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An optimistic narrative for Ethereum’s smart-contract platform awaits the long-awaited switch from a proof-of-work to a stake-sharing mechanism. For one very important group, that’s bittersweet: after the merger, Ethereum miners will have a massive amount of computer hardware that will be dramatically cheaper.
However, not all miners are ready to leave so peacefully. Longtime Ethereum miner and investor Chandler Guo tweeted:ETH PoW is coming soon“On July 27. This was Guo’s promise, that he would allow other miners to continue the current proof-of-work Ethereum chain following a system change known as the merger.
A continuous ETH PoW chain has several valid proofs, and if this happens, it will undoubtedly be an interesting experiment. But there are many more reasons to believe that the chain will not last long, as well as other dishonest methods of bad actors can use the continuity of ETH PoW.
Spend twice in the entire blockchain
To understand the promise and risk of the post-merger “ETH PoW” chain, let’s consider how the upcoming merger will work and what will be left behind. In general, at the time of integration, the most important address balances from the historical state of the Ethereum chain will be moved to the new verification agreement area.
However, proof miners continue to produce state histories up to one nanosecond before the merge. Using Proof of Work, those miners can easily continue to accept transactions and grow their own Ethereum chain. It also means that users will continue to receive tokens that closely resemble ETH, but only on a compromised proof-of-concept chain that will receive rewards from the pre-merger PoW algorithm.
Similarly, shortly before the merger, all ETH holders will be able to access tokens on both chains. Although using them requires some technical knowledge or special tools, many default programs like MetaMask will probably delete links to the previous chain to avoid user confusion. Importantly, only self-governing owners who own their ETH PoW tokens are protected. Many security exchanges do not allow users to access their tokens on the next proof-of-work chain.
However, one important (though not often stated) goal of Chandler Guo and his ETH PoW initiative is to raise awareness of ETH PoW and its detailed exchange and branding separate from ETH itself. While decentralized exchanges may be able to offer ETH PoW transactions sooner, sustaining broad market demand requires major centralized exchange listings.
For ETH PoW supporters, this is where the money is at its most basic level. It effectively ensures that there is at least some market value for both the tokens they currently hold and, perhaps more importantly, the fresh ETH PoW tokens they will issue post-merger if enough exchanges receive listings.
If something goes horribly wrong
Is there any purpose for the proof-of-work version of Ethereum to continue to exist other than to recover the value that has lost most of its value overnight? Of course, it has nothing to do with the real value of ETH PoW. What are the chances that ETH PoW will see customer demand, resulting in long-term stable value or growth?
There are several non-financial arguments for continuing the proof chain as “ETH PoW” (or whatever you decide to call it in the end, because “ETH PoW” is a really terrible name). After the merger, there will be some uncertainty, both confirmed and unconfirmed, regarding the stability of the new Ethereum chain. There is a risk of users, applications and assets (see below) being returned to the PoW chain if the integration gets it wrong. Places on the “old” chain can serve the same function as insurance in this situation.
There is very little chance of being too obvious. During this time, there have been several successful Ethereum test mergers. But the chances are not small.
In the long term, there are still some questions about the viability of proof-of-stake as an Ethereum security scheme. In particular, there are persistent concerns that shareholding encourages centralization over time by rewarding already large owners. Another perceived shareholding agreement technique is management fraud. If these or other losses occur over time, participants may decide to return to Ethereum’s proof-of-concept model, which will increase the value of the positions.
Cut out the straps and empty circles
The ETH PoW chain, however, will not have much real value for several and obvious reasons. In fact, this area is so fragmented and fragmented that it is almost worthless.
After all, most of the systems and assets that Ethereum users actually use will essentially cease to exist on the branch’s proof chain. For example, entities such as Circle will not respect stablecoins marked on a corrupted chain. That’s enough to make DFI systems ineffective on ETH PoW. (DeFi, short for decentralized finance, refers to a collection of applications that provide financial services directly to consumers.)
Decentralized pricing terms that make DeFi platforms effective will be broken, which is a huge deal, especially in the post-merger era.
The ETH PoW concept also faces a second set of problems. Ethereum’s designers included a ticking time bomb to encourage conversion to proof-of-stake. After the merger, this ‘hard bomb’ will make the chain almost impossible to mine, slowing down all transactions.
The ETH PoW camp must unite behind another fork to avoid the difficult bomb to execute the plan. This can be very difficult without the Ethereum Foundation and other leaders providing frequent direction on significant Ethereum improvements.
In theory, the ETH PoW team could collaborate with Statcoin creators and custodians to bring working versions of those products to the ETH PoW chain. However, doing all this requires a lot of money and coding. ETH PoW supporters may have a lot of money to spend, but finding engineers to work on lost balances can be difficult given the dearth of highly qualified Ethereum developers.
Another factor that casts doubt on ETH PoW is the existence of an alternative Ethereum based on Proof of Work. Its name is Ethereum Classic (ETC), and it was created in 2016 following the well-known DAO Attack, which caused the Ethereum chain to go backwards.
In fact, ETC has seen a significant rally and the discovery of rallies prior to previous Ethereum upgrades supports the assumption that there is some value in the “backup” version of Ethereum.
However, since the definition of Ethereum, Ethereum Classic has slightly increased its popularity among users. Even after the recent surge, ETC still only fluctuates around 10% of the ETH price. Given that, it’s not clear why two versions of Ethereum authentication are needed.
Interestingly enough, Kevin Guo, who currently heads ETH’s PoW strategy, was a vocal supporter of ETH Classic, at least rhetorically. At the time, he optimistically predicted that “Ethereum Classic will replace Ethereum Core.”
Maybe the second attempt will be lucky.
The worst business in the world
Considering all the hurdles, I don’t think the ETH PoW fork can grow into a thriving or fully sustainable ecosystem. However, if it continues even in the most restricted form, it will trigger a very irrational wave of speculative trading as people try to take advantage of the “free” tokens that the fork leaves behind.
The issue of value sharing between the two chains is a straightforward and practical framework for traders to think through. Kevin Zhou said For example, with Galois Capital, 4% of the Ethereum value can go to the new ETH PoS chain, while 96% of the Ethereum value stays with the new PoS chain.
Beyond that, profiting from speculative ETH PoW trading will be a game only for the highly technical. The change will probably destroy the entire trading infrastructure that regular traders are used to.
BitMEX says that serious efforts are needed to make an ETH PoW game, like running your own full Ethereum node. BitMEX offers some amazing tactical options for those who aren’t immediately alarmed by that thought.
As a non-specialist trader, I have a very straightforward and gloriously lazy idea for a hypothetical ETH PoW fork. To make sure I have the keys to both chains, I start by transferring all Ether from exchanges and into a private wallet. When a centralized exchange lists it, I hold my ETH proof.
Then most of it gets thrown away, and I either buy myself a sandwich or a gold watch, and I’m satisfied with either.
Greetings from ETPVP
As usual, a big event gives cheaters a good chance, and beginners face an equally big risk on this front. Please note that for any ETH PoW enthusiast or organization to request funding for anything, there must be very little proof. If a PoW branch is a smart idea, it should have a thriving community and natural interest to support its development.
The BitMEX report also includes what I believe is the most accurate review of ETH PoW trading you will find anywhere:
“Ethereum maxis should want the ETH PoW chain to survive (somewhat twisted) at least for a while so that they can throw ETH PoW coins into the market and get more ETH (or US$). That way, in the next few years, before ETH PoW dies a slow death from those who think ‘stupid’ ETH PoW supporters can make money. Therefore, many people try to sell ETH PoW as fast as they can and the price can be weak.
We are not sure if this is the true motivation of ETH PoW supporters. But there is no doubt that the thinking of many traders involved will be important.
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