It has been called the ‘most important moment in crypto history’ and it has been so eagerly awaited by Ethereum users and believers that it has assumed a sort of legendary, mythical dimension.
On Reddit, it has become a meme about expecting some distant deus ex-machina turn of events – on par with the Half-Life 3 equivalent. In mainstream media, it has catapulted crypto back to the centre of the conversation – and for once, it’s not fear-mongering or short-sighted commentary on price action, but rather a focus on crypto as tech.
We are talking, of course, of the impending Ethereum merge, which is a mere few days away at the time of writing. The merge is the event that will forever shift the second most popular cryptocurrency away from the maligned and wasteful ‘Proof of Work’ protocol, and towards the more modern ‘Proof of Stake’ system which we have discussed extensively in our blog.
The implications are manifold, but what’s likely to hit the headlines more frequently next week is the blockchain’s shift to a model that will make it 99% more environmentally friendly and energy-efficient than before – blowing Bitcoin’s performance out of the water. At a time where energy and consumption are seen as some of the most compelling sociopolitical issues of the developed world, this couldn’t be more timely.
There is another thing, however, that Ethereum will stop relying on, aside from large amounts of energy: miners. And they’re not very pleased.
The Rebellion Leader
In fact, they are organising to put up what they hope will be an ideological and financial resistance to this shift – in essence, trying to forcefully cut themselves a slice of the Ethereum market where they won’t be rendered obsolete.
The person leading this rebellion is interesting, to say the least. Chandler Guo is his name, and the first peculiarity is that he doesn’t really believe in the success of his own rebellion. In fact, he’s gone on record stating that there is a ‘90% chance of it not succeeding’.
The influential Chinese miner, a high school graduate who rose to prominence through his work on successful ICOs earlier in the history of crypto’s market, is a repeat offender.
In 2016/2017, he was one of the main supporters and promoters of the Ethereum Classic fork, a solution adopted, in his view, to fix some vulnerabilities after a major hack of the main Ethereum chain. This fork still utilises PoW today, but Guo abandoned it ideologically shortly after the events just described – which makes his current endeavour even more puzzling.
Guo always knew the merge was coming down the line – after all, his very decision to enter the space of Ethereum mining was matured after a 2016 discussion with Vitalkin Buterin in which he anticipated the big moment wouldn’t come for another few years.
Perhaps surprisingly, he didn’t prepare an exit strategy or propose one to his community until 2022.
During this year, he left online commentary indicating he was concerned about the financial future of Ethereum miners, and that he felt that leaving them behind was an injustice and a disservice – despite the fact that they had also been aware of the impending merge for a long time.
Selected as a sort of leader by a community that looked to his Ethereum Classic exploit as something admirable, he was ‘convinced’ to propose another fork. After all, a lot of miners were already shifting to ‘his’ old creation in preparation for the PoS shift.
This would be called ETHW, and retain the historic PoW functionalities Ethereum currently has – and in turn, provide a lifeline to miners.
A Divisive Division
Many voices in the industry were quick and loud to point out the obvious shortsightedness of his proposal, as well as its miopic and perhaps anachronistic focus on miner preservation.
Not even the strongest union can stop technological advance for a long time, let alone in an area where technological turnover is extremely rapid and fluid such as crypto. Furthermore, there is a view that no one’s occupational preference should take precedence over climate change avoidance – a view that’s getting harder and harder to dispute.
Despite this, there was a mixed reception in terms of the willingness of the industry to engage with ETHW in commercial and service terms. Exchanges OKX, Huobi and BitMEX showed at least some interest and positivity, citing the risks the main Ethereum chain will face when merging and ETHW as a potential stopgap.
Others, like Chainlink, Tether and USDC’s Circle, have already rejected the idea, citing technological and adoption viability concerns. Binance is, for now, sitting on a fence.
Ideology vs Wallet
There is definitely an ideological and political point to be made about the future of miners, with some even bringing the Ukrainian conflict into their considerations.
While the human dimension of the problem is certainly unfortunate, it’s a no-brainer for the crypto community: the reduced reliance on single individuals with power (miners) is perhaps one of the tenets that form the philosophical raison-d’etre of cryptocurrencies. This important historical cornerstone could never be compromised to protect anyone’s personal income, no matter how unfairly they perceive progress has treated them.
The seemingly logical suggestions to shift from mining operations to validator roles don’t satisfy miners either: validating yields much smaller profits and doesn’t require nearly as much specialised hardware – thus destroying the value of the material investments made.
Shifting to mining other currencies isn’t easy either, both due to the hardware specifications being slightly different and due to market saturation – so much so that the ETHW rebellion has appealed to most who face the dilemma of seeing their ‘profession’ disappear overnight.
Money Talks… But Ethereum Stakes
Despite all the criticism, Guo himself is adamant the reason ETHW has a chance to succeed is that money knows no ethics and that, regardless of the story above, people will flock to whatever blockchain has an active and profitable user base.
But having that type of appeal isn’t proving easy: most DApps are very supportive of the merge and are unlikely to bring any substantial developer activity to the rising ETHW chain – destroying its potential in terms of DeFi and NFT applications, for one.
If Ethereum Classic is a valid predictor of the performance of such a rebellious fork, it’s also hard to believe ETHW will reach the traction it needs to provide an actual financial solution to the miners’ woes. Its $4.5 billion capitalisation is peanuts when compared with Ethereum’s $189 billion market cap, and as stated above the range of smart contract offerings isn’t even comparable.
It’s safe to say the future of Ethereum will be staked, unless Guo’s bet pays out and that 10% window of opportunity he’s given his own fork materialises.
