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Ask CryptoVantage: Will Ethereum Fork at the Merge?
As the date for the Ethereum merge approaches, the question on everyone’s mind is – will there be a fork? Perhaps a more pertinent question to ask is whether or not a fork will matter if it does happen. There are a few high profile exchanges, industry titans, and influencers that are pushing for a proof of work (PoW) version of Ethereum to continue after the merge. These actors can push all they like, it will likely have very little impact on the dominance of the proof of stake (PoS) version.
This forking debacle is actually not a novel occurrence in the cryptocurrency industry. In 2017, there was a large debate over the future of Bitcoin. We can use this current public discourse along with the Bitcoin / BitcoinCash anecdote to come to some conclusions about how the Ethereum merge might transpire.
The Community Decides
Ethereum users by and large support the move to proof of stake. This means that the proof of stake version of Ethereum is highly poised to become the default and dominant version of Etherueum. During the Bitcoin blocksize wars, there was an open question as to which version of Bitcoin was going to be preferred. Granted, before the fork on August 1st 2017, there was a great deal of debate and fragmentation around the future of Bitcoin.
Furthermore, this was the first major community argument about new code being introduced into Bitcoin. Finally, it was not clear as to which entities would have the most influence on selecting the dominant version of Bitcoin. Do the miners have the most control? The developers? The large exchanges and companies? The builders of the wallets? The traders? Or the people holding and using Bitcoin?
It turns out that it was the users that ultimately decided that “BitcoinCore” was the true version of Bitcoin over “BitcoinCash”. In a way, the free market decided. Anyone holding Bitcoin at the time of the fork had an equivalent amount of Bitcoin Cash (BCH). Some people sold their BTC for BCH while others sold their BCH for BTC. Some kept both until a clear winner was decided. But it didn’t take long for BCH to settle at a price of roughly 10% of BTC.
Who wants Ethereum to Fork?
First, there are the exchanges that intend on providing the ability to trade the newly forked asset dubbed “ETHPOW” shortly after the merge. Poloniex was among the first exchanges to announce their support for ETHPOW. Followed by Gate.io, Phemex, and FTX.
These companies don’t necessarily want the fork to happen, but are more than happy to profit off of it if it does. The exchanges would simply set up markets to trade ETHPOW. Regardless of which direction the price of ETHPOW goes, the exchanges would make money. The more speculation, the more volume and volatility. These factors spell the makings of a highly profitable event for exchanges.
Next, let’s take a look at some people who are proponents of a PoW version of Ethereum.
Justin Sun
First, there is Justin Sun, the founder of Tron. Since Tron is a direct competitor of Ethereum, it makes sense that Justin would want to sew as much division and controversy into the Ethereum community. The best way to attack a competitor is to get them to attack themselves. Justin has pledged to donate 1 million ETH to see ETHPOW succeed after The Merge. He is quoted saying that proof of work is essential for Ethereum as a smart contract platform. The statement comes off as mildly contradictory considering that Tron is a delegated proof of stake (DPoS) blockchain. Overall, the intention of Justin’s involvement in the Ethereum PoW debate seems to be to cause confusion and disruption.
Chandler Guo
Then there is Chandler Guo, a prominent miner of Ethereum and Ethereum Classic based out of China. Chandler was in favor of Ethereum Classic over Ethereum when the DAO hack of 2016 occurred. Once again, he throws his hat in for the underdog, ETHPOW. The reason for this is pretty obvious, he runs many Ethereum miners.
A permanent move away from PoW threatens the profitability of his operations. Yes, he can simply point his army of GPU rigs at Ethereum Classic (ETC), but he is sure to make less money by not mining raw ETH. Chandler has also been outspoken about the philosophical implications of PoW mining vs. PoS mining, so there is good reason to believe that his interests are not purely motivated by profit.
A Fork that Doesn’t Matter
In conclusion, it does appear that we will see a fork of Ethereum take place during The Merge. But it is difficult to conceive of a scenario wherein this fork will actually matter or disrupt the fundamental operations or market value of PoS Ethereum (ETH). Still, for anyone holding ETH at the time of The Merge, there is a good opportunity to make a quick buck. You may opt to hold your ETH on an exchange that intends on providing a market to sell the ETHPOW for ETH, USDT, or BTC. If the Bitcoin / BitcoinCash outcome is any sort of proxy for this event, then there is the possibility to pick up a free ~10% trade by parting with your ETHPOW. Alternatively, you could hold onto your ETHPOW as a sort of novelty token.
The most interesting outcome is the one that no one has or could predict. In many ways this switch from PoS to PoW is a culmination of the debate between the two consensus mechanisms. A fascinating outcome would be if ETHPOW outperforms ETH and continues to be used by the community. My take is that ETHPOW will fail to amount to anything at all.
