Day one after the merger, the decentralized finance (DeFi) community is adjusting to the seemingly uneventful transition of the Ethereum network from Proof-of-Work (PoW) to Proof-of-Stake (PoS). However, it remains to be seen what benefits hard forks will bring to PoW adherents.
So far, the main competing networks in favor of the mining community, EthereumPoW and Ethereum Classic, have shown different results after the merger.
A bumpy start
The fledgling EthereumPoW made its debut among Twitter users reporting Problems accessing the network. The problems were Approved to be the result of a hack into the network but has reportedly been fixed.
Major cryptocurrency exchange OKX has already started providing on-chain data for the new network. Although the crypto asset’s current transaction activity appears to be stable, the PoW spin-off’s price value has steadily declined since its launch, from a price of $137 at its peak to $5.87 at the time of publication, according to CoinMarketCap.
There is no clear future infrastructure or roadmap plan for the ETHPoW network. The project’s “meme” whitepaper, displayed on its website, is 10 pages long, five of which are devoted solely to the project’s title and the remaining five are “intentionally left blank.” The Prank doc is also accompanied by a GitHub repository with only 16 posts since August this year and no further information is provided on EthereumPoW’s official docs section.
The revival of ETC
Ethereum Classic (ETC) cryptocurrency could see a turnaround in its battle to launch as the community could switch to the six-year-old project.
Originally founded in 2016, the existence of Ethereum Classic is the result of one of the biggest philosophical splits in the Ethereum community. The fork was created as a solution to hacking The DAO, a project running on the Ethereum network.
The DAO was an early iteration of a decentralized autonomous organization (DAO) on the Ethereum network. To address the hack and compensate investors, the community agreed to essentially hard fork the history of the network back to before the hack. While the new fork inherited the Ethereum name, 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 using its own cryptocurrency.
ETC’s preference over other fork options goes beyond the market’s already various ups and downs, and is more a matter of practicality. Sebastian Nill, ETC miner and chief operations officer at mining consultancy AETERNAM, told Cointelegraph that since it runs on a 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 being able to mine Ether over having to buy it.”
Since the network is a fork of Ethereum, meaning everything that the main network had can be replicated on its hard fork, that doesn’t mean that the ability to build products and services on top of the ETC chain is the primary interest for the community would be .
The cryptoasset could also absorb most of the energy consumption that Ethereum leaves for its own proof of work, allowing the network to confirm transactions and maintain its security with a significant amount of energy resources.
“Ethereum Classic will be just as effective for miners as Ethereum. In the end, the community will choose ETC, not for its profitability, but for its effectiveness in processing data,” says Nill.
The user perspective
The users who decide to hold Ethereum PoW or a subsequent post-merger token might find it difficult to trade their new assets. Support for operations with the fork result from major exchanges like Binance is a recent relief for holders who are still facing the asset’s decline in value.
Additionally, another issue that may be on the horizon is the one coming from the regulatory front. In a recent comment to Wall Street Journal reporters Thursday, United States Securities and Exchange Commission Chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that allow staking could be defined as collateral.
Regulatory attention to Ethereum resulting from a PoW to PoS transition could be a game changer, effectively matching US law. This is due to the possibility for staked assets to earn dividends and be considered 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 hasn’t cured the current headaches for 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) minted after the merger cost over $60,000 in gas fees.
Building strong fundamentals by delivering lower gas fees and high transaction speeds is a temporary tradeoff 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 is cheap, fast and reliable. With the merger and further scaling in future plans for the Ethereum Foundation, this could be a foreseeable opportunity. They worked from a very safe place and ensured security at all costs over other compromises.”
Ethereum’s decision 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 the merger 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 those user-focused benefits like transaction speed and lower gas fees. Other chains actually achieve lower gas fees and faster transaction speeds by making compromises: sacrificing decentralization for more scalability. They take shortcuts.”
Additionally, the use of rollups over Layer 2 networks will continue to allow mainstream users to access the benefits of Ethereum.
“Ethereum is scaling over L2s right now. Especially rollups. People today can use rollups to make transactions faster at a fraction of the cost of gas while still enjoying Ethereum’s security and decentralization benefits. This is how we scale without taking shortcuts,” said Weber.