The Ethereum ecosystem has been buzzing with activity as it nears another significant event in its roadmap. The network officially turned seven years old at the end of last month, but the excitement around it has been fueled by more than that. Towards the end of last week, a group of Ethereum backers set forth a proposal seeking to shed light on the state of affairs after the mainnet integration to Beacon Chain. Talk around this proposal, which pushes for Ethereum hard forks that will be proof of work-based post-merge, intensified over the weekend with influential crypto figures getting involved.
Here’s a fly-on-the-wall look at the mixed opinions held by different groups, including miners and traders:
Potential Ethereum proof-of-work hard fork
Ethereum is expected to conclude the shift to the proof-of-stake (PoS) blockchain consensus mechanism next month. The positive feeling around the Merge event is no doubt good news for Ethereum supporters, but not all read from the same page. The transition has seen resistance from some in the Ethereum community as it threatens the existence of entities in the Ethereum mining sector hence the push for a chain split.
In recent days, there have been indications that a proof-of-work-based Ethereum may remain up even after the hyped merge as discontent grows, especially in the Chinese Ethereum mining community.
Ethereum co-founder Vitalik Buterin last Friday brushed off concerns of the Ethereum chain getting harmed by a potential hard fork. In an interview, he said he was convinced of the support for the Ethereum proof-of-stake (PoS) upgrade and convinced it wouldn’t be significantly harmed. He additionally identified the faction advocating for a continued ‘ETH PoW’ fork as “a couple of outsiders that […] want to make a quick buck”.
While the reference didn’t categorically point to the mining community, it implicitly includes miners who share a collective interest in securing their income. The proof-of-work (PoW) cryptography technique rewards Ethereum miners with tokens for validating transactions on the network – a process that has been deemed energy-intensive. The proof of stake model addresses this challenge by adopting a consensus mechanism where a trusted network of validators process transactions, cutting the miner out of the loop.
Ethereum PoW hard fork viability
The biggest concern around the future of possible Ethereum hard forks is their potential impact on the entire crypto ecosystem, including stablecoins. Speaking at the BUIDL Asia conference in Seoul on August 7, Buterin highlighted a risk of a broader collapse of stablecoin projects if proponents of the ETH PoW fork get their way.
“Because at that point, you’ll have 100 billion of USDT on one chain and 100 billion of USDT on the other chain, cryptographically — and so, [the issuer] need to stop respecting one of them,” he said.
Unlike Vitalik Buterin, who has been soft with his assertions, some researchers have explicitly blasted the PoW hard fork idea as another proposal doomed to fail.
The PoW hard fork chain is a ‘retail trap,’ industry experts say
Citing the lack of a project that has successfully wholly forked Ethereum (including its history), experts argue that this prospect proves the industry has not yet learned from past failures. For context, Polygon’s PoS solution and Avalanche’s contract-chain (C-chain) are some popular projects that have been built on the Ethereum client software. However, unlike the alternative being floated, the two projects didn’t fork the transaction history, i.e., the full Ethereum state.
This is a huge difference, as highlighted by Paradigm’s research collaborator Hasu who shared his views on Saturday, terming the prospect ‘a giant retail trap.’
“Although most alt chains today are forks of Ethereum, none has forked Ethereum state. Not because they didn’t think of it, but because it’s a completely stupid idea,” he wrote.
Some Ethereum supporters active on social media have similarly taken issue with the proposal for a proof-of-work hard fork. Variant’s investment research partner opined in a tweet from his pseudonymous handle that almost all “smart contract on the POW fork will be broken” to a degree.
CoinShares report: Ethereum’s upcoming Merge appeals to institutional interest
In the meantime, institutional investors appear to be showing more liking for Ethereum products in the run-up to the much-anticipated Merge event, according to CoinShares. In the latest Digital Asset Fund Flows Weekly report, Head of Research James Butterfill penned that derivative trades have changed their tune – a turnaround he attributed to the Merge, particularly clarity on when it is expected.
The arrival date of the Merge has so far remained elusive, with developers only providing estimates based on the progress made. The mainnet merge is set to happen between September 19 and December 19, both tentative dates. The CoinShares report detailed that this group of investors is accumulating investment products based on Ethereum. Last week’s $16 million inflows marked the seventh consecutive week of inflows totaling $159 million.
To learn more about Ethereum visit our Investing in Ethereum guide.