Bitcoin Miners Follow Profit to Ethereum Blockchain

The rush to capitalize on ether, the native cryptocurrency of the Ethereum network, is in full swing.

Among those interested are the world's miners, who operate vast networks of machines that process bitcoin transactions. Recent increases in the price of ether have sparked some bitcoin mine operators to expand their operations to cover it.

Miners operate by effectively bundling transactions and attempting to create groupings, or 'blocks', to be accepted by the network. They make money when the return of generating and selling cryptocurrencies exceeds the cost of the electricity required. Some have referred to mining as a form of resource arbitrage.

It's the opportunity to generate profits on the back of Ethereum's recent successes that has arguably attracted some bitcoin miners. For example, the co-founder of China-based BitBank, Chandler Guo took to Facebook to declare his plans to enter the ether mining ring. He wrote:

"I am a miner of #ethereum."

Guo, who was the subject of a recent profile by the BBC, made the announcement as part of what appears to be the beginning of a new crowdfunding campaign in which he’s offering 2 percent interest for every 100,000 ETH mined by the operation. On 12th May, Guo finished a successful crowdfunding campaign to collect 3,500 bitcoins at an offered interest rate of 14 percent.

Since then, Guo has begun sharing pictures from the Chinese operation, including the racks of graphics cards needed to mine ether.

Yet recent moves in the global mining space suggests that Guo is not alone among that community to at least test the waters of processing transactions on Ethereum as well as bitcoin.

Ether mining gains momentum

The multi-year history of bitcoin mining is, in part, a demonstration of technological evolution. From the early days of CPU mining to the massive ASIC-driven operations we see today, bitcoin's mining history has seen steady development of increasingly more sophisticated machinery.

Transaction processing on the Ethereum network, by comparison, is currently performed by the use of graphics cards (GPUs), and like bitcoin, the Ethereum network features a number of mining pools of varying size and influence. Long-term, there are plans to later switch to a proof-of-stake method of achieving transaction history consensus.

Other miners have made public their involvement as well.

F2Pool, which according to data from Blockchain.info has processed the most bitcoin blocks in the past 24 hours, has long operated a mining pool focused on Ethereum. In March, Virginia-based BTCS announed that it would begin a pilot program for ether mining.

More recently, Genesis Mining released several images of depicting what the company described as “the world’s largest Ethereum mine" or “computational cluster”. Dubbed “Enigma” the Ethereum mining farm provides hosted mining services to global customers who want to be exposed to speculative value of ether, but who don't want to mine themselves.

Risks of pooling power

As bitcoin miners look to position themselves as transaction verifiers on the Ethereum network, it raises questions of whether the make-up of its mining community will see long-term change.

Of course, such a collection of mining power poses its own risks. The Ethereum network could be at risk of having its transaction history become mutable should a single entity gain majority control of the network (known more commonly as a 51% attack).

Yet plans to switch to a proof-of-stake system and a built-in resistance to ASICs could keep some major players out of the game, who in the absence of ASICs would be required to source and purchase graphic cards to add to their hashing power. As with bitcoin, the determining factor will be the price of ether, which at press time is $13.77.

According to Ethstats, the Ethereum network hashrate is 2.8 terahashes per second.

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