Ethereum’s (CCC:ETH-USD) London hard fork is a new chapter for cryptocurrencies. The overhaul, starting with the fork and ultimately transforming into the Ethereum 2.0 network, is one of the largest upgrades we’ve ever seen on a blockchain network. And, it’s the second-largest crypto in the world to boot. But this upgrade could potentially be a detriment to other players in the crypto industry, like Hive Blockchain (NASDAQ:HVBT). Could the Ethereum 2.0 overhaul ruin HVBT stock?
That’s the question investors are asking. SeekingAlpha recently published a deep-dive analysis of the Ethereum upgrade’s effect on the crypto mining industry. In particular, it honed in on Canadian-based Hive Blockchain. Hive makes up 5% of the total Ethereum-mining industry, making it one of the largest beneficiaries of its proof-of-work algorithm.
Ethereum 2.0 Rids the Need for Mining Facilities
One of the London hard fork’s purposes was to catalyze the network’s transition from proof-of-work to proof-of-stake. Proof-of-work utilizes crypto mining, allowing individuals and companies like Hive to run mining rigs. These rigs are oftentimes part of huge mining farms in warehouses and the like, including Hive’s operation. This proof is highly criticized for its rampant energy consumption, part of the reason for the transition.
Proof-of-stake, on the other hand, is a consensus mechanism. Through this, the Ethereum ledger confirms transactions and orders them for execution. This proofing algorithm requires negligible amounts of energy and is lauded as a more “green” alternative to proof-of-work. The new proof would remove the need for these existing mining operations, as the work completed by the mining rigs would no longer be factored into transaction fees.
As SeekingAlpha points out, this transition will make operations like Hive obsolete, much to the detriment of HVBT stock. As such, these mining companies must pivot, either to a different cryptocurrency that still uses proof-of-work, or to a different operation altogether.
HVBT Stock Stays Afloat With Hive’s Long-Term Plan
Hive is acknowledging this issue and addressing it. The company’s long-term plan is in place, and according to the company, mining will remain an attractive option for the next couple of years. The company says the full Ethereum 2.0 update, including the proof algorithm switch, is a ways off. Ultimately, Hive predicts it has two years “before Ethereum mining could become financially unattractive.”
After this period, the company plans to utilize its masses of high-performance graphics cards for other utilities. It calls its store of graphics processing units (GPUs) “robust, extensible technology,” which it plans to repurpose for other high-performance computing products for at least the next five years. The company also will be retaining its Ethereum holdings from all of its mining, which it says it could stake under the new proof-of-stake model for additional income down the line.
HVBT Gains From Government Tax Proposal
In the meantime, the U.S. government is rewarding existing proof-of-work miners with its amendment to the infrastructure proposal. Under the funding proposal, proof-of-work miners will not be taxed by the U.S. government, while proof-of-stake miners have to pay taxes; this is because the wording of the proposal, which requires crypto brokers to report transactions on tax returns, targets only proof-of-stake miners.
The proposal is a controversial one. After all, Ethereum is transitioning to proof-of-stake because many demand a less energy-consumptive network. The government’s proposal goes against these desires, rewarding the more consumptive proof while punishing the greener option.
So, while Hive might have the distant future to worry about, it’s doing just fine for the time being. In fact, the proposal news is boosting HVBT stock over 4% on the day’s session.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.