With the long-awaited Ethereum Merge arriving in less than a month, new information about a potential split of the ETH PoW chain has emerged. But what does that involve exactly?
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| POW-vs-POS |
We recently covered the ways to trade the highly anticipated Ethereum merge, set to launch on September 15, 2022. The latest developments show that it is on the right track: Goerli, the third and final Ethereum testnet, was successfully merged into a Proof-of-Stake (PoS) consensus mechanism. However, speculation has surfaced about the Ethereum to PoS transition and the future of the Proof-of-Work (PoW) chain, fueled mainly by Justin Sun, the founder of Tron, and
ChandlerGuo, a prominent Ethereum miner. This begs the question: what if after the merger there are two Ethereum chains: one in proof-of-work and one in proof-of-stake?
You may be wondering: aren't there already two Ethereum chains in ETH and ETC? So that would do three? It's time to explain what's going on with Ethereum, therefore in this article:
- Describe what will occur during the merging.
- Clarify what ETH PoW is.
- Dive into the ETH PoW problem.
- See how ETH PoW can benefit you.
What will happen during the merger?
- The merger signals the transformation of Ethereum from proof-of-work to proof-of-stake. At the time of writing, her target date has been pushed back a few days to September 15th.
- The existing mainstream network (PoW) merges with the Beacon Chain
- (PoS) into a new chain of Ethereum blocks (PoS ). It will have a consensus layer to synchronize the state of the chain across the network and an execution layer to handle smart contract interactions.
- Will not increase yield or reduce gas fees.
- Staken ETH can only be withdrawn 6-12 months after merger.
- Ethereum issuance rate will drop by 90%.
- ETH will become "greener" by phasing out the use of PoW. Some traders like Arthur Hayes see this as a factor that could tempt institutions to buy and stake ETH, which could likely push the price up.
There's more complexity to change, but this summary captures the gist of what you need to know. For more information, see our Ethereum 2.0 deep dive, noting that the Ethereum Foundation has removed the “Ethereum 2.0” terminology.
What happens after the merger for the ETH miners?
While there are few options on the table for today's ETH miners such as B. Transitioning to other GPU-mined proof-of-work coins like Ethereum Classic (which Vitalik described as “a perfectly fine chain”) and Ravencoin. Miners could also dedicate their hardware to other GPU-intensive activities like machine learning or rendering farms. However, one option has prevailed lately: the potential proof-of-work fork of Ethereum, which will allow miners to continue operations.
What Is ETH PoW?
So Ethereum is almost heading for PoS: why the sudden appearance and what exactly is ETH Pow? Well, think about who won't be happy about switching to a different consensus mechanism. You know, maybe someone who really likes Proof of Work and has invested quite a bit of money into it. Someone like... miners. According to Messari, the merger will render Ethereum's mining industry and estimated $19 billion mining assets obsolete.
Of course, Ethereum miners are interested in using their equipment elsewhere. Vitalik Buterin suggested that they could opt for Ethereum Classic, the “original” Ethereum from which the current chain was forked after the DAO hack. However, that is not the plan of the miners, for now. Instead, Ethereum PoW is intended to become a hard fork of the current chain, which becomes Proof of Stake: what would make Ethereum PoW a division of a fork?
The existence of three Ethereum chains is quite confusing. But Ethereum PoW also brings some real problems.
What Are the Potential Problems of an ETH PoW Fork?
A hard fork splits a blockchain into two separate chains. In this case ETH PoW and ETH (in Proof of Stake). The fork also duplicates all tokens, NFTs, and native coins on the chain. Even liquidity in DApps will double. Let's say you have 10 ETH, 10,000 USDC, and a position as a liquidity provider before the fork, you will have the same assets on both chains after the fork.
So, using ETH PoW, can we simply double our net worth? If it just could be that easy. Of course, you can double a network, but not its value. If you make a copy of Wikipedia, you have all the information, but not the contributors who add and edit it. Similarly, an Ethereum PoW fork will not have the developers, the community, and more importantly, no DApps or stablecoin issuers to honor their commitments.
In other words, your ETH PoW stablecoin will go to zero immediately. Your LP positions in the money markets will be drained instantly by ETH PoW (the coin).Oracles will support Ethereum DeFi rather than Ethereum PoW. DeFi on Ethereum PoW is doomed from the start. Also, there are two small issues with Ethereum PoW.
First and foremost, ETH PoW (the currency) will retain some value, at least at first. Think of the hard fork as an airdrop from ETH PoW to ETH holders. However, the bots could (and probably will) drain all liquidity pools for ETH PoW and extract all value from the ecosystem. already seen): Lo and behold, BitMEX will soon list the ETH PoW token for trading. Second, the entire scheme (once again) brings out the ugly face of cryptocurrencies.
Self-interest and using uninformed users to get outflow liquidity: No matter that Ethereum PoW would still have to go through the hardest part, which is forking the chain again to bypass the built-in difficulty bomb-making mining unfeasible over time .
Can You Profit From ETH PoW?
Yes. And no. Yes, as users with ETH will have the same amount of ETH PoW after the fork. ETH PoW is trading at around $69 on Poloniex (backed by Justin Sun), Gate.io, MEXC, DigiFinex, and CoinX at the time of writing.
This could be a good airdrop, although you should expect lots of downloads after the merge is complete. A new chapter has just been added in the endless saga of Ethereum to PoS transition. The merger is still a month away, so don't expect this to be the last.
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