Oh my goodness, it’s fascinating to know who will be mine Ethereum after it is depleted
The long-awaited transition of the Ethereum consensus system from proof-of-work to proof-of-stake is just around the corner, and the anticipation has created a bullish narrative for the smart-contract platform. That’s bittersweet for one very important group: current Ethereum miners will be left with massive amounts of computer hardware that will be far less useful after the merger. Some miners, however, are not going gently into that good night. On July 27, a longtime Ethereum investor and miner named Chandler Guo tweeted “ETH PoW coming soon,” implying that Guo would lead his fellow miners in continuing to support the current proof-of-work-based Ethereum chain following the system change known as the Merge. There are some rational arguments for continuing the ETH PoW chain, and it would be an intriguing experiment if it went forward. However, there are numerous reasons to believe that the chain will not be viable in the long run, as well as numerous ways that an ETH PoW continuation could be exploited by deceptive bad actors.
Spending an entire blockchain twice
Consider how the upcoming Merge will work and what will be left behind to understand both the potential and the risk of a post-merge “ETH PoW” chain. In general, the historic state of the Ethereum chain at the time of the Merge, including the most important address balances, will be transferred to the new proof-of-stake consensus environment. However, the same state history will remain on the proof-of-work miners running until the microsecond before the Merge. Using proof-of-work, those miners could easily continue accepting transactions and adding blocks to their copy of the Ethereum chain. It also means that the pre-Merge PoW algorithm will continue to reward them with tokens that resemble ETH but exist only on the degraded proof-of-work chain.
The same state history, however, will remain on the proof-of-work miners until the microsecond before the Merge. These miners could easily continue accepting transactions and adding blocks to their copy of the Ethereum chain using proof-of-work. It also implies that the pre-Merge PoW algorithm will continue to reward them with tokens that look like ETH but only exist on the degraded proof-of-work chain. A major goal of Chandler Guo and his ETH PoW initiative would be to generate enough interest in ETH PoW that exchanges list it and make it tradable as a token separate from ETH itself. While ETH PoW is likely to be traded on decentralized exchanges sooner, mainstream centralized exchange listings will be critical to maintaining broad market interest.
At the most basic level, this is where the money is for ETH PoW supporters. If they get enough exchange listings, they will effectively ensure that there is at least some market value for both the tokens they already own and, perhaps more importantly, the new ETH PoW tokens they mine after the Merge.
Just in case something goes wrong.
There are some non-financial reasons to keep the proof-of-work chain running as “ETH PoW” (or whatever they eventually decide to call it, because “ETH PoW” stinks). Above all, rational or not, there will be some uncertainty about the new Ethereum chain’s stability following the Merge. If the Merge goes wrong, there is a chance that users, apps, and even assets (see below) will migrate back to the PoW chain. Positions on the “old” chain could serve as insurance in this scenario. To be clear, that possibility is vanishingly small. At this point, there have been several Ethereum test merges that have gone smoothly. However, the possibility is not nil.
Longer term, there are some concerns about proof-of-stake as a long-term security system for Ethereum. Most notably, there are ongoing concerns that proof-of-stake leads to centralization over time by rewarding those who are already large holders. Another perceived risk of proof-of-stake consensus mechanisms is governance manipulation. The longer-term emergence of these or other flaws may cause players to return to a proof-of-work version of Ethereum, increasing the value of positions there.
Tethers that have been severed and empty circles
However, there are more significant and obvious reasons why the ETH PoW chain will have little substantive value. It will most likely be such a confusing and broken landscape that it will have a negative value. Above all, on the forked proof-of-work chain, most of the assets and systems that people use on Ethereum would be effectively dead. Stablecoins denoted on the degraded chain, for example, will not be honored by entities such as Circle. That alone would render DeFi systems based on ETH PoW effectively unusable. (DeFi is an abbreviation for decentralized finance, a collection of apps that provide financial services without the use of middlemen.)
But there’s an even bigger issue, especially in the immediate aftermath of the Merge: the decentralized price oracles that power DeFi platforms, particularly for trading programmable assets, would be broken.
The second set of issues confronts the ETH PoW concept as well. Ethereum’s creators included a time bomb to incentivize the proof-of-stake transition. This so-called difficulty bomb is planned to make the chain impossibly difficult to mine after the Merge, effectively slowing transactions to a halt.
To carry out its plan, the ETH PoW community would need to band together around yet another fork, this time to remove the difficulty bomb. This could be extremely difficult in the absence of the Ethereum Foundation and other leaders who frequently point the way to major Ethereum changes. In theory, the ETH PoW group could collaborate with stablecoin issuers and oracle maintainers to bring operational versions of those products back to the ETH PoW chain. However, all of this would necessitate significant financial and coding resources. The ETH PoW supporters may have money to throw around, but finding talent is more difficult: there is already a severe shortage of skilled Ethereum developers, so finding devs to work on a decommissioned leftover may be difficult.