BitMEX: ETHPoW fork vs ETH2, who will be the winner after Ethereum merges


In this article, we discuss the possibility of a chain fork when Ethereum merges, which will generate ETH2 coins and new ETHPoW coins accordingly. We study the feasibility of the ETHPoW chain. Considering the currency price and the application of the economic chain, it is almost certain that the ETHPoW chain is a niche chain. Our conclusion is that while the ETHPoW chain may have many technical challenges and its long-term viability is in doubt, it may present an exciting opportunity for traders and speculators in the short to medium term.


After several delays, it appears that Ethereum will finally start the merger process in September 2022. At least ethereum core developer Tim Beiko proposed on a developer conference call on July 14, 2022, with Monday, September 19, 2022, as a possible date for the merger. The first major part of the merger, shutting down proof-of-work mining. At that time, Ethereum will choose which blockchain to support, and the consensus part will migrate to the existing proof-of-stake beacon chain. However, the September 19, 2022 date is far from being finalized, the client with the merge time parameter has not yet been released, and until then, the exact timing of the merge remains uncertain.

After merging, two Ethereum clients need to be run: 1. Staking client or consensus layer client; 2. Execution layer client, such as Geth. Execution layer clients will still validate and process Ethereum smart contracts and transactions. It’s worth pointing out that even after the merger, stakers cannot withdraw their staked ETH back to the execution layer, and this “second round of merger” could take another 6 to 12 months.

When discussing the merger, there was a lot of feedback that the ethereum community was generally in favor of turning off proof-of-work. In a recent conference, Buterin mentioned that if someone doesn’t like this, they can always use Ethereum Classic (survivor of the 2016 DAO incident). However, as one might expect, PoW miners are generally opposed to shutting down proof-of-work. Why? They will be completely excluded from the Ethereum system. Forget about the EIP-1559 protocol, this time their revenue in Ethereum will instantly drop to zero. For months, some miners have been speaking out against the merger behind the scenes, expressing a desire to “do something.” Finally on July 29, 2022, Chandler Guo, one of the biggest players in the Chinese mining ecosystem, said that he may plan to continue mining on the Ethereum PoW chain.


If PoW chains still exist and continue to expand, some have speculated that the token could be called ETHPoW. In our opinion, this chain is likely to extend beyond the merge point, however, whether this chain makes any economic sense is an open question. Of course, there are opinions that the chain can survive for a long time. PoS may have its own weaknesses compared to PoW (e.g. natural monopoly of staking derivatives) which ultimately makes PoS chains less attractive than PoW chains in some use cases. All smart contract platforms competing with Ethereum (except perhaps Ethereum Classic) are already on the PoS path, so it is possible that a certain PoW smart contract chain will gain significant traction. Apart from ETHPoW, there are no real candidates.

All in all, ETHPoW is a nostalgic nostalgia for the Bitcoin and Ethereum forks of the 2016/17 era, and looks likely to spark interest among market participants.

ice age

Buterin foresaw this potential problem seven years ago, when Ethereum’s PoS system was just a series of odd and fragmented ideas on a drawing board. A solution called the “Ice Age” emerged. In this system, the difficulty of the PoW mining network increases exponentially over time, and eventually the chain cannot be effectively extended. After the original Frontier client, Ethereum’s first major network upgrade, dubbed the “Ice Age,” contained the first difficulty bomb. The bomb was set to “explode” in 2017, when the Serenity upgrade prepared to transition the network to PoS. However, the PoS upgrade was delayed and thus the difficulty bomb was delayed by the hard fork.

The so-called hard-to-explode bombs have actually exploded several times in the past. For example, for a few days in early October 2017, Ethereum’s average block time was around 30 seconds, after which the difficulty bomb system was reset and the block interval returned to its normal around 13 seconds. In the history of Ethereum, the difficulty bomb has been reset 6 times and there have been 6 hard forks.


The most recent reset was proposed in June 2022, and now the bomb is expected to “explode” in mid-September 2022, the perfect time to switch to PoS, as planned back in 2015. Although the bomb will detonate in September, it may take several months for the impact of this explosion on the average block interval to become apparent based on estimates from previous bomb outbreaks. For example, some calculations estimate that it may take 175 days for a block-to-block interval to reach around 30 seconds. After that, things get exponentially worse.

Another interesting factor is that this shift to PoS is serious. Therefore, the price of ETHPoW may be low relative to ETH (a clear price crash), and the price may also be very volatile. This may reduce ETHPoW’s mining incentives to precisely assess how the ice age will work, which has constituted a rather complex circular dependency between miner incentives, hash rate and block times that can be extremely challenging.

New ETHPoW hard fork client

The arrival of the ice age means that PoW chains may only last a few hundred days after a fork. If PoW chains are to survive long term, a new hard fork client may be required to permanently remove the ice age feature. This poses several problems for ETHPoW, which may be exactly what the Ice Age was designed to produce. It removes a layer of legitimacy from ETHPoW. ETHPoW can no longer claim to be the existing or original rule chain. It also requires a hard fork. However, not many Ethereum users really care about this today, which seemed to make more sense 7 years ago.

At the same time, any ETHPoW community needs to find developers with technical expertise to produce new clients. They also need to solve the Schelling point (also translated as Schelling point or focus point) problem, agree on a new client and new parameters to activate and implement a hard fork to eliminate the ice age. It may be necessary to convince exchanges and custodians to run and support this new client, which may be slightly more difficult than convincing them to keep running old Geth nodes on the new ETH2 infrastructure. In practice, however, these issues can be overcome fairly easily, and the size of the ETHPoW community is unlikely to be particularly large, so this may not be a major issue. It may be just a behind-the-scenes guess of a few big miners.

Lock the pledge coins

Currently, there are approximately 13.2 million ETH staked on the Beacon Chain, and close to 14 million if the actual balance is counted (cumulative ETH staking earnings plus any deposits above the 32 ETH threshold). From what we understand, on the original ETHPoW chain, if a hard fork does not occur, these funds will be lost forever. Instead, on the ETH2 chain, these tokens can be sent back to the execution layer at some point in the future. This has some implications for the ETHPoW chain. First, one could argue that there is less ETH supply on the ETHPoW chain, which could push the ETHPoW price higher. In addition, as users lose large sums of money on the ETHPoW chain, it may lead to damage to the reputation of the chain and ultimately damage ETHPoW.

If a new hard fork ETHPoW client is issued to solve the ice age problem, there may be a choice about what to do with these pledged coins. This is the dilemma that the ETHPoW community will face. One possible outcome is that, because the point is that this is a PoW token, they may lock up these pledged coins permanently. In the world of ETHPoW, staking is a bad decision. At the very least, the accumulated pledge income of around 800,000 on the ETHPoW chain before the merger should be considered completely illegal. Therefore, if you are a validator, or if you hold stETH, you may not perform particularly well on the ETHPoW chain.


Many have speculated that in the event of a contentious Ethereum fork, it will no longer be up to the Ethereum Foundation or Buterin to decide. It is said that in this case, the new king could be the stablecoin custodian. These custodians must choose a chain to support, and their decision will determine the winning chain, given the popularity, popularity, and relevance of these tokens to Defi. So perhaps the most powerful person in Ethereum became Jeremy Allaire (CEO of USDc issuer Circle), not Buterin.

Of course, Jeremy is the CEO of a company and he has to be accountable to its customers, otherwise it would mean his actions were not in the best interests of the shareholders, and probably still illegal, so in practice he may not have that power. However, the most likely way this apparent risk manifests itself is when a government authority orders Circle to support a chain for some regulatory reason. This problem is a potential weakness of Ethereum.

If a chain fork occurs after the merger, Circle, Tether, Binance and other stablecoin custodians are all likely to support ETH2. So even excluding strong support for ETH2 from the Ethereum Foundation and the community, the outcome of this fork is clear that ETH2 will be the winner and ETHPoW will lose. On ETHPoW, many Defi applications relying on the USD stablecoin will exhibit economic collapse in many catastrophic ways. However, there are many other implications of the stablecoin issuer’s position, which we discuss below.

Sell ​​ETHPoW

Many Ethereum maximalists strongly support the move to PoS and dislike ETHPoW. Therefore, they may want the ETHPoW chain to die soon.

There is another layer of thought on top of this. Ethereum maximalists should actually (somewhat perversely) want the ETHPoW chain to survive, at least for a while, so they can trade ETHPoW coins on the market for more ETH (or dollars). This way they can make money from what they consider “dumb” ETHPoW supporters, all before ETHPoW slowly dies over the next few years. So, probably many people will sell their ETHPoW as soon as possible, and the price may be low.

But wait…there’s another layer of thinking on top of this, a third layer of thinking. What everyone should actually do (Ethereum maximalists or not) is to buy ETHPoW as soon as the merger happens. I’ll expand on the explanation below.

Snap up ETHPoW

In order to sell ETHPoW for ETH, it may be necessary to wait for a centralized exchange to support the ETHPoW business after the merger. While centralized exchanges like FTX and Binance may launch products soon, it may take a while to support ETHPoW deposits, at least a few hours or days. No matter how well prepared they are, the hash rate and block times on ETHPoW are likely to be volatile and they need to protect themselves from double spend attacks.

On the other hand, in theory, people should be able to buy ETHPoW on a decentralized on-chain exchange once the merger happens. Regardless of your opinion on ETHPoW, surely you think it is a better bet than all the other ERC-20 coins on the ETHPoW chain?

Let’s take a look at how some of the tokens on Ethereum today will be on the ETHPoW chain:

*USDc on ETHPoW – worthless, since Circle will choose ETH2, so the token will not be redeemable, as we discussed above.

* USDT on ETHPoW – also worthless.

* WBTC on ETHPoW – has no value, as the custodian will choose ETH2, so the coin will not be redeemable for Bitcoin.

* BNB on ETHPoW – still worthless because Binance will choose ETH2.

* Uniswap on ETHPoW – There are issues with the long-term viability of the token on the ETHPoW chain. The coin could crash faster than ETHPoW.

* stETH on ETHPoW – since there is no collateral on this chain, these coins may be worthless as described above.

* All other ERC-20 tokens on the ETHPoW chain – may have very limited value on the ETHPoW chain.

So the best strategy might actually be to buy as much ETHPoW as possible before being able to trade on a centralized exchange. After that, you can sell ETHPoW when the centralized exchange becomes available. It’s like a free option on ETHPoW.

Consolidation Trading Strategy

With these potentially controversial chain forks, the Ethereum merger presents an exciting trading opportunity. Here’s a possible “risk-free” trade idea:

1. Before merging, convert all USD in your Ethereum wallet to USDc.

2. Once the merger occurs, sell your USDc on the ETHPoW chain and buy ETHPoW coins on the decentralized exchanges such as UniSwap or Curve.

3. Once the centralized exchange enables ETHPoW deposits, sell all your ETHPoW and exchange for USD.

4. Profit

With the above trades, you may get more USD for free with almost zero risk! Said zero risk is only for certain types of risk, such as price volatility.

Of course, executing the above transactions in reality is actually quite complex and risky, with several issues to manage:

* You need to trade fast as there may be a race to take advantage of this opportunity. The liquidity pool for selling ETHPoW could dry up quickly.

* You will need to manage your own keys instead of using escrow. It is unlikely that any 3rd party custodian will support ERC-20 coins on ETHPoW so soon after the fork.

* Any infrastructure you use to interact with DEXs may support merging and only run on ETH2. Therefore, you may need to run your own Ethereum node to interact directly with smart contracts on ETHPoW. This can be quite complicated for some traders, but this difficulty is where profits may be made. It may be beneficial to do more related exercises on ETH1 before the fork.

* You may need to ensure that your USDc sell/swap orders are not replayed on the ETH2 chain. It may be necessary to create a forked smart contract.

* It is possible that liquidity providers are aware of this potential risk and withdraw liquidity before or shortly after the merger. However, it is also possible that some liquidity providers are too lazy to do so, creating an opportunity.

* Many Defi protocols rely on price oracles, and it may not be clear how to handle the ETHPoW side of the chain.

One might try to apply some more advanced strategies in Defi, including leverage, borrowing, or providing liquidity, but that’s about it for now.

in conclusion

Any chain forks that occur at the Ethereum merge point could be an interesting throwback to the 2016/17 era. While ETHPoW faces many technical challenges, as long as the chain survives, there is likely to be a positive narrative surrounding the coin, with major centralized exchanges likely to list the coin. The crypto world is still largely filled with narrative and noise. ETHPoW could generate a lot of exciting opportunities, and we predict that ETH-ETHPoW will become a hot trading pair after the fork, at least until another interesting situation arises. I wish the game an early start!

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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