii. Offloading GPUs

This does not look possible but and there’s no steerage for such motion. However, it’s a widespread prevalence in a crypto bear market. Stronghold Digital Mining (SDIG) bought 26,000 mining machines to repay its debt.

We don’t assume that offloading GPUs is a good suggestion. Because of the releases of next-gen GPUs and the risk of recession, GPU costs dropped as a lot as 90% of their MSRPs. Therefore, HIVE will tackle heavy losses which are laborious to get well from.

However extra essential, HIVE will be unable to get well alongside the crypto market in 2024. Our thesis for Bitcoin is to achieve a low of $10,000 by the tip of 2022, then get well to $70,000 by 2023 earlier than reaching new all-time highs in 2024. The Bitcoin bull market is all the time adopted by the altcoin bull market.

Due to this fact, we imagine traders would obtain a larger profit if HIVE acquired extra mining rigs as an alternative of offloading them within the present market panorama. On this case, we expect that diluting shareholders (just like HUT) can be the lesser evil than offloading GPU mining rigs.

What Ought to Traders Anticipate in This autumn onwards?

Since ETC is HIVE’s most possible vacation spot, let’s estimate how pivoting to ETC from ETH will impression HIVE’s profitability.

In accordance with Desk 1, ETH contributed round 40% of complete income. Primarily based on calculations (Fig 4), ETH is 50% extra worthwhile to mine than ETC. Assuming no downtime and seamless transition, HIVE’s non-BTC-related income is predicted to drop 31% or 13% of complete income.

Fig 4. ETC is 31% less profitable than ETH

Fig 4. ETC is 31% much less worthwhile than ETH (

After all, we count on HIVE to stabilize its operations over a number of quarters and don’t count on such a minimal impression. However extra importantly, HIVE will not be capable of simply swap to a much less worthwhile altcoin as a result of the inflow of hashing energy will improve mining issue and can lower the profitability per unit of hash price. Therefore, we must always consider 13% because the minimal discount in income from Q3 onwards.


We confirmed how ETH is predicted to finish its transition to PoS subsequent month and the way HIVE may sort out this drawback. HIVE has been guiding traders that it’s dedicated to substituting ETH with different altcoins corresponding to ETC and utilizing a part of its useful resource to supply HPC providers.

We confirmed that HIVE’s income is predicted to lower at the least 11% attributable to downtime and a rise in mining issue as a result of inflow of hashing energy.

As of July 2022, HIVE’s market cap is $435mil and has about $75mil of crypto reserves and $214mil of deposits/tools. Which means that HIVE’s mining enterprise is valued to be $146mil.

Primarily based on 2022Q2 efficiency and the constructive correlation between altcoins and Bitcoin, Bitcoin must be $54,280 to justify its present valuation based mostly on a PE ratio of 5, in comparison with HUT’s $61,400.

We additionally needed to point out that HIVE solely has $4mil of cash on the finish of 2022Q2 to sort out such an enormous operation pivoting away from ETH. Which means that HIVE must elevate funds via shareholder dilution or crypto reserve liquidation (consisting of 6,820 ETH and three,091 BTC valued at $75mil as on the time of writing). Each actions will devalue the corporate on a per-share foundation.

All in all, holding Bitcoin remains to be an general higher funding than HIVE.

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