If you are in the cryptocurrency mining space then you have probably heard of ERGO. This POW coin is one of the few that miners migrated over to after the ETH merge on September 15th around 2am EST. If you had mined ERGO before you might have noticed your rewards have dropped significantly since then, even with a steep decline in network hash rate. We will be discussing why this has happened in the sections below.
After the ETH merge to POS we saw a massive increase in network hashrate. On September 15th we saw the network hashrate go from an average of 22-30 TH/s to a massive 303 TH/s. This was about 12x the normal hash rate on the network. This means more miners hopped onto ERGO, which means rewards are split between more people. Check out the live network hashrate here.
Network difficulty is a parameter that ERGO and other POW cryptocurrencies use to keep the average time between blocks steady as the network's hashrate changes. So as the hashrate increases, the network difficulty also increases to keep the average block times roughly the same. Looking at the hashrate spike we would expect a spike in difficulty as well. Which we did see on the 15th. The difficulty went from 3.3p to 21.5p or roughly a 6.5x increase in difficulty. Check out the live network difficulty for ERGO here.
Correlation between Hashrate & Difficulty:
While correlation does not equal causation, we can say these are related. We saw a 12x in hashrate for a short period of time and only a 6x in difficulty on the ERGO blockchain. We have also seen this on many other coins before and can draw the conclusion that: If the network hashrate increases, the difficulty will also increase. Thus the block rewards will shrink for individual miners.
Specifically ERGO's Network Difficulty:
We can see that the current hashrate for ERGO is 21.5p even after a large majority of the hashrate dropped off. This happens because ERGO adjusts the difficulty based on how many blocks are found at a set block time. This means the hashrate can drastically increase, and the network difficulty will lag behind the hashrate. More than likely miners will switch back to ERGO once the difficulty drops, speeding up the block times and then switch back off once the difficulty increases again. From this we can speculate that ERGO will become profitable again on September 24th at 9:57am and then 24 hours later when the difficulty adjusts to hashrate become unprofitable. Check out the Epoch monitor for ERGO here.
How to Fix This Issue:
In order to stabilize the network hashrate and no longer have consistent spikes of hash rate, the ERGO network needs to speed up the epoch times. This will make the Network adjust to hashrate faster and thus increasing or decreasing the difficulty to reflect that. The issue with having the epoch times so far apart is miners will switch over when difficulty is down, and disappear once difficulty climbs back up. This leaves the miners that believe in ERGO stuck mining blocks that are more difficult than they need to be, yielding fewer rewards, and eventually they will get sick of it all together.