Bankless: How to Become a Winner in the ETHPoW Fork?
What should be noted before and after the ETHPoW fork?*Written by: **William M. Peaster, *How to Win the Ethereum PoW Fork
Compiled by: Dong Xun, The Way of DeFi
When the merge countdown hits zero, most of the Ethereum ecosystem will transition to the new proof-of-stake chain, except for a few disgruntled Ethereum miners who will be sitting on millions of dollars worth of mining equipment.
These miners have not stopped their operations but have announced their plans for a merge fork and will maintain the proof-of-work version of Ethereum (ETHPOW).
If this happens, you may have copies of every existing digital token on the old Ethereum chain's ghost town version.
Some of these tokens may have value, but most will not. If you are considering selling them for a quick profit, proceed with extreme caution! You need to be aware of many technical challenges. This article provides a handy checklist of what to watch out for.
Here’s how to win the Ethereum PoW fork (if there is one).
How to Win the EthPoW Fork
Image source: Logan Craig
During the merge, while other members of the Ethereum community migrate to proof-of-stake (PoS), a group of miners plans to fork and maintain an alternative proof-of-work (PoW) version.
This fork, known as EthPoW, is not yet ready for a serious future, but it should grant new ETHPOW tokens to ETH holders at a 1:1 ratio.
Interacting with ETHPOW may carry significant risks, so this Bankless strategy will provide a checklist to help you navigate the fork safely.
Goal: Sell your EthPOW for ETH as much as possible
Skill Level: Intermediate
Effort: 1 hour
Return on Investment: Potentially increase your ETH holdings
Understanding the Basics of the Merge
PoolTogether co-founder Leighton Cusack states, "The merge refers to the Ethereum blockchain changing its consensus mechanism. It will no longer use 'proof of work' (PoW) but will use 'proof of stake' (PoS). What does this mean?"
The tl;dr (summary) of the merge is as follows:
Ethereum is migrating from PoW to PoS consensus.
PoW uses energy (in the form of computation) to ensure security. PoS uses capital (in the form of crypto tokens) to ensure security. The former is clearly very energy-intensive, while the latter is very energy-efficient.
As a result, Ethereum's energy usage will drop by about 99% after the transition to PoS.
This transition to PoS has overwhelming community support, meaning that almost all members and projects in the Ethereum community are migrating to the updated Ethereum chain and will not support any PoW forks.
Understanding the Basics of the EthPoW Fork
Ethereum Foundation community manager Hudson Jameson states, "I am very skeptical about how much hash power they will gain if they launch after the merge. By then, hash power will be on other chains, and the value support for ETHPoW is already very weak."
The summary of EthPoW is as follows:
- Since July 2022, miners like Chandler Guo have accelerated plans to fork a version of Ethereum PoW during or shortly after the merge.
Since virtually all Ethereum activity is shifting to the PoS chain, this EthPoW fork does not have a significant value proposition—it is a money grab disguised as a permissionless blockchain, allowing participating miners to maintain some form of dominance in the post-merge world.
When it launches, EthPoW will "airdrop" ETHPOW tokens to ETH holders at a 1:1 ratio. Attempting to sell these tokens may expose you to replay attacks, where an attacker "replays" your EthPoW transaction on the real Ethereum chain and steals your funds accordingly. For more information on this attack vector, see below.
Check the ChainID
Paradigm research assistant Frankie states that the ETHPoW team will soon run out of time to release client binaries before the merge, and the closest thing they have done to change the ChainID is to add comments in the codebase.
The summary of the EthPoW ChainID situation is as follows:
ChainID was originally introduced in EIP-155 to mitigate replay attacks between the Ethereum and Ethereum Classic chains; the former's ChainID remains at 1, while Ethereum Classic moved to 61.
At the time of writing, the developers of EthPoW have still not updated the fork's ChainID from 1 in their codebase—this means that EthPoW is about to launch with the same ChainID as Ethereum.
So, what is a replay attack? A replay attack is when a transaction from one network is used on another network. If you send someone 100 WETH on the post-merge Ethereum PoW fork, a replay attack could repeat this action on Ethereum PoS without your permission.
- If EthPoW continues to operate under this dangerous dynamic, it will create ideal conditions for hackers to perform replay attacks.
Note that if ETHPOW launches with a ChainID of 1, then never interact with the ETHPOW fork under any circumstances. You could lose all your ETH.
In other words, the first major item on this checklist is to check whether EthPoW's initial ChainID is 1 or the planned alternative of 10001. If the creators choose the former over the latter, do not attempt to interact with the fork at any time.
Additionally, some DeFi projects, such as Maker's Dai stablecoin, are hardcoded to use ChainID 1, which means that interacting with their EthPoW version will expose you to replay attacks. Check recent communications from some projects one by one to see their stance on this matter.
Some examples of interactions that may be replayed: Interacting directly with any Maker contract from the same address you used on Ethereum before the fork on the forked Ethereum PoW chain.
Determine Whether ETHPOW is Worth Your Effort
Assuming EthPoW launches with a ChainID of 10001, alleviating most replay attack issues—still, is the value of ETHPOW worth the time and effort to claim the tokens?
This is the biggest question right now! At the time of writing, the value of ETHPOW IOU is $29.30 per token.
Moreover, the current spot price of ETH ($1726) compared to the current price of ETH futures for September 30 ($1710) indicates that the implied price of ETHPOW is around $16 before its release.
For many ETH holders, claiming tokens valued between $16 and $30 may not be economically worthwhile, although there is potential for price discovery to push it above this range when ETHPOW reaches exchanges. On the other hand, as many people sell off their tokens, the price of ETHPOW may drop rapidly.
Prepare Your ETH Stack
CoinGecko co-founder and COO Bobby Ong states that the Ethereum merge is scheduled for September 13. The holiday season is upon us. ETH holders will soon receive airdropped ETH PoW tokens. What should you do to position yourself best?
Here are several steps you might consider to maximize the benefits of the merge:
If EthPoW actually starts with a ChainID of 10001 and the ETHPOW tokens exhibit some decent price behavior, it may be worthwhile to sell your ETHPOW for real ETH, USD, etc.
To prepare for selling ETHPOW, you can place your ETH in a non-custodial wallet that you fully control before the ETHPOW fork, ensuring the best guarantee. If your ETH is in an exchange wallet, that exchange may retain your ETH airdrop.
Make sure you hold your ETH on Ethereum before the fork, not on L2s like Arbitrum. Only ETH on Ethereum will qualify for ETHPOW tokens on EthPoW.
Unwrap your Wrapped ETH (WETH) into ETH before the fork, so you won't have to attempt to unwrap your WETH on the EthPoW side once/if it goes live.
Also, withdraw your ETH from DeFi liquidity pools, as any ETH you have in liquidity pools at the time of the fork will not be counted for ETHPOW.
Consider borrowing ETH using DeFi lending protocols to maximize your ETH holdings before the fork; however, be aware that lending protocols like Aave have already paused ETH lending due to a surge in borrowing activity.
Due to the pause in lending being voted through (to be executed later today), there are massive overnight rate changes in the Aave ETH market.
Choose Your Exchange
Some exchanges, like BitMEX, have already announced plans to support ETHPOW trading.
That said, some exchanges may take days, weeks, or months to support ETHPOW deposits and/or account credits—make sure the exchange you log into has clearly outlined its support plan so you know what you can do and when you can do it.
Worried? Do Nothing
Now, when considering whether to attempt to sell ETHPOW, there are many "ifs."
The key point to remember is that doing nothing is a viable strategy here.
If you cannot confidently complete the checklist listed above, "winning the EthPoW fork" may simply mean opting out and watching from the sidelines.
The biggest question is whether this unassuming fork will launch with a ChainID of 1 or 10001. If it is 1, then do not interact with the fork, as the risk of replay attacks on your real ETH far outweighs any gains you might get from selling.
What is the best-case scenario?
EthPoW starts with a ChainID of 10001, and you can deposit ETHPOW into a supported exchange, then cash out a significant amount of dollars, or buy more ETH, or anything that suits you. However, at this point, the launch of EthPoW seems unlikely to go smoothly.
