Ethereum’s blockchain transition to Proof-of-Stake took place on September 15 when Ethereum 2.0 appeared. Against this backdrop, cryptocurrencies are trying to decide what to do with the new assets.
Early Thursday morning, Ethereum completed its Merge and eliminated the need for crypto mining protocols by 99.95%, which was 0.2% of global power consumption.
For Ethereum’s niche graphical mining industry, which earned most of the $19 billion total from protocol mining last year, the long-awaited update meant that “all of these miners are out of a job,” said Kevin Zhou, co-founder of hedge fund Galois Capital.
“And they really didn’t want to go quietly into the night,” Zhou said.
Ethereum uses GPUs for mining, unlike ASICs in bitcoin mining. Accordingly, Ethereum miners will not be able to direct the released power to bitcoin mining. There are some GPU-mining blockchains, but they are too small: Ethereum accounts for about 95% of the total income from GPU-mining.
Chainalysis says that the problem is that the remaining GBU-mining capacity makes just 2% of Ethereum’s size.
On July 29, 2022, one of the major players in the Chinese mining ecosystem, Chandler Guo announced his intention to continue mining Ethereum after the transition. This means creating a fork. The idea was actively supported by Justin Sun, founder of TRON.
24 hours after the Merge, a group of Ethereum miners led by Chandler Gow “forked” the protocol’s code base.
Blockchain forking is a kind of software upheaval when a group of people decide to separate from the larger community of the protocol. When this happens, the branched-out group creates a separate copy of the protocol, which in turn duplicates all of its assets.
In the case of Ethereum, this led to the appearance of a new coin — “Ethereumpow” (ETHPoW-USD). Since it appeared, the “forkcoin” (ETHW-USD) has faced strong selling – 84% – in the last 5 days as of the morning of September 17 and is currently trading below $5, which is about 38 cents on the dollar to the price of ether.
“Personally, I don’t really see why we need to get another Ethereum in the mix,” said Jean-Marie Mognetti, CEO of CoinShares.
As Mognetti noted, there is already another proven version of Ethereum, known as Ethereum Classic (ETC-USD). The blockchain and its own token were created in 2016 after Ethereum’s major DAO hack.
Yahoo Finance writes that Ethereum Classic has fallen over 14% in the past 5 days after rising 29% since July 26. It has a market cap of over $4.4 billion and is trading down 8% from where it was trading in early January.
The situation is complicated by the fact that the new EthereumPOW coin was not the only forkcoin that appeared after the completion of the Ethereum Merge.
A few hours after the first fork, Justin Sun, founder and CEO of the Tron Foundation, which originally backed the Go group, forked Ethereum again, creating the Ethereum Fair (ETF), which trades at just over a dollar at the time of writing and, according to Mognetti, “will probably be a nightmare.”
Amid the proliferating ether, crypto-related firms must decide whether to keep or sell the free crypto they receive.
Nico Cordeiro, the CIO of quant crypto fund Strix Leviathan, commented that in at least several occasions, crypto investors have viewed the chance to get forked coins for holding some underlying crypto as a kind of “free payday.” He noted that before the Merge the idea was strong enough to drive down the price of ether.
“There was very, very heavy demand to get short Ethereum,” he explained, saying this was one side of a trade allowing investors to grab possible new coins.
Cordeiro explained that as forkcoins are in proportion to an investor’s holdings in the original cryptocurrency, it is difficult for fund managers to turn down the opportunity, even if the new token has minimal prospects.
“[Ethereum] is basically a giant experiment with hundreds of billions of dollars so it’s natural to want a stake in a kind of backup copy,” he said, pointing to the regulatory uncertainty of crypto assets.
For now, it is too early to decide what to do with these assets, which most ether holders will get. Mognetti of CoinShares said that, at least for his firm, it is too early to take any action. They have to assess the “network health” of the new protocol by monitoring its crypto mining hashrate, but ultimately the final decision will come down “a bit of gut feeling.”
“I can’t tell you where it’s going to go, but if there’s a benefit, we want to make sure our customers get a piece of it,” he added.