Ethereum post-merger hard forks are here: now what?

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On the first day after the merger, the decentralized finance (DeFi) The community is settling into the seemingly uneventful transition of the Ethereum network from proof-of-work (PoW) to proof-of-stake (PoS). However, it remains to be seen what benefits hard forks will bring to PoW proponents.

So far, the most important competing networks in favor of the mining community, EthereumPoW and Ethereum Classic, have shown different results after the merger.

A hesitant start

The fledgling EthereumPoW debuted with Twitter users reports network access problems. The issues were confirmed be the result of a network hack, but would have been resolved.

Leading cryptocurrency exchange OKX has already started provide on-chain data for the new network. Although the crypto asset’s current trading activity appears stable, the value of the PoW spin-off’s price has been steadily declining since its launch, dropping from a price of $137 at its peak to $5.87 at its peak. time of publication, according to CoinMarketCap.

Going forward, there is no clear infrastructure or roadmap plan for the ETHPoW network. The project’s “meme” whitepaper, posted on its website, is 10 pages long, five of which are devoted solely to the project’s title and the other five “intentionally left blank.” The prank document also comes with a GitHub repository with only 16 contributions since August this year, and no further information is provided on the official EthereumPoW docs section.

The revival of ETC

The Ethereum Classic cryptocurrency (ETC) could see a turnaround in its struggle to get off the ground as the community could transition to the six-year-old project.

Originally created in 2016, the existence of Ethereum Classic is the result of one of the biggest philosophical divisions in the Ethereum community. The fork was born out of a solution to the hack of The DAO, a project running on the Ethereum network.

The DAO was an early iteration of a Decentralized Autonomous Organization (DAO) on the Ethereum network. To deal with the hack and compensate investors, the community agreed to essentially revert to the history of the network before the hack happened with a hard fork. While the new fork inherited the name “Ethereum”, those who disagreed with the movement continued to support the old fork, which became known as Ethereum Classic.

Today, Ethereum Classic functions as an open-source blockchain that executes smart contracts with its own cryptocurrency.

The preference for ETC over other fork options goes beyond its market price, already subject to various ups and downs, but more a matter of practicality. Sebastian Nill, ETC miner and COO of mining consultancy AETERNAM, told Cointelegraph that since it operates using a PoW consensus protocol, it is more attractive to the mining community, adding:

“The possibility of a hardfork has always been there. People are always going to prefer being able to mine Ether rather than having to buy it.

As the network is a fork of Ethereum, which means that everything the mainnet had can be replicated on its hard fork, this does not imply that the ability to create products and services on top of the chain of the ETC would be the main interest for the community.

The cryptoasset could also absorb most of the energy consumption left by Ethereum to apply to its own proof of work, allowing the network to confirm transactions and maintain its security with a significant amount of energy resources.

“Ethereum Classic is going to be as efficient as Ethereum was for miners. Ultimately, the community is going to choose ETC, not because of its cost effectiveness, but because of its efficiency in processing data,” Nill says.

The user’s point of view

Users who decide to hold Ethereum PoW or any subsequent token after the merger might find it difficult to trade their new assets. The support for trading with the resulting asset from the range of major exchanges like Binance is a current relief for holders who are still struggling with the declining value of the asset.

Additionally, another concern that may be in sight is that coming from the regulatory front. In a recent comment given to Wall Street Journal reporters on Thursday, U.S. Securities and Exchange Commission Chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that enable staking could be defined as a security.

Regulatory attention towards Ethereum resulting from a PoW to PoS transition could be a game-changer and effectively adapt to US law. This is due to the ability of staked assets to generate dividends and qualify as securities under the Howey test.

On the other hand, while Ethereum’s next PoS model is more energy efficient and environmentally friendly, the upgrade has not solved current headaches for DeFi protocols and its users, such as the network congestion and high transaction fees, known as gas fees. For example, the first non-fungible token (NFT) to be created after the merger Cost more than $60,000 in gas expenses.

Building a solid foundation on lower gas fees and major transaction speed is a temporary compromise that won’t affect the market, as Matt Weller, global head of research at City Index, told Cointelegraph:

“From a user perspective, you want something that’s cheap, fast, and reliable. Thanks to the merger and further scaling in the Ethereum Foundation’s future plans, this could be a predictable opportunity. They worked from a very secure location, ensuring safety at all costs over other compromises.

No shortcut

Ethereum’s choice to bet on a change to its consensus protocol was defended as a necessary and non-negotiable step.

Skylar Weaver, head of devcon and devconnect at the Ethereum Foundation, told Cointelegraph that the merger demonstrates the network’s “no shortcuts” approach to its development:

“No, I don’t think it’s a compromise. I see PoS as a necessary step to achieve these user-driven benefits like transaction speed and lower gas costs. Other chains achieve lower gas fees and faster transaction speeds by making trade-offs: they sacrifice decentralization for more scalability. They take shortcuts.

Additionally, using rollups through Layer 2 networks will still allow access to Ethereum benefits for mainstream users.

“Ethereum is currently rolling through L2s. Specifically rollups. People can use Rollups today to transact at a fraction of the cost of gas, faster, while inheriting the security and decentralization benefits of Ethereum. C This is how we evolve without taking shortcuts,” says Weaver.