The PoW-based Ethereum fork endures

With the Merge on 25 September, the Ethereum network switched to Proof-of-Stake (PoS) as the consensus mechanism. 

It went smoothly, but obviously the abandoning of Proof-of-Work (PoW) forced miners to stop mining ETH. 

A group of miners, unhappy with this decision, decided not to support the upgrades that led Ethereum to switch to PoS, and continued to mine with the old PoW-based protocol. 

This created a fork, i.e., a branching of the code that generated two different protocols. 

Hence now there is the new Ethereum, based on PoS, and the old protocol still based on PoW called “Ethereum PoW.” This second protocol has its own cryptocurrency called ETHW. 

The future of the Ethereum PoW fork

It was speculated from the beginning that some nostalgic Ethereum miners might not upgrade their node to PoS, so that they would keep the old PoW protocol alive and be able to continue mining, but it was not certain either that they would eventually actually do so, or more importantly that this fork would survive. Instead, about ten days after the Merge, it is clear that it has survived, at least for now. 

The thing is, there was already another PoW-based Ethereum fork that existed and stayed PoW. It is Ethereum Classic, with its ETC cryptocurrency, which is actually the original Ethereum protocol from which the new Ethereum protocol (ETH) was born in 2016 following a hack. 

Therefore, to date there are three cryptocurrencies that have “Ethereum” in their names. Although in theory ETC is the original, it is ETH that has taken on the simple name Ethereum, because the other two have taken on slightly different names: Ethereum Classic for ETC and Ethereum PoW for ETHW. 

It is very interesting to observe where the now former ETH miners moved their hashrate.

Before the Merge that effectively zeroed out Ethereum’s mining and hashrate, the latter was about 900 Th/s, or slightly more. Now, it is precisely zero, because it is no longer possible to mine with PoS ETH. 

Right now the new ETHW, which is Ethereum PoW, has a hashrate of just under 50 Th/s, so it appears that only 5.5% of all the hashrate that was on ETH has moved to ETHW. 

Actually, the day after the Merge, ETHW’s hashrate had skyrocketed to 80 Th/s, probably because some former ETH miners had tried to move their hashrate to this new cryptocurrency. But then, due to the very low value of ETHW, some of these miners shut down their machines or moved them to other assets, so that the ETHW hashrate had then collapsed below 30 Th/s. 

Beginning on 24 September, thanks to an increase in the value of ETHW, mining on this cryptocurrency became more profitable, partly due to the reduction in hashrate in the previous days, so some miners put some hashrate back on ETHW causing it to rise to 50 Th/s. 

This dynamic is closely linked to the cryptocurrency’s market value, because the higher this is, the more profitable its mining is. 

The price of Ethereum PoW (ETHW)

On the day of the Merge, when there was the hashrate peak, the price of ETHW sprang above $51. However, as soon as the new tokens were distributed many people immediately sold them to monetize the airdrop, so much so that the market value quickly fell the next day to $9. In other words, ETHW lost 82% of its market value in the first day of existence from the high touched on its debut day. 

In the following days, the price had further halved, to a low just above $4 on 19 September. 

It is possible that this descent was too wide and too fast; in fact, the day after the low it had already risen to $6, and in the following days it also rose as high as $13. In other words, after touching the low, it rallied +225% in five days. 

It is worth mentioning that the percentages of declines and those of increases are not comparable, in other words, to be able to return to previous values after a -82%, an eventual +82% is not enough at all, but it actually requires a +455%. Therefore, +225% from the lows is nowhere near enough to return to the highs. 

Moreover, after hovering above 12 euros for a couple of days, the price of ETHW has since returned below $10. So currently its price is still 80% below the high of 15 September. 

This is a very young cryptocurrency, still extremely volatile and with an uncertain future, and this inevitably also affects its hashrate. 

Right now ETHW has a market capitalization of just over $1 billion, compared to ETH’s $157 billion and ETC’s $3.8 billion. 

Hashrate and the price of Ethereum Classic (ETC)

It is also extremely interesting to see the trajectory of the hashrate of ETC, namely Ethereum Classic. In fact, if before the Merge it was less than 30 Th/S, on 16 September it skyrocketed to over 230 Th/s. This shows that many more former ETH miners turned their attention to ETC than those who focused on ETHW. In other words, more than 22% of ETH’s hashrate moved to ETC the day after the Merge, causing its profitability to plummet. 

In the following days, ETC’s hashrate fell a lot, but remained much higher than its pre-Merge levels. Now, for example, it is still above 160 th/s, albeit declining. 

The thing is that ETC’s market value after the Merge has fallen. 

It had risen a lot since July, from $15 to almost $40, but starting on 16 September a decline began that brought it back down to $28. This is still almost double the July level, but well below the 15 September level. 

These dynamics show that Ethereum’s PoW fork is for all intents and purposes surviving, but they also show that it was mostly Ethereum Classic that benefited from Ethereum’s abandonment of PoW. 

The uncertain scenarios of ETHW and ETC

At this point, one wonders what real chance ETHW has of surviving in the long run, given that it was ETC that attracted most of the disappointments of Ethereum’s move to PoS. However, it is worth noting that the number of average daily transactions recorded on the Ethereum Classic blockchain has not increased at all since the Merge. In fact, it has remained essentially stable. 

Therefore ETC has almost exclusively attracted the attention of miners and speculators or investors, but not Ethereum users. Then again, the move to PoS favors precisely the latter, making it rather obvious that they have not decided to move to other blockchains. 

Finally, it is worth noting that with the move to PoS, Ethereum finally solves the problem of high power consumption, which instead remains on both ETC and ETHW. This could also mean that the future for these two alternative cryptocurrencies to ETH may not be particularly promising, as also indicated by their extremely low market capitalization compared to that of ETH. 

Yet Ethereum Classic has survived since 2016, so it seems unlikely that it will disappear anytime soon. For Ethereum PoW, however, the future is decidedly more uncertain.