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What The Merge Means For Proof-of-Work Miners

Ethereum Classic’s Hash Rate Is At An All-Time High

What The Merge Means For Proof-of-Work Miners

Ethereum is not the only chain changing this week. Rival Proof-of-Work (PoW) chains are also being disrupted by The Merge. 

The upgrade boots PoW miners off the Ethereum network in favor of Proof-of-Stake (PoS) validators, displacing an estimated $5B worth of mining hardware.As a result, some miners have banded together and pledged to fork Ethereum and maintain the chain using Proof of Work consensus under the ticker ETHW. 

The ETHW project reportedly has the backing of several large Chinese miners and will be supported by a few major centralized exchanges. Poloniex and Gate.io have already announced they will list the token after the fork, while Binance and BitMEX already host futures markets for the coin. 

ETC Hash Rate At ATH

But critics argue ETHW is doomed to fail from the get-go, and many miners already chose to back Ethereum Classic instead. According to Messari, Ethereum Classic’s hash rate is up 250% in the past six weeks to all-time highs above 72 terahashes per second (TH/s). 

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ETC Hash Rate. Source: 2miners

So will Proof of Work die-hards pose a threat to the post-Merge Ethereum?

The current wisdom says no. In a recent appearance on The Defiant Podcast, Justin Drake, a researcher at the Ethereum Foundation, said that an outcome where both sides of the Ethereum fork survive is “no longer really viable in our day and age” due to the network effects of DeFi.

Wrapped Assets

“Wrapped assets like USDC, USDT, or Wrapped Bitcoin… need to choose one of the chains,” Drake said. This choice is a forcing function for one of the sides to be preserved and have a healthy DeFi [ecosystem], and the other side of the fork to basically have a DeFi ecosystem which will completely collapse…”

“You can’t have a fiat-backed stablecoin doubling the supply overnight and keeping $1 value,” tweeted Marc Zeller, the head of developer relations at Aave. 

He asserts that the PoW chain’s stablecoins will be worth $0 when the chain launches, causing multi-billion dollar holes for the network’s deployments of top DeFi protocols like Aave, MakerDAO, and Uniswap.

“Bad debt is a certainty… DeFiPoW is dead on arrival”

Marc Zeller

ETHPoW Launch

On Sep. 13, ETHW announced its plan for launching via Twitter, stating that its mainnet will be live within 24 hours of The Merge, and will announce the exact time one hour beforehand.

“The mainnet will start at the block height of the Merge block ‘plus’ 2048 EMPTY blocks as padding to make sure that the chainID switches to 10001 successfully,” it tweeted.

But ETHW was hazed by critics who say the project is poorly organized and thought out. 

‘Poorly Organized’

Igor Artamonov, a former Ethereum Classic developer, tweeted that the project has failed to attract respected developers, stating the organization does not have a GitHub account and that the names of its code maintainers are unknown.

“They had plenty of time to prepare a Block Explorer, a Wallet, and a public RPC. That needs to exist in the first hours,” he said. “I guess they will launch something, but they don’t know… how to run it properly. It may work for a short period, but unless someone more professional joins, it will collapse soon.”

‘Huge Flop’

“I think ETHPoW will be a huge flop, if they can even manage to chain split in the first place,” Bob Summerwill, the executive director of ETCCooperative, an organization that provides grants supporting the Ethereum Classic ecosystem, told The Defiant.

“ETHPoW team seems amateurish,” Kieran Warwick, the co-founder of the web3 game Illuvium, told The Defiant. “They haven’t been able to prepare their chain launch on time for the merge. There might be issues with chainId risking users; they had a unique chance and missed the momentum for a good launch.”

Miners’ Last Stand

However, Mark Monfort of web3 venture studio, NotCentralised, told The Defiant that “the miners won’t go down without a fight so assuming this will be a clean break is a bit naïve.”

“They’re stuck with sunk costs and given a low probability of success, it’s logical to see why they would fight to stay alive,” Monfort said. But he conceded that the lack of support for ETHW from DeFi protocols and stablecoin issuers “doesn’t look good for ETHPoW.”

But Ethereum Classic won’t be able to take on all of Ethereum’s orphaned miners by itself.

Reward Dilution

Summerwill said he anticipates an initial flood of hashing power could wipe out Ethereum Classic mining rewards in the short term.

“There are obviously not sufficient emissions for 15x more miners to just appear without a huge surge in ETC price,” he said. “But it is clear to me that ETC will be about the only major viable place for the mass of hash rate to end up. Other ecosystems are too small.”

Dcct, an Ethereum Classic miner, agrees. “ETC will be flooded with hash rate and profitability will plummet,” they posted to the project’s Discord channel. “Only miners with very cheap electricity will stay in [the] short term. There are not many coins these ethash ASICs can mine.”

PoW Coins Rally

Even so, Ethereum Classic’s price has rallied 170% since mid-July as traders bet that the network will accrue significant security guarantees and network effects from former Ethereum miners.

Several smaller projects are also rallying in the lead-up to The Merge as traders speculate on which chains will benefit from Ethereum’s displaced miners, with PoW chains Ravencoin and Flux posting impressive gains in recent weeks.

The price of Ravencoin gained 125% since the start of September, while the network’s hash rate has nearly tripled over the same period to 7.56 TH/s. Both the hash rate and price of Flux have surged by nearly 200% since early July.

Daniel Keller, the co-founder and chief strategy officer of Zelcore Technologies, the team behind Flux, told The Defiant that the project is already feeling the effects of Ethereum’s orphaned miners.

“The Ethereum merge is a one-of-a-kind event, so we’ve been preparing for the potential influx of new miners,” he said. “Flux has already started to see increased hash rate migration.”

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