The first day after the merger decentralized finance (DeFi) community is settling into the Ethereum network’s seemingly seamless transition from proof-of-work (PoW) to proof-of-stake (PoS). However, the benefits that hard forks will bring to PoW supporters remains to be seen.
Until now, the most important rival networks in favor of the mining community, EthereumPoW and Ethereum Classic, showed different results after the merger.
A head-scratching start
The major cryptocurrency exchange OKX already does began providing on-chain data for the new network. While the cryptoasset’s current transaction activity appears stable, the PoW spin-off’s price has been steadily falling since its launch, according to CoinMarketCap, going from a price of $137 at its peak to $5.87 at the time of publication.
There is no clear infrastructure or roadmap for the ETHPoW network going forward. The project’s “meme” white paper, displayed on its website, has 10 pages, five of which are devoted solely to the project’s name and the remaining five “intentionally left blank”. There is also a GitHub repository attached to the mock document with only 16 posts since this August, and no further information is listed in the EthereumPoW official documents section.
Ethereum Classic Cryptocurrency (ETC) could see a turnaround in its startup efforts as the community was able to switch to a six-year-old project.
Originally created in 2016, Ethereum Classic is the result of one of the biggest philosophical divisions in the Ethereum community. The fork was created as a solution to the hack of The DAO, a project running on the Ethereum network.
The DAO was an early iteration of the Decentralized Autonomous Organization (DAO) on the Ethereum network. To resolve the hack and compensate investors, the community agreed to essentially roll back the history of the network to the time before the hack occurred with a hard fork. While the new fork inherited the name “Ethereum”, those who disagreed with the move continued to support the old fork, which became known as Ethereum Classic.
Today, Ethereum Classic operates as an open-source blockchain that runs smart contracts with its own cryptocurrency.
ETC’s preference over other fork options goes beyond its market price, already subject to various ups and downs, but rather a matter of practicality. Sebastian Nill, an ETC miner and COO of mining consultancy AETERNAM, told Cointelegraph that because it runs on the PoW consensus protocol, it is more attractive to the mining community, adding:
“The possibility of a hard fork has always been there. People will always prefer to be able to mine Ether rather than having to buy it.”
Since the network is a fork of Ethereum, meaning that anything the mainnet had could be replicated to its hardfork, it doesn’t mean that the ability to build products and services on top of the ETC chain is a major concern of the community. .
The crypto-asset could also absorb most of the energy consumption that Ethereum leaves behind and use it for its own proof of work, allowing the network to confirm transactions and maintain its security with an important amount of energy resources.
“Ethereum Classic will be as efficient as Ethereum for miners. In the end, the community will choose ETC, not because of its profitability, but because of the efficiency of data processing,” says Nill.
Users who choose to hold Ethereum PoW or any successor token after the merger may find it difficult to trade their new assets. Support from major exchanges such as Binance for operations on the asset resulting from the fork is a current relief for holders who still face a decline in the value of the asset.
Additionally, another concern that could be out of sight is one that comes from the realm of regulation. In recent comments provided to Wall Street Journal reporters on Thursday, United States Securities and Exchange Commission Chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that enable betting can be defined as a security.
The regulatory attention to Ethereum resulting from the PoW to PoS transition could be a game changer that effectively complies with US law. This is due to the ability of the pledged assets to generate dividends and be perceived as securities according to the Howey test.
On the other hand, while Ethereum’s upcoming PoS model is more energy efficient and environmentally friendly, the upgrade has not cured the current headaches of DeFi protocols and their users, such as network congestion and high transaction fees, known as gas fees. For example, the first non-fungible token (NFT) to be minted after the merger costs over $60,000 in gas bills.
Building a solid foundation to provide lower gas fees and high transaction speeds is a temporary compromise that won’t affect the market, as Matt Weller, global head of research at City Index, told Cointelegraph:
“From a user perspective, you want something that’s cheap, fast and reliable. Through merging and expanding more, future plans for the Ethereum Foundation could be a foreseeable opportunity. They worked from a very secure location and ensured security at any cost versus other compromises.”
Ethereum’s choice to bet on changing its consensus protocol has been defended as a necessary, non-negotiable move.
Skylar Weaver, head of devcon and devconnect at the Ethereum Foundation, told Cointelegraph that Merge is a testament to the network’s “no shortcuts” approach to its development:
“No, I don’t think it’s a compromise. I see PoS as a necessary step to achieve user-centric benefits such as transaction speed and lower gas fees. Other chains achieve lower gas fees and faster transaction speeds through trade-offs: They sacrifice decentralization for greater scalability. They use shortcuts.”
In addition, the use of rollups through layer 2 networks will still allow access to the benefits of Ethereum for ordinary users.
“Ethereum is expanding through L2 right now. Specifically, rollups. Today, people can use Rollups to transact at a fraction of the cost of gas, faster, while still inheriting the security and decentralization benefits of Ethereum. That’s how we scale without taking shortcuts.” Weaver said.