ETHPoW vs ETH2: Exploring the Possibility of a Fork in the ETH Merge

Summary

This article discusses the possible chain forks that may occur during the ETH merge, leading to the production of two tokens: ETH2 and ETHPoW. From the perspective of token prices and chain usage, ETHPoW is likely to become a chain supported by a minority. Although the ETHPoW chain faces technical challenges and long-term viability issues, it may provide speculative opportunities for traders in the short term.

Overview

The ETH merge is expected to take place in September 2022, with the first step being the cessation of Proof of Work ( PoW ) mining. The consensus mechanism will shift to the existing Proof of Stake beacon chain. After the merge, two Ethereum clients need to be run, namely the consensus layer and the execution layer client. It is important to note that after the merge, stakers will still be unable to withdraw staked Ether to the execution layer.

Although the Ethereum community generally supports the shutdown of PoW, PoW miners clearly will not support it. Some miners have been opposing the merge, and ultimately the main participants in China's mining ecosystem have indicated that they may continue to mine on the Ethereum PoW chain.

If the PoW chain continues to exist, it is speculated that it may be called ETHPoW. Whether this chain has economic significance is still debated. Some argue that PoW may be more attractive in certain use cases compared to PoS. Besides ETHPoW, there are currently no other real PoW smart contract public chain candidates. In any case, ETHPoW may attract the interest of market participants.

Ice Age ( Ice Age )

Seven years ago, Vitalik proposed the "Ice Age" mechanism to address potential fork issues. In this system, the PoW mining difficulty increases exponentially over time, eventually making it impossible to effectively expand the chain. The difficulty bomb has been reset six times in Ethereum's history. The most recent reset was in June 2022, and the bomb is expected to "detonate" in mid-September 2022, which is the perfect time to switch to PoS.

New ETHPoW Fork Client

With the arrival of the ice age, PoW chains may only survive for a few hundred days after the fork. If it is to exist long-term, ETHPoW needs to hard fork a new client to permanently remove the ice age. This brings some issues to ETHPoW, and perhaps that is the very significance of the existence of the ice age. ETHPoW will not be able to claim to be a chain that adheres to the original rules.

At the same time, the ETHPoW community needs to find developers to write a new client, reach consensus on the new parameters, and persuade trading platforms to support the new client. These issues may not be difficult to overcome, and perhaps large miners will provide financial support behind the scenes.

Staked ETH Locked

Currently, there are about 13.2 million ETH staked on the Beacon Chain. In the early stages of the ETHPoW chain, if no hard fork occurs, this capital could be lost forever. In contrast, on the ETH2 chain, this ETH can potentially be transferred back to the execution layer in the future. This has several implications for the ETHPoW chain: it could potentially drive up the ETHPoW price or damage the chain's credibility.

If a hard fork of the new ETHPoW client occurs, the community will face the decision of how to handle the staked ETH. One possibility is to permanently lock the staked tokens, deeming the staking rewards on the ETHPoW chain to be illegitimate.

Stablecoin

Many people believe that if a controversial Ethereum fork occurs, the decision-making power will belong to the custodians of Stablecoin. They must choose to support one chain, considering the popularity of Stablecoin and its association with DeFi, and their decision will affect the winning chain.

If a fork occurs after the merge, major Stablecoin issuers seem to support ETH2. Many DeFi applications relying on USD Stablecoins may collapse on ETHPoW.

Sell ETHPoW

Many Ethereum extremists strongly support the transition to PoS and will not like ETHPoW. But from another perspective, they may hope that the ETHPoW chain survives in the short term, allowing them to sell ETHPoW for more ETH or USD. Therefore, many people might sell ETHPoW Tokens as soon as possible, and the price may weaken.

But a higher level of thinking is that everyone should actually purchase ETHPoW Token as soon as possible after the merge.

The Value of ETH Fork Tokens

To sell ETHPoW for ETH, you need to wait for centralized exchanges to support ETHPoW. This may take several hours or days.

In theory, once the merge occurs, users should be able to purchase ETHPoW on decentralized exchange platforms on-chain. Regardless of your views on ETHPoW, it may be more valuable than all other ERC-20 tokens on the ETHPoW chain.

Various tokens on the ETHPoW chain, such as USDC, USDT, Wrapped Bitcoin, BNB, etc., may lose value. Therefore, the best strategy before trading opens on centralized exchanges may be to purchase as much ETHPoW as possible, and then sell on centralized exchanges. This is like a free call option on ETHPoW.

Merge Trading Strategy

The ETH merge provides a potential "risk-free" trading opportunity:

1. Exchange USD for USDC in your own wallet before the merge.
2. Immediately exchange USDC for ETHPoW on the ETHPoW chain after the merge.
3. After the centralized exchange opens ETHPoW deposits, ETHPoW will be sold for USD.
4. Obtain Profit

Executing this type of transaction actually carries certain risks and complexities, and the following factors need to be considered:

• Need to complete the transaction in a short time
• Need to manage the keys by yourself
• You may need to run your own Ethereum node to interact with the smart contracts on ETHPoW.
• It is necessary to ensure that USDC sell orders are not executed repeatedly on the ETH2 chain.
• The price oracle handling method of DeFi protocols is still unclear.

Conclusion

Any chain fork during the ETH merge may evoke memories of the 2016/17 era. Although ETHPoW faces technical challenges, as long as the chain survives, there will be a positive narrative. Leading centralized exchanges may open their trading. The ETH/ETHPoW trading pair could become a popular trading pair after the fork.