As Ethereum Merge nears, the hype around the potential hard fork is growing bigger, and an excess of information regarding this particularly hot topic may be confusing. But don’t worry, we got your back covered! Below is everything you’d like to know about whether Ethereum hard fork has a chance to succeed and what it would mean for the crypto industry.
In blockchain technology, a hard fork is a radical change to the protocol that splits the network into two separate chains. It often occurs when some devs and/or community members disagree over the protocol’s function and organize to start their own blockchain. Hard forks so far have created numerous alternative blockchains, but only a handful can boast of being relatively successful. Ethereum Classic, the most known Ethereum fork that originated as a result of the 2016 DAO hack, is currently trading around $39, a mere fraction of Ether’s $1,800. The same is true for Bitcoin’s most notable forks, Bitcoin Cash (BCH) and Bitcoin Gold (BTG).
Although it may seem that forking Ethereum to preserve a proof-of-work model is a novel idea, it didn’t come as a surprise to the Ethereum community, as many expected that miners won’t support the Merge. Which is quite understandable, since most of them had invested large sums of money into specialized hardware and supporting infrastructure, even if it meant going into heavy debt. Now, when their investments are about to turn into permanent losses, they are determined to squeeze the last value out of the network.
Chandler Guo, a prominent Chinese miner and angel investor, has been pushing for the ETHPoW fork since July, and so far managed to attract around 60 developers willing to support the new chain. Known for his involvement in 2016 Ethereum Classic fork, he recognized that this time, chances for success are slim. But for most miners, it’s a zero-sum game.
“If the value of ETHW increases, then miners will at least cover their initial costs,” Chandler Guo told Blockworks. “Of course, if the value doesn’t increase, then they will lose money — but, if they don’t even try to fork Ethereum, then they will definitely go bankrupt.”
“There is still a 90% chance this will not succeed. Forking ETHW will not be as easy as forking ETHC,” he said.
The future of ETHPoW fork
Miners’ desperate push for the fork becomes more graspable once get a full picture of what happens when one chain splits into two.
Forking the network basically means that someone takes a chain and makes a copy of it at a specific block height or time. As a result, everything from the original chain gets duplicated – all past transactions, assets, DeFi positions, and smart contracts. In other words, if you had 50 ETH on Ethereum, after the fork you’d have 100 ETH, 50 on each chain. But don’t get too excited: you’re unlikely to become twice as rich.
The thing is, basically anyone can fork any blockchain. To do so, you just have to download the snapshot of the network and establish several independent nodes. Congrats, you just made your own fork. However, the value of all assets on your blockchain is essentially zero. And here we come to the main point: it’s not a hashpower that gives a chain its value, it’s the community of developers who are willing to build its ecosystem and recognition from big crypto players. And ETHPoW has neither.
Bitcoin Cash, Bitcoin Gold, and Ethereum Classic still exist because they had actually divided their respective communities, having on their side a loyal user base and strong devs from the original project. This isn’t the case for ETHPoW – the developer team assembled by Chandler Guo has nothing to do with Ethereum and is composed of volunteers from AWSB DAO, an influential Chinese web3 community with over 50,000 people. Not a single Ethereum developer has joined the initiative so far.
When the fork occurs, all assets get duplicated, including stablecoins. But there is no chance that there would be two USDT/USDC for one dollar. The stablecoin issuers, Tether and Circle, would have to choose which chain stores the true value. In some sense, they got to decide which network is a “true” Ethereum. And their sympathies are clearly not on the side of the miner-led fork.
“Tether will closely follow the progress and preparations for this event and will support POS Ethereum in line with the official schedule. We believe that a smooth transition is essential for the long term health of the DeFi ecosystem and its platforms, including those using our tokens,” Tether officially announced after its CTO Paolo Ardoino tweeted support for the Merge.
“While we don’t speculate on the possibility of forks post Ethereum Mainnet merge, USDC as an Ethereum asset can only exist as a single valid ‘version,’ and as stated previously, our sole plan is to fully support the upgraded Ethereum PoS chain,” Circle affirmed.
Without stablecoins, ETHPoW DeFi would collapse too. DeFi protocols heavily rely on stablecoin assets as a collateral for lending and borrowing. Not following the decision of stablecoin issuers would have disastrous consequences for them, since all the collateral on their chain of choice would become worthless. For this reason, the ETHPoW coin is likely to be the chain’s only asset with real value.
But will it ever moon? So far the answer is an emphatic no. Since ETHPoW is doomed from the start, miners and other whales would rush to extract the value from the chain as quickly as possible, setting up bots and playing the gas wars to dump their stash in a matter of seconds. In this race, retail investors have virtually no chances to profit from the opportunity.
However, that doesn’t mean you can’t try. To maximize your exposure to ETHPOW, you can borrow ETH from DeFi lenders. However, this strategy can be profitable only if the value of your airdrop is greater than the borrowing rate. And keep in mind that interacting with the PoW chain also carries the risk of falling victim to replay attacks.
How to prevent replay attacks?
What is a replay attack? Basically, a malicious actor can take a transaction from one chain and broadcast it to the other, which happens quite frequently during hard forks before miners coordinate and set up a new fork chainID. As you remember, after the fork, each chain would have identical assets. Now imagine you want to dump your PoW NFT worth 20 ETH on PoS for a much lesser price of 2 ETHPOW in hopes to cash out quickly and still have the original artwork. However, the buyer can “replay” the transaction on Ethereum 2.0, getting your 20 ETH-worth NFT just for 2 ETH.
However, replay attacks can be avoided by breaking the connection between your PoS and PoW assets. To do so, you should send them to separate wallets, and each should interact only with its respectable chain. So, the wallet for PoS assets is used exclusively on the PoS network, and PoW wallet is for the PoW chain only. After you’re done, you can safely sell your ETH PoW crypto and NFTs.
As the Ethereum Merge date nears, the psy-op surrounding the future of ETHPoW would only intensify. Don’t fall for it, always do your own research beforehand. Thank you for your time!