Last Updated: 9 August 2022
There are rumours that Ethereum miners want a breakaway from the Ethereum blockchain after The Merge in September. Miners will be hit hardest and could make some money this way. Is this really true?
Let us take a step back. Why would miners lose money after The Merge?
Earnings model for Ethereum miners
At the moment, Ethereum has two blockchains. The first works on proof of work (PoW), and nearly all payments, smart contracts, transactions, and other activities take place on it. The second blockchain is called the beacon chain. It uses proof of stake (PoS), but no activity takes place on it currently.
This first PoW blockchain works just like bitcoin: miners fill blocks with transactions, and if they have won the lottery, they may add that block to the blockchain. They receive 2 ether + transaction fee for this. At the current Ethereum rate, this 2 ether is worth around 3400 euros. A good earnings model for miners.
Miners want hard fork Ethereum
The Merge merges these two blockchains, which means that all activities, transactions, etc. of the first blockchain are combined with PoS of the second blockchain. Miners become superfluous.
For many, The Merge is a godsend, but miners have different feelings about it. Chandler Guo, a prominent miner announced to perform a hard fork on Ethereum’s blockchain so PoW can continue on its own chain.
ethpow will coming soon pic.twitter.com/v9eAbWO2BZ
— Chandler Guo (@ChandlerGuo) July 27, 2022
To support this, the not-yet-born Ethereum PoW version even has a website called ethereumpow.org.
Trick to make quick money by Ethereum miners
A hard fork refers to a split off of a blockchain, where the split off retains the full history of the original but then follows its own path. Thousands of hard forks have been carried out, on Ethereum but also on Bitcoin, and most have died a quiet death.
“The fact that people think an ETH PoW fork will be more than a trap for consumers means we have learned nothing from almost a decade of hard forks,” said Pseudotheos, an Investment Research Partner at venture capital firm Variant.
“Almost every smart contract on the PoW fork will be broken in some capacity,” he said.
Ethereum founder Vitalik Buterin discussed this issue at a conference in Seoul. He says this is an idea of a few outsiders and calls it a ploy to make quick money by miners and exchanges.
Why not go to Ethereum Classic?
A fork of Ethereum called Ethereum Classic has been around since 2016. This is running on proof of work, and it is expected that miners can switch from Ethereum to Ethereum Classic rather than create a new fork.
“I think Ethereum Classic already has a superior community and a superior product for people with a preference for proof-of-work,” Buterin said.
Ethereum Classic and Ethereum shared the same history until 2016, but after that hard fork, both projects went their separate ways. Since then, Ethereum has seen billions of dollars of DeFi activity and is also home to billions of stablecoins on the blockchain.
Much of DeFi (decentralised finance) relies on price oracles to function, and like stablecoin’s issuers, major Oracle network provider Chainlink has said it will not support a new PoW network.
“Users should be aware that forked versions of the Ethereum blockchain, including PoW forks, are not supported by the Chainlink protocol,” Chainlink said.
USDT’s Tether also does not support a PoW hard fork. Suppose 100 million USDT has been issued on a blockchain and it experiences a hard fork, then 100 million USDT exists on both the first and second blockchains. These have value as long as those USDT can be exchanged for real dollars.
Pauolo Airdono announced on Twitter that his Tether will only support the POS blockchain.
He didn't outright say he would support PoS/ETH2 by default – it looks like he will support the chain that will lead to more stability and avoid disruptions. Granted, this will probably still end up being ETH2, but I think it slightly shifts the odds in Galois's favour.
— FatMan (@FatManTerra) July 31, 2022
“I hope that whatever happens will not result in people losing money.”