Last Thursday’s Ethereum “Merge” has so far been deemed a technical success, but it is a different story for the few network forks seeking to keep a part of the world’s second-largest blockchain using the energy-intensive proof-of-work (PoW) consensus mechanism.
Concerned that Ethereum’s transition to a proof-of-stake (PoS) mechanism would end their revenue stream, multiple PoW forks have arisen to keep ETH miners in business.
But plagued by technical issues and plummeting token prices, these networks also lack the support of many major exchanges or Ethereum developers, Charlie Karaboga, chief financial officer and co-founder of Australian blockchain fintech company Block Earner, told Forkast in a written statement.
“The general opinion in the crypto community is that none of these forks will drive significant demand,” he said.
Ethereum miners are significant stakeholders in the Ethereum ecosystem; however, if their PoW forks do not gain widespread adoption, they are unlikely to generate the revenue they were seeking in forking the network in the first place.
One of the leading forks known as ETHPoW went live with its mainnet shortly after the Merge with its native currency ETHW. Led by prominent Chinese miner Chandler Guo, this fork developed a following as a viable alternative in the lead-up to the Merge.
Issued originally as IOUs before going live, ETHW had a great deal of price volatility on the actual day of the Merge before dropping by 68% to US$8.01 over the next 24 hours.
Ethereum holders were advised they would be airdropped ETHW tokens once the fork went live; however, a mix-up in the network’s new Chain ID — an identifier that points to a unique network — meant some users did not receive the new token while scammers were quick to move in to make the most of the confusion.
The issue was that ETHPoW developers had mistakenly assigned the Chain ID 10001 to the network, which was already in use by Testnet token Smart Bitcoin Cash, leading to error messages on crypto wallets when trying to add the network.
While the issue was quickly amended the token has continued to fall in price since and was trading at US$5.21 as of 4:15 p.m. in Hong Kong on Monday.
Another major fork goes by the name of EthereumFair, or ETF, which claims to be the first forked PoW chain, experienced the same trading volatility shortly after the Merge.
ETF dropped 88% to US$2.05 in the following few days, though it has since seen a recovery to US$4.61 as of 4:15 p.m. in Hong Kong on Monday.
Karaboga told Forkast he wasn’t surprised by the price drop.
“Many PoS supporters waited on the sideline for their free airdrop once the Merge was confirmed,” he said. “To make a profit, they very quickly sold these assets in the supported markets. The mass sale of assets has caused prices to fall.”
While he expected a small uptake later down the line, Karaboga added that without the support from developers, the long-term success of these tokens is likely to be limited.
PoW forks face another major hurdle. ETH’s new PoS model is believed to be roughly 99.95% more energy efficient than its PoW predecessor.
“The climate change concerns make things difficult for these forks as their models are not outwardly eco-conscious, where the new PoS model is,” Karaboga said.
PoS skeptics argue the trade-off for this energy efficiency is the risk of increasing the centralization of the network — a concern that appears to be being born out.
In the first few hours after the Merge, analysis firm Santiment reported that 46.15% of Ethereum’s PoS nodes are controlled by only two addresses.