Luxor's Stance on Ethereum’s Merge to Proof-of-Stake

Within the next 24 hours, Ethereum developers will finally execute Ethereum’s long-awaited merge to proof of stake. If successful, the merge will spell the end of ETH mining. As such, we wanted to share a few thoughts on what will be one of the most consequential events in Ethereum’s short history.

We launched our Ethereum mining pool last year because we are staunch proponents of proof-of-work in all of its forms and believe in compute power as a commodity. Since the launch of Bitcoin in January 2009, no other blockchain consensus mechanism has matched the security and censorship guarantees of Nakamoto consensus via proof-of-work.

Given our position, we believe that Ethereum’s merge to proof-of-stake is a mistake.

Ethereum’s marketcap is $200 billion, with tens-of-billions more in applications and products built atop the network. The merge will be the single largest engineering feat of any crypto asset to date, requiring every aspect of the multi-hundred-billion dollar economy – from DeFi applications, to wallets, to exchanges – to upgrade to the new design to stay in consensus with the rest of the network.

This engineering lift puts this entire economy at risk. If the merge fails, or even encounters miner hiccups, billions of dollars in value could be lost to the ether. User funds could also be subject to risk if projects don’t upgrade properly.

We’ve already seen lack of node coordination lead to snafus in testnets. This happened most recently with the latest Bellatrix testnet, where missed blocks surfaced from validators who didn’t upgrade.

Looking back over the year, there have also been several additional errors in the realm of synchronization and block reorganizations problems on the Beacon Chain and other Ethereum testnets: in March of this year, the Ethereum 2.0 testnet Kiln encountered a block propagation error; a reorganization occurred on the Beacon Chain in May; and the Goerli testnet experienced a slew of issues, including a 30 block reorg.

Turning from security issues to censorship-resistance, proof-of-stake will be more prone to state capture and censorship, as well. Given the concentration of ETH on centralized staking services like Lido, Coinbase, and Kraken (which together currently comprise a super majority of total staked ETH), it would be trivial for a state actor to impose censorship on the protocol level of Ethereum. The recent sanctioning of Tornado Cash is a foreboding omen of what could become commonplace in a proof-of-stake ecosystem.

To diagnose all of the potential shortcomings and dangers of Ethereum’s merge to proof-of-stake would necessitate a dissertation. That said, the risks we outline above and innumerable others are why Luxor cannot in good conscience support the forthcoming merge. We wish the Ethereum Foundation, Ethereum developers, and the wider Ethereum ecosystem luck in a post-merge world, but we will take no part in staking once the merge is complete.

We will keep mining ETH until the final hour. Luxor will process automatic payouts for ETH mining rewards up until 4:00pm EST today; for any outstanding balances after this cutoff, we will resume payouts a few days after the merge once the network has stabilized and we feel comfortable sending payments.

Many miners have asked us about our plans for the ETH pool in a post-merge landscape. We have been examining alternatives for our ETH pool, but presently, none of the options appear sustainable in the mid-to-long term. If this changes and Luxor discovers a viable alternative to our ETH pool, we will open our services to this option and alert our miners accordingly.

In the meantime, we want to thank all of our ETH miners for sticking with us this past year. It’s been a helluva ride and an honor hashing with you all.

Happy Hashing, and godspeed to all!

-Luxor Tech Team