There are rumors that Dogecoin could switch from proof-of-work to proof-of-stake (PoS).
Do I know if Dogecoin is going to switch to PoS?
Not.
I think it will move to PoS? Probably not.
But I love the “what if…” game.
As someone who works in the cryptocurrency mining industry, I do my best to assess where the market and the mining industry are headed, along with how it might develop. If Dogecoin makes a switch to PoS or some other change to the way new blocks are created, it would have massive ramifications for the mining industry.
Here’s a look at some options and their effects.
Scrypt mining could be devastated
I am not going to debate whether or not Dogecoin will switch to PoS. Although it is difficult to determine if the recent rumors about the possibility of a change are true or not, they were enough for Bitmain to allegedly stop manufacturing Litecoin (LTC) and Dogecoin (DOGE) miners.
The most important question on my mind is, What happens to miners if Dogecoin switches to PoS?
First of all, Scrypt mining would be devastated. DOGE accounts for more than 60% of revenue with Scrypt mining. If removed, every L3+, every LT6 and every Mini Doge Pro, literally almost every non-L7 miner not connected to $0.04 per kilowatt-hour electricity, would have to be taken offline immediately. .
The network difficulty would probably bounce around for some time, as miners with older gear wrestle with the decision to keep their ASICS on or turn them off. The quintessential Scrypt miner, Bitmain’s Antminer L7, would see its profitability reduced by almost 75%, reducing profits from a whopping $4.83/day to $0.05/kWh.
What about miners who do not have an industrial electricity rate? At $0.10/kWh, the L7 9050M, which was selling for about $9,000 a few weeks ago, would earn $0.72/day.
That awful!
A change as drastic as this would mean that those who have recently purchased an L7 would have very little chance of recouping their investment, let alone making a profit.
ASIC manufacturers would be forced to lower prices, further affecting their bottom line.
The huge reduction in profitability would inevitably lead to the price of the L7 falling faster than it did during the COVID-19 induced cryptocurrency crisis. Pricing miners solely by their expected payback time, with a profit of $5 a day, miners would see the L7 priced between $1,825 (12 month payback) and $2,737.50 dollars (18-month return on investment). This reflects a minimal price reduction of almost 70%.
How quickly would Bitmain react? Would they gradually lower prices week by week similar to what Goldshell has done with many of its miners in recent months? A strategy that repeatedly left a sour taste in the mouths of customers as they watched the price of the miner they had just spent thousands of dollars on repeatedly lowered.
Or will they continue their recent trend of setting fair prices for miners?
ASIC dealers would also bear the brunt of the negative consequences related to a PoS switch by Dogecoin. Many L7 miners are vendors, and scalpers that settle on that would instantly need to be marked down by a substantial amount. However, based on their recent history of gouging customers, such as charging $60,000 for a KD6 that’s barely worth more than $1,000 today, it’s doubtful many tears will be shed for them.
Many home miners would flood eBay and similar platforms with Scrypt miners. It would be a race to the bottom as desperate miners try to recapture whatever value is left in that hunk of metal that can now only be used as a doorstop or display piece if one is desperate.
Litecoin mining would survive. Those L7s would stick around because they would still be somewhat profitable, and there really wouldn’t be a choice. It is doubtful that the market will see a new Scrypt miner that can challenge L7 being developed anytime soon unless a more efficient Scrypt miner is already in development. There are some rumors that Bitmain is working on a miner that would outperform L7.
There are many disruptions from moving to PoS, and we’ve only looked at one aspect of the crypto ecosystem. Many other issues and scenarios would have to be considered.
What would happen to network security?
Would staking performance cause DOGE to eventually be labeled as a security?
Would Dogecoin be lauded for the change, or would the masses flee what is now the second largest PoW coin by market cap?
Now my favorite “what if…” This option is unlikely, perhaps even impossible, but there are different ways it could play out.
What if Dogecoin breaks away from LTC merged mining and creates its own mining algorithm?
Innovation and competition are healthy for all industries
What if there is a renaissance of GPU mining? After the Ethereum Merge event, there are a lot of really cheap GPUs available on the market. They would get expensive very quickly. Mining purists would rejoice building their own mining rigs while trying to figure out how much DOGE they can stack. It would be great, but it wouldn’t last long. The three big manufacturers – Bitmain, Goldshell and iBelink – would fight to be the first to market an ASIC miner.
Over time, each of them would have at least one ASIC miner on the market, and naturally they would become more powerful and efficient over time. The jumps and increases in difficulty would be ridiculous, and just like with Bitcoin (BTC), it will eventually no longer be profitable to mine DOGE with GPUs. But it could also open the door to something the ASIC manufacturing market desperately needs: competition.
What if, after the short-lived GPU mining renaissance, a door opens for another vendor or vendors to enter the market? Currently, Bitmain, Goldshell and iBelink are the “big three”, and it is really Bitmain that has complete dominance of the market. So while Bitmain is likely to come out on top, what if there was someone who could be first to market and maintain that lead and establish themselves as a credible and reliable ASIC manufacturer?
What if that company decided to open up to other miners and offer them fair prices? To be fair, we have to commend Bitmain again for their recent launch of industry-changing miner pricing. Reseller margins are still an issue, but that’s another topic. Perhaps this “new” entrant is adhering to the mantra that customer service really matters. If customers got over reliability issues and the company built a good product, that could happen. It must be recognized that there are many “what if…”.
Alternatively, there is a money grab scenario for Dogecoin. The project could go directly to Bitmain, Goldshell and iBelink and say: “We are creating our own mining algorithm and we will give it to you and only you. How much money will you give us?”
How much would Goldshell pay to bring a company back to life that has taken a series of hits from recent altcoin miners launched by Bitmain? Or would iBelink go all out to get the manufacturing rights to the miner? IBelink has just released a new BM-K3 Kadena miner that boasts 70 terahashes – an increase of almost 75% over the next closest model – and can’t celebrate because Bitmain is about to surpass it with the new KA3 that brings 166 THs . In the case of a Dogecoin offer to ASIC makers, how much would Bitmain pay to maintain its market dominance?
no change could be good
What if DOGE chooses to simply continue mining Scrypt?
The status quo isn’t all that exciting, but it seems like the most likely outcome. Sure, there may be some changes that get through a vote, but most likely, Dogecoin will continue to be merge-mined with LTC on the Scrypt algorithm.
Bitmain will likely continue to release L7 inventory before releasing a more efficient Scrypt miner later this year. Y Goldshell will be releasing a Mini Doge Pro 2 for home miners which will essentially be two Mini Doge Pros in one box. The upcoming LTC halving, along with more efficient miners, will likely push several old models out of business for good.
The cryptocurrency markets will go up and down. There will probably be some other crypto scandal that no one sees coming that will seem incredibly obvious in hindsight. The sun will rise and the sun will set. Of course, most providers, and especially resellers, will continue to flag miners and squeeze whatever they can out of regular customers.
It is impossible to know what will happen to Dogecoin in the future, but the cryptocurrency sector is one of the few where anything can happen at any time.
Regardless of whether Dogecoin switches to PoS, the cryptocurrency mining landscape has always changed rapidly, and Scrypt mining is no different.
The change is coming.
The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should do their own research when making a decision.