The Merge, which will effectively switch Ethereum from the Proof-of-Work to the Proof-of-Stake consensus, is expected to happen sometime in September 13-15, and the crypto space is swarming with speculations about its consequences.
One of the most discussed ones is the possibility of Ethereum forking itself to keep the Proof-of-Work consensus, which would effectively mean a new blockchain with the copies of all Ethereum cryptoassets.
What are forks and what would one mean for the industry and its users: free money, scamming risks..? Here’s what you need to know.
What are blockchain forks?
Blockchain protocols are open-source by nature, which allows anyone to download the code and participate in their operations. This free-will principle is behind the phenomenon of forks: when a part of the community is not happy with the proposed upgrade or is willing to implement an upgrade of its own, it can change the blockchain’s code and call for its members to come support it.
The fork’s success is measured mostly by the number of nodes that run its code, as well as its acceptance by the wider crypto community and the integration within its products.
In Ethereum’s case, the actual blockchain is a fork, implemented in 2016 to erase the consequences of TheDAO hack. This fork was backed by most of the community, and, what’s probably even more important, by the Ethereum Foundation and Vitalik Buterin. Ethereum’s creator, while technically incapable of deciding a decentralized blockchain’s fate, is still very much able to stir the community in a particular direction, for his expertise and opinion are highly valued.
Back in 2016, a part of the community who disagreed with the fork decided to stay with the old Ethereum, dubbed Ethereum Classic, which now equals to 2% of the Ethereum’s market cap.
What would EthereumPOW entail
To avoid a situation where there will be two Ethereums, The Merge will trigger the so-called difficulty bomb – an extreme increase in mining difficulty embedded in the Ethereum’s code, which will make mining unprofitable and eventually cause the chain to stop.
According to Hongcai “Chandler” Guo, leader of EthereumPOW project and a semi-retired miner, “a team of 60 developers” is now working on a code that would exclude the difficulty bomb and allow the chain to continue as before.
If Mr Guo (or another forking enthusiast) succeeds, what would that entail exactly?
Forking a blockchain is basically releasing new rules applied to the old ledger. This means that the state of Ethereum will be duplicated, together with all its cryptoassets, be it native coins (ETH), or diverse tokens created on it.
The value of these copied assets would depend on their recognition by the industry.
In case of native coin (that many have dubbed ETHW), it will have to prove itself useful (i.e. ensure the new blockchain’s use) and get listed by crypto exchanges. While the attainability of this first goal is raising doubts, so far major exchanges like Binance, Kraken or Coinbase have declared that they will consider listing ETHW.
Other assets, however, like stablecoins, DeFi tokens and NFTs, are likely to become worthless, as their issuers would look to avoid duplicity and choose the blockchain where most of ecosystem will go, i.e. ETH2.0. This opinion is supported by most players in the Ethereum space, including, of course, Vitalik Buterin.
Opportunities and threats
If Ethereum POW succeeds at creating an ecosystem of its own, it would be a pity to miss the opportunity of getting some “free money”. However, this should be taken with prudence.
Upon the fork, all ETH holders should receive an airdrop of the copied assets. To increase the chances of not being forgotten, users should take their assets out of staking or bridging protocols, as well as custodial wallets (with the exception of centralized exchanges that would support the fork).
The airdrop happens automatically and does not require any approval from the wallet holder. Any demand to “accept” the airdrop would most likely come from scammers.
Many argue that the best strategy after receiving the airdrop would be to immediately sell it, profiting from the speculation. However, it is highly likely that scammers would also seize the opportunity, notably via phishing and false links. Hence, the importance of carefully verifying the trading platform and its URL before engaging into any operation.
Stay safe!
Written by D.Center
