Ethereum Proof of Work Hard Fork: What to Expect From EthereumPoW (ETHW) and More
Economics has a lot to do with the current merge and transition of the Ethereum mainnet from a Proof-of-Work consensus to a Proof-of-Stake consensus mechanism. Bitcoin, the largest and most popular cryptocurrency network, runs on a Proof-of-Work consensus mechanism, which requires high computing power and consumes enormous electrical energy that leads to carbon emissions — which is not entirely eco-friendly.
These concerns about environmental pollution have led many governments to ban the mining of Bitcoin within their walls, kick-starting and spreading a global clamp-down and campaign against the Proof-of-Work consensus mechanism (mining). The Ethereum Foundation picked up on this early and decided that moving to a more energy-efficient and eco-friendly Proof-of-Stake consensus mechanism would be best for the future of the world's second-largest cryptocurrency and largest decentralized ecosystem.
Welcome to our brand-new educational series on Ethereum, a consumer awareness initiative to help understand everything about the inner workings of the Ethereum blockchain, Ether token, and much more.
Why Proof-of-Stake (PoS)?
It's debatable whether PoS is preferable to Ethereum's former PoW consensus system. We won't delve into the specifics of that argument here. Still, it's essential to know that a consensus mechanism is a set of guidelines that the nodes or computers that run Ethereum's blockchain must follow to execute transactions.
Computers can compete to publish blocks of transactions on the Ethereum blockchain as long as they comply with specific rules. They are paid as compensation for doing this, which often consists of transaction fees and distribution of newly released cryptocurrency.
PoW And PoS: Methodologies
The method by which PoW and PoS choose who can issue blocks is different. To earn the right to add the next block to the chain, miners compete to solve a kind of cryptographic puzzle — a race to find some random number. PoW tokens pioneered by Bitcoin and currently used by Ethereum carry out this task using "miners."
Block issuance is delegated to so-called validators through PoS rather than mining. One can join the validators group when 32 Ether is "staked" on the Ethereum blockchain. One's chance of being randomly chosen to create the next block increases with the amount of ether staked.
PoS proponents claim that the PoW network wastes energy and gives the advantage of network control to businesses that can afford to run pricey, mining-optimized computers known as ASICs. PoW supporters assert that PoS has less proof than PoW and poses unique centralization and security problems.
Regardless of each system's inherent benefits and drawbacks, Ethereum will, if all goes according to plan, migrate to PoS this month. What will happen to all PoW miners that invested in that expensive mining equipment, though? What about those who believe PoW, despite its shortcomings, is more secure than PoS?
Not everyone with a stake in the PoW Ethereum system plans to abandon the current process. Moreover, why should they? It's cryptocurrency; where some see a hard fork, others see money moves.
Ethereum PoS Transition: A Camp Dispute?
As expected, not everyone on the Ethereum network bought into this decision to switch. The reality of the Ethereum Merge happening intensified the opposition. This disagreement and threat to the hard fork bring back the memory of the initial hard fork that occurred in 2016 that brought about Ethereum and Ethereum Classic.
The Original Ethereum Hard Fork: Ethereum Classic
2016 was challenging for Ethereum as a malicious actor carted away 5% of the total Ether in circulation. This prompted the majority of Ethereum proponents to migrate to a new blockchain, leaving the compromised chain. Some remained on the forked chain, operating under Ethereum Classic (ETC) blanket. ETC - ETH proof of work fork - appeared to compete with ETH initially, threatening to take over as the Ethereum heir, but failed due to a hollow community.
Another Ethereum hard fork is expected to happen with Ethereum's migration from Proof-of-Work to Proof-of-Stake. Several Ethereum miners that have invested in considerable computational resources plan to keep the Ethereum network on Proof-of-Work running despite the move.
This ETH PoW fork will look and feel like Ethereum, but it will merely be a skeleton of the real thing, with apps and tokens floating around without usage or value. Without Ethereum's users and core developers, this forked network will be a crypto "dry land."
Ethereum PoW Fork After The Merge
Justin Sun and Chandler Guo, well-known figures in the crypto industry, have declared their support for Ethereum PoW forks.
Ethereum, a network of computers, is better conceived of as a nation-state with a set of rules defining how it functions rather than as a single piece of software. The network doesn't just "update" if several people agree to change the rules; they'll need to persuade more people to join them.
These rule modifications can occasionally result in a fork, where two (or more) brand-new networks emerge with minor operational distinctions and are each backed by a portion of the community.
On a broad scale, the PoW fork that Sun and Guo describe will be identical replicas of the primary Ethereum chain, where the "state" of the original chain, or the transaction history and token balances, are preserved.
Users will unexpectedly have access to two (or more) distinct blockchains at the time of the Merge to PoS, each with identical token balances and smart contracts. But would your money suddenly double on an Ethereum hard fork (you may ask)? Actually, no.
Only the market can determine how much tokens are worth. On the PoW version, some tokens, mainly the Ether used to cover transaction fees, could gain value. Additionally, unfounded speculation is nothing new in the meme-driven markets for cryptocurrencies.
However, not all the applications and services created on top of Ethereum's PoS chain will support a PoW fork. In most situations, the lack of active community participation will disrupt the mechanism by which tokens derive their apparent value.
Consider stablecoins like USDT and USDC, neither of which seems to have a chance of being supported on PoW Ethereum forks. Because, in contrast to the volatile Ethers and Bitcoins of the globe, these tokens are "pegged" to the price of $1, they are essential to Ethereum's decentralized financial ecosystem. They trade at this price because the authorities responsible for issuing them assert that they have $1 in the bank for every digital dollar they circulate.
You cannot easily copy your USDC and USDT balance on a new blockchain. Only the canonical, soon-to-be-PoS blockchain-based instance of a digital dollar will have 1:1 backing, which will be the only instance of a digital dollar acknowledged by the government. In light of this, possessing USDC or USDT on an Ethereum PoW fork will be equivalent to possessing counterfeit money.
The capacity of other forked Ethereum coins to maintain value will be significantly impacted by the lack of stablecoin support for the Ethereum hard fork. Throughout DeFi, collateral is in USDC and USDT. When these tokens on the PoW chain stop trading at $1, a devastating effect will be triggered, which, combined with other circumstances, will make the majority of other forked tokens worthless.
The roots of ETH PoW forks will be present, but there won't be any life at first, much like China's enormous ghost towns.
EthereumPoW (ETHW): Ethereum’s Proof of Work Hard Fork
EthereumPoW or ETHPoW is a proof of work blockchain backed by Justin Sun, Chandler Guo, and other prominent miners. The blockchain’s mainnet originated from a hard fork from the Ethereum network and went live a day after the Ethereum Merge on 16 September 2022.
ETHW is the native cryptocurrency of the chain and can be mined using the same equipment formerly used for Ethereum mining. The intent behind the project was to give ETH miners another potential revenue stream instead of having their expensive GPU mining rigs go to waste following Ethereum’s PoS transition.
Several exchanges, including Justin Sun’s Poloniex DEX, have already expressed support for the EthereumPoW (ETHW) crypto and have started listing this coin on their platforms. However, for the ETHW price to pick up, we will have to see if Ethereum dApp developers also support the ETHPoW ecosystem along with Ethereum miners.
Forked PoW: Will It Amount To Anything?
If forking Ethereum is less likely to amount to anything, why would people invest time and resources in a replica blockchain?
Some famous voices like Kevin Zhou believe that "someone might construct a fork, even though they know it is unlikely to function and are not planning to support it. They'll receive some free coins and discard them."
Over $600 million in rewards and transaction fees were collected by Ethereum miners in the previous month. An Ethereum PoW fork, in Zhou's opinion, would be the best option for miners looking to put their expensive machinery to use on a new chain.
The on-chain activity would determine the value of the chains that emerge from Ethereum’s hard forks in their ecosystems and their levels of adoption among dApps, developers, crypto exchanges, and consumers. Higher adoption and on-chain activity could increase the value of ETHW and other similar crypto assets, making Ethereum hard forks lucrative for the mining community to support.
Vitalik Buterin, the co-founder of Ethereum, dismissed worries that PoW Ethereum forks, whether fraudulent or genuine, may reduce activity on Ethereum's PoS mainnet when he spoke at the ETH Seoul conference earlier this month. Buterin had suggested that miners could shift their focus to Ethereum Classic (ETC) instead. Still, EthereumPoW is one of many potential forks that could continue with Ethereum’s proof of work model.
In contrast to Ethereum Classic, which will retain PoW, Buterin, co-founder of Ethereum, referred to "very much everyone" in the Ethereum community as "united" in favor of the move to PoS. He called Ethereum Classic "the superior product for those with those Pro Proof-of-Work principles and preferences."
Over the years, Vitalik Buterin has, through his actions, shown little to no worry about the initial Ethereum fork that created Ethereum Classic.
Miners have recently invested in Ethereum Classic in the hopes that it will draw supporters of PoW if Ethereum abandons PoS. Still, activity on the troublesome chain is minimal compared to the rest of Ethereum.
Whatever your opinion of PoW, what occurs next will be puzzling, maybe even entertaining. Still, if Ethereum Classic is any indication, it is unlikely to have much of an impact on Ethereum.
Read our previous articles to learn more about the Ethereum Merge and all the important things you need to know about the blockchain: