Ethereum split: PoW Ethereum mainnet launches following The Merge
By Aaron Woolner and Peter Henn
Updated
The latest Ethereum hard fork, known as The Merge, may prove popular with European legislators, but many miners are less keen on the switch away from a proof-of-work (PoW) consensus mechanism.
ETH’s former PoW system meant that miners were rewarded for every valid block and all the subsequent transaction fees (gas fees) that are generated from it. As a result, a new PoW hard fork has been launched, known as ETHW.
On 12 September 2022, ETHW Core, the group behind the proposals, tweeted that its mainnet would go live within 24 hours of The Merge. Once the long-anticipated upgrade took place, ETHW Core was quick to confirm that, having already posted a list of mining pools. The mainnet came out as planned and by 16 September ETHW was worth around $13.40, according to data from CoinMarketCap.
The rewards for ETH mining were often significant. One anonymous Indonesian retail ETH miner told Capital.com that in 2021 he was earning $4,000 a month with just a five-computer mining operation.
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“Mining crypto is much better than investing in it,” he told Capital.com. “It doesn’t matter if the price goes up or down, miners still get paid.”
But not for much longer. The much-delayed Merge could put a dent in those earnings, as it saw the digital token move to a proof-of-stake (PoS) process, a transition which took place on 15 September 2022.
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ETH miners fight back
When The Merge and the transition to PoS was first announced, one Twitter user, going by the handle of ChandlerGuo, said the next step would be the creation of ETH POW.
Within hours, a group calling itself the Foundation for Useful Internet had set up a Twitter account and said that it was in fact working on such a project.
Guo went on to tell Bloomberg that “everyone will get free money” as a result of the proposed scheme, although that claim should be taken with a pinch of salt.
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Will exchanges support POW ETH?
Miners may be keen to continue digitally digging PoW ETH alternatives in search of gas fees, but this will be pointless if no exchange supports their trade.
The miners appear to have at least some of the digital exchange community on their side.
In comments to Capital.com, ByBit’s head of crypto insights, Charmyn Ho, said that the firm would closely examine PoW ETH tokens once the much-vaunted Merge goes ahead.
“In a situation where there are forked tokens, our risk management and security teams have a set of criteria in place to determine the viability of listing these tokens on our platform. Should such tokens meet these requirements, we will support their airdrop, deposit, and withdrawal,” Ho told Capital.com.
BitMEX will support PoW ETH
Ho’s comments followed those of another major exchange BitMEX, which also said that it would look to trade the energy-intensive PoW ETH alternatives. The likes of Coinbase have also suggested they could support the new crypto.
But the news is not all positive for the pro-PoW ETH mining lobby. Ethermine, the world’s biggest Ethereum mining pool, will not support a proof-of-work (PoW) fork following The Merge, it said in a recent announcement. Furthermore, a blog by BitMEX suggested that it was entirely possible that the PoW ETH could wilt away.
It is worth noting that a Twitter account for a PoW version of Ether, dubbed ETHW, had about 10,900 followers on 6 September 2022, which had risen to more than 50,000 by 16 September. How many of those followers turn out to be investors remains to be seen.
What is a hard fork?
In the crypto sector, a hard fork is a blockchain network upgrade. This involves all nodes or users to upgrade to the latest version of the protocol software.
There are a number of reasons to do this. Cardano’s Vasil hard fork, for example, was aimed at making the network perform faster, and enabled it to to scale up and ultimately increase ADA’s price.
Both Bitcoin and Ethereum have been through several major hard forks previously – resulting, for example, in the creation of Ethereum Classic.
What is The Merge?
The Ethereum blockchain has conducted The Merge, which saw the old Ethereum Mainnet integrate with the Beacon Chain proof-of-stake system. One major aim of The Merge is to reduce the energy consumption associated with mining the token.
Ethereum Classic will stay on the PoW system.
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How will the Merge change ETH?
A post-Merge ETH should consume significantly less energy, therefore resolving a major objection to the crypto sector. The switch to a proof-of-stake mechanism has been hotly debated, as have its potential impacts.
Recently, digital asset experts told Capital.com that a post-Merge ETH could have safe haven or fixed income characteristics.
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Some might see this as a far-fetched idea that reflects a perceived absence of financial knowledge endemic within the crypto sector. Fixed income assets are called this because the payments are fixed, whereas ETH price has fallen 70% since its all-time high in November 2022.
Other crypto users argue that The Merge will trigger something known as the ‘Flippening’. This refers to the suggestion from some crypto users that Ether will eventually overtake Bitcoin as the leading cryptocurrency by market capitalisation.
Ultimately, we have no idea what could happen as a result of The Merge. It is always possible that something could go wrong, or that the system’s validators could act maliciously. There is still the risk of scams and there is potential uncertainty with regard to non-fungible tokens (NFTs).
As always with crypto, it makes sense to be cautious.
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