Miners bid farewell to Ethereum, is there feasibility in the Ethereum fork advocated by crypto "veterans"?

Author: Allen, PANews

As the Ethereum merger upgrade approaches, the topic of "where Ethereum miners will go after the upgrade" has been widely discussed in the crypto community. Recently, long-time crypto player Chandler Guo, based in the U.S., established a discussion group for Ethereum forks and promoted the ETH-PoW on Twitter Space, igniting interest in Ethereum forks.

From the current viewpoints being discussed, it is generally believed that Ethereum miners have two main options: one is to support other blockchain networks that use PoW or GPU mining after Ethereum transitions to PoS, such as Ethereum Classic (ETC), Kadena, Conflux, Monero, Ravencoin, etc.; the other is to hard fork Ethereum and continue using the PoW consensus mechanism after the fork. This article by PANews will analyze the feasibility of the above two options.

Miner Migration: Limited Capacity for Other PoW Networks

In the option of Ethereum miners migrating to other PoW networks, the Ethereum Classic network currently has the highest market interest. Under this favorable expectation, the ETC token has seen an increase of about 170% in the past month, while ETH's increase during the same period was about 52%. Additionally, as of July 28, according to data from 2Miners, the total network hash rate of Ethereum Classic has grown by about 19% in the past month, while Ethereum's total network hash rate has grown by about 9.3%.

From the perspective of token prices and total network hash rate growth, the market seems optimistic that Ethereum Classic will absorb the hash rate and ecosystem after the Ethereum merger. Moreover, Bitmain's Antpool has stated that it has invested $10 million to support the development of the ETC ecosystem and plans to invest more to strengthen ecosystem construction.

However, the total network hash rate of Ethereum Classic is currently about 25 TH/s, while Ethereum's total network hash rate is about 935 TH/s, a difference of nearly 37 times. When a large number of Ethereum miners migrate to Ethereum Classic, it will inevitably lead to a surge in total network hash rate and a significant increase in mining difficulty. Furthermore, the current price difference between ETH and ETC is about 42 times, which means that the mining revenue for miners migrating to Ethereum Classic will face a significant reduction.

At the same time, the ecological development of Ethereum Classic is limited. According to DefiLlama data, as of July 28, its ecosystem only has three DeFi projects: HebeSwap, ETCSwap, and Swap Cat. Even with multiple favorable stimuli, the current ecological scale is difficult to support the ETC token in maintaining a high market value over the long term. Under the influence of these multiple factors, mining costs may exceed revenues, leading some miners to choose to exit.

In addition to the cost-revenue imbalance, due to the relatively small total network hash rate of Ethereum Classic, there is a risk of a 51% attack from a single large miner or a few miners working together after Ethereum miners migrate. For instance, the top six mining pools on Ethereum have a minimum mining hash rate of about 49 TH/s, all of which are higher than the total network hash rate of Ethereum Classic. Compared to Ethereum Classic, other blockchain networks have even lower total network hash rates, such as Ravencoin with about 2.6 TH/s and Monero with about 2.8 GH/s, making it difficult to accommodate the current migration of Ethereum miners.

Forking: The Challenge of Building an Ecosystem

Since other PoW networks are unlikely to accommodate all the hash power of Ethereum miners, migration may lead to cost-revenue imbalances. Next, let's take a look at the widely discussed Ethereum fork option. In the long history of the crypto industry, we are no strangers to forking blockchain networks. The reasons for forks are varied, including technical reasons and differences in values, such as the famous forks of BTC and BCH, and Ethereum and Ethereum Classic.

Compared to the aforementioned forks, the challenges faced by a fork after the Ethereum merger upgrade are greater. For example, BTC is primarily used for transfer and payment, meaning its fork only needs to gain miner support, the so-called "hash power competition." As the king of smart contract public chains, Ethereum's ecosystem has already formed a certain scale, and its fork will involve thousands of Dapps and protocols, as well as hundreds of billions of dollars in on-chain assets. Therefore, this fork will be a choice for the entire ecosystem, and its complexity far exceeds any previous fork.

In simple terms, if a PoW mechanism blockchain ETH-PoW is forked from Ethereum after the upgrade, then Dapps and protocols in the Ethereum ecosystem will need to make choices. Different Dapps and protocols are interrelated and nested; for example, NFT projects like Bored Apes require NFT trading platforms, and DeFi protocols need oracles, so the alignment of the former will inevitably follow the latter. At the same time, DeFi has become the infrastructure of the entire Web3 world, occupying a significant portion of the ecosystem, and most on-chain activities will ultimately rely on trading, lending, and other DeFi protocols. Therefore, the choice of DeFi protocols will have a significant impact on applications in other areas.

It is well known that DeFi applications have strong composability and interdependence, making it difficult to separate them. For example, users often collateralize assets like BTC and ETH on lending protocols like Aave to borrow stablecoins like USDC and USDT, and then stake the borrowed stablecoins on Curve to provide liquidity, or purchase other token assets through Uniswap. This close interconnection between applications will lead to a tendency for convergence in choices. If Aave and Uniswap choose the PoS chain after the Ethereum upgrade, based on considerations of protocol security, user stickiness, and asset scale, Curve will likely make the same choice. The choices of leading DeFi protocols are likely to become a barometer for other protocols.

For DeFi protocols, the most important assets are foundational ones like USDC and USDT, so the choice of protocols will depend on which side the asset holders choose. We know that these assets are backed by actual collateral, and their intrinsic value will not fundamentally change with the issuance of a forked token on the fork chain. Taking USDC, which currently has a market value of nearly $54 billion, as an example, its issuance will not double due to the emergence of the ETH-PoW chain, as the underlying dollar reserves remain unchanged, and its total value is still $54 billion. Therefore, if the issuer Circle still chooses the upgraded Ethereum chain, then the "USDC fork token" on the ETH-PoW chain, lacking reserve support, will not gain recognition.

If Circle decides to allocate USDC to both chains, the question of how to allocate it is also worth considering, as is the "pricing" after allocation. For example, should USDC on each chain correspond to $1, or should the total value of USDC on both chains equal $1? Furthermore, if Ethereum miners fork, how to coordinate the large group of miners to choose the same fork chain raises concerns about whether miners will go their separate ways, leading to a "warlord" situation with multiple fork chains, making Circle's choice even more difficult.

In addition to USDC, there is also USDT on Ethereum. If both choose the same chain, the choice of DeFi protocols will be relatively simple. However, if USDC and USDT choose differently, for instance, if USDC opts for the PoS chain and USDT for the PoW chain, the choice for protocol parties will become more complex.

From a business perspective, the choices of asset holders like USDC and USDT are undoubtedly for their own development, which is beneficial for expanding asset issuance. A significant factor influencing issuance volume is "user demand." If user demand increases and more users are willing to exchange their dollars for these assets, their issuance volume will also rise. Thanks to the development of DeFi, GameFi, NFT, and other fields, USDC's market value has grown about 45 times in the past two years. Therefore, ecological prosperity can drive growth; only with an increasingly large ecosystem and growing demand can Circle issue more USDC and earn more revenue. Thus, whether it is USDC or USDT, their choices are based on whether the future blockchain network ecosystem can continue to develop to expand their own scale.

From the development history of Ethereum Classic, after losing its spiritual leader Vitalik Buterin and the support of the Ethereum core developer community, its ecosystem has stagnated. If miners fork out the ETH-PoW chain after the Ethereum upgrade, the question of how far the ETH-PoW chain can go without the support of Vitalik and other Ethereum core developers remains uncertain. In light of the lessons from Ethereum Classic, how many of the rich ecosystems and assets on Ethereum are willing to "take a gamble"?

Conclusion

Whether migrating to other PoW networks or forking Ethereum, there will be numerous challenges. Migrating to other PoW networks will lead to a surge in hash power and a cost-revenue imbalance, while forking Ethereum, without the support of Vitalik and other Ethereum core developers, raises concerns about its prospects and its ability to attract asset holders, protocols, applications, and users. The existing Ethereum mining has formed a vast industrial chain, and whether new solutions will emerge after Ethereum upgrades to PoS consensus is also worth looking forward to.