17th August 2022 > > ETH hard fork update.

tl;dr

More information about the potential hard fork of ETH.

Market Snap

Market Wrap

It is unusual for perpetual futures funding rates to stay skewed like this for such a long period of time. Shorts may be getting complacent – as the environment around risk assets improves, I would not want that position. But having only ever been long cryptos for years now, I could hardly be expected to say anything else.

Curious Cryptos’ Commentary – by popular demand, an Ethereum hard fork update

As reported in the CCC just two days ago on the 15th, there are calls for a hard fork of the Ethereum blockchain at the point of The Merge.

The practical impact of this hard fork will be that the Ethereum Foundation sponsored version of ETH will move to Proof-of-Stake (PoS) whilst the new forked coin will remain as Proof-of-Work (PoW). All owners of original ETH will maintain that holding in addition to an equivalent notional of new ETH, dubbed ETHW.

The campaign for this potential hard fork was initially driven by China based miner Chandler Guo (nope, me neither).

One of the impacts of The Merge will be to dramatically reduce the fees paid to miners, in line with the dramatic reduction in computing power and technology required by PoS coins compared to PoW coins. The key reason for this is that for PoW, miners compete with one another to complete the next block – most of the work (in the form of electricity use, green or otherwise) that is undertaken goes to waste. In the PoS consensus mechanism, validators are chosen at random in proportion to the number of coins staked. Those vast warehouses full of cutting-edge servers are no longer required. It is all a bit Matrix:

For miners that have invested significant amounts of capital to process PoW ETH, the move to PoS ETH is an existential threat. It is no surprise that they would like to continue with PoW.

Several centralised crypto exchanges have signalled their support.

We have seen that Poloniex and MEXC are already trading ETHPoS and ETHPoW tokens, though neither exists in any real sense at this time. For the arbitrageurs out there, updated prices close to time of publication are ETH $1,940, ETHPoW $64, and ETHPoS $1,840.

Bitrue has joined the party, stating they will support the new hard forked coin if it comes into existence, which is looking increasingly likely to me. As have Huobi and BitMEX, who touted ETHW as “an exciting opportunity for traders and speculators in the short to medium term.” I think their motivation for supporting the hard fork is quite clear to all.

Binance and Coinbase – the CCC’s recommended centralised crypto exchanges – remain undecided, though the latter has a track record of largely ignoring hard forks in the past.

…

I have been asked what current holders of ETH should do in this situation.

Reiterating that my views do not constitute financial advice in any shape or form, I think there are a few key points that inform my decision-making process.

Firstly, and most important of all, do not store ETH on any centralised exchange in the lead up to The Merge. If you still do not own a Ledger Nano X, make this event the trigger to radically enhance the security of your crypto portfolio.

Immediately after The Merge – do nothing!

There is a small but not immaterial risk of problems following this seismic event. Prices could be more volatile than ever, and if there are tech problems, you do not want your coins in transit between wallets. Move your ETH holdings to your Ledger Nano X today and sit on them for at least 48 hours after The Merge.

Assuming all goes well, you may now own both ETH and ETHW.

As we saw a couple of days ago, it is usual that hard forks hugely underperform. I see no reason why ETHW would be any different, though of course I reserve the right to be wrong on this point.

If ETHW does exist, I will swap to ETH a few days after The Merge, but you must make your own decision.

If you do have more questions, the CCC team is here ready and willing to help.