According to some rumours, Dogecoin potrebbe passare da Proof-of-Work (PoW) a Proof-of-Stake (PoS).
Do we know for sure if Dogecoin will switch to PoS? No.
Do I personally think it will become a PoS network? Probably not.
But I still find it interesting to discuss this possibility.
After all, I work in this industry, and I do my best to evaluate how the cryptocurrency and mining market will evolve. If Dogecoin switches to a PoS system, or makes other changes to the method of creating new blocks, the consequences on the mining sector would be enormous.
Mining via Scrypt would suffer
I will not discuss the odds of Dogecoin actually switching from PoW to PoS. While it is difficult to determine whether or not the recent rumors are true, they were enough to cause Bitmain to halt production of Litecoin (LTC) and Dogecoin (DOGE) miners.
The question I want to answer is: “What would happen to miners if Dogecoin switched to PoS?”
First, mining via Scrypt would be devastated: DOGE accounts for over 60% of the revenue generated through Scrypt. By removing Dogecoin, every single L3+, LT6 and Mini Doge Pro – practically every machine that is not an L7 powered by electricity at $0.04/kWh – should be disconnected immediately.
The difficulty of the networks would become extremely unstable, while the miners with dated equipment decide whether to keep their ASICs turned on or definitively throw in the towel. The most efficient Scrypt miner on the market – Bitmain’s Antminer L7 – would see its profitability reduced by almost 75%: just $4.83 a day, assuming electricity at $0.05/kWh.
What about miners who don’t enjoy an industrial grade electricity tariff? At $0.10/kWh, an L7 9050M – a $9,000 device! – would only earn $0.72 a day. Damn! Those who recently bought an L7 would hardly be able to recoup their investment, much less generate profits.
ASIC manufacturers would be forced to lower their prices
A large reduction in profitability would inevitably lead to a collapse in the price of L7 miners. Evaluating these devices based solely on the expected ROI time, assuming a profit of $5 per day, the Antminer L7 would drop to between $1,825 (12-month ROI) and $2,737 (18-month ROI): a drop of almost 70%.
How fast would Bitmain react? Would they gradually reduce prices week after week, similar to what Goldshell has done with its miners in recent months? This strategy is effective for maximizing profits but tends to anger customers, who see the cost of an expensive product drop very quickly.
There would also be negative consequences for ASIC resellers: many miners are also suppliers of L7. These entities would also be forced to significantly decrease their prices. However, given recent scalping practices — such as selling a KD6 for $60,000, a car that’s worth just over $1,000 today — few will shed tears for these dealers.
Lots of home miners they would flood eBay and similar platforms with old Scrypt mining rigs. It would be a race to the bottom, as desperate users attempt to salvage as much value as possible from bits of silicon and metal that can only be used as a doorstop at best.
Anyway, Litecoin mining would survive, as L7s remain profitable; however, there would not be much choice as to which machine to use. And I doubt the market would see a new Scrypt miner that could challenge L7, at least not in the near term, unless there is a more efficient miner already in development. Indeed, there are rumors of a potential new Scrypt miner from Bitmain.
In short, the transition of Dogecoin to PoS would cause many inconveniences in the mining sector. But this is only a single aspect of the crypto ecosystem: many other scenarios should be considered.
What would happen to network security? Would the returns from staking make DOGE a stock in the eyes of the authorities? Would users praise the project for the change, or would they switch to other cryptocurrencies?
Finally, my favorite hypothesis: what if Dogecoin abandons Scrypt and introduces its own mining algorithm?
Innovation and competition are healthy for any industry
What if there is a resurgence of GPU mining? Since the Ethereum Merge, the cost of graphics cards has rapidly decreased: if GPU mining becomes viable, their price will skyrocket again. It would be a welcome development for mining purists, who could build their own rigs to mine DOGE. But this scenario would not last long: the three main miner producers – Bitmain, Goldshell and iBelink – would launch ASICs specifically designed for Dogecoin on the market as soon as possible.
Gradually everyone would switch to the ASICs of these three companies, as they are much more powerful and efficient than graphics cards. We would see a dramatic increase in mining difficulty, just like what happened with Bitcoin (BTC), and GPU mining DOGE would cease to be profitable. But it could also open the door to what the ASIC market desperately needs: competition.
What if another manufacturer enters the market with the resurgence of GPU mining? Currently Bitmain, Goldshell and iBelink are the top three companies in this industry (actually, it is mostly Bitmain that dominates the industry). So what would happen if some other company managed to commercialize its own Dogecoin ASIC miner, obtaining and maintaining a competitive advantage over other companies?
What if that same company decides to branch out to other algorithms, offering fair prices? We give credit where credit is due, from this point of view Bitmain must be commended: their products are of high quality and relatively cheap. Scalping continues to be a problem, but that’s another story.
But there is also another possible scenario, where the Dogecoin developers themselves exploit the new algorithm to make money. How? The project could go straight to Bitmain, Goldshell and iBelink and say: “We are creating our own mining algorithm, and we are willing to share the details with you. How much do you give us?“
How much would Goldshell pay to revive a company that recently took a beating from rival Bitmain? How much iBelink to create an ASIC miner before the competition, and how much Bitmain to maintain its dominance on the market?
Sometimes, no change is the best choice
What if DOGE simply chooses to continue mining via Scrypt?
That wouldn’t be an exciting prospect, but as of today it seems the most likely conclusion. Sure, some changes could be made, but it is very plausible that Dogecoin will continue to share the same algorithm as Litecoin.
And it is also likely that Bitmain will wait to exhaust its L7 inventory before launching a more efficient Scrypt miner; there is also Goldshell, which will soon launch its “Mini Doge Pro 2” for home miners. The impending halving of LTC, coupled with more efficient miners, will force older models to pull the plug.
The cryptocurrency markets will go up and down. We will probably see some other scandal that will take everyone by surprise, but which will be obvious in hindsight. And of course, ASIC manufacturers but especially ASIC resellers will try to squeeze as much as possible out of the miners with absurdly high prices.
It’s impossible to know what will happen with Dogecoin in the future, but cryptocurrencies are one of the few industries where anything can really happen. And especially in mining, things can change quickly.
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