ETHW fell 80% in five days, will it die in the spotlight?

Ethereum merger completed, ETHW emerges

At 14:00 on September 15, 2022 (UTC+8), the epic Ethereum merger was finally successfully completed. Since then, Ethereum has officially entered a new era.

The biggest feature of this merger is that Ethereum's consensus mechanism has changed from PoW (proof of work) to PoS (proof of stake). Although the two are only one letter apart, the interest groups involved in this change are unprecedentedly large.

In the PoW stage of Ethereum, miners compete for the right to record and sort transactions through hash collisions. After adopting proof of stake, people will stake Ethereum on a new chain (beacon chain) and randomly become validators to sort transactions in the network, thus forming a new consensus form.

In addition to some positive iterations, this shift also means that traditional mining activities will become unsustainable, which will undoubtedly have a huge impact on the interests of a large number of miners.

Therefore, as expected, as the progress of the Ethereum merger continues, a fork craze has begun to sweep the mining community. Guo Hongcai (Bao Erye), an early domestic cryptocurrency KOL, and Sun Yuchen, the founder of TRON, have also begun to be active as community leaders. Under the banner of defending the interests of miners, they opened the chapter of Ethereum hard forks.

A bad start

According to the plan, 24 hours after the Ethereum merger is completed, the forked network ETHW (EthereumPow) mainnet that continues to maintain the PoW consensus mechanism will be officially deployed, and then the chain ID of ETHW will be switched. In order to reserve sufficient time, the ETHW mainnet will be launched at a specified time after processing 2048 empty blocks.

But the process did not seem to be smooth from the beginning, and a small incident occurred during the launch of the ETHW mainnet.

On September 16, the day after the Ethereum merger, many users found that they were still unable to access its blockchain using ETHW’s official public mainnet information, and were unable to connect to its network using their crypto wallets.

Subsequently, SmartBCH, the BCH public chain expansion solution, pointed out that the connection problem of the ETHW network may be due to the fact that it used the same chain ID as the SmartBCH test network. Although this problem was subsequently fixed, this unsuccessful start seems to have added a concern to everyone.

After the ETHW mainnet was launched, some of Ethereum's original miners switched their computing power to the ETHW network, with the total network computing power reaching a maximum of 80.56 TH/s.

At the same time, as a forked network of Ethereum, ETHW also issued token airdrops to all ETH holders at a 1:1 ratio. At the same time, trading platforms such as OKX, FTX, and Bitfinex have launched ETHW trading pairs.

Based on previous experience with blockchain forks, the price trend of the forked chain token after it goes online can, to a certain extent, reflect the consensus basis behind it.

Taking the OKX platform as an example, ETHW opened at $15, and its price once rose to $27.99 after it went online. After a brief surge, the price of ETHW began to fall rapidly, and the closing price of the day fell to $12.08, down 56.8% from the highest point.

In the following days, ETHW continued its downward trend. On September 19, ETHW fell to a low of $3.88, and then rebounded to around $5.15, a drop of 81.6% from its high point on the day of listing.

As of now, the price of ETHW has pulled back to $6.42, with little intraday fluctuation.

The main reason why the price of ETHW fell sharply in just 5 days was the large-scale selling by holders who received token airdrops.

According to data from OKEx ETHW browser on September 19, after the launch of the ETHW mainnet, the network processed more than 9.56 billion ETHW transactions. According to its price trend, most users chose to sell after receiving the airdrop. There is even news that Guo Hongcai, as a community leader, has also shorted his ETHW.

The market selling sentiment of ETHW reflects that users are not optimistic about the prospects of this forked network. To make matters worse, in addition to the instability of its own consensus foundation, ETHW has also encountered security doubts in recent days.

Replay attack incident

According to monitoring by security agency BlockSec, an attacker has carried out a replay attack on the ETHW chain. Replay attacks usually occur after a blockchain network forks. Since the addresses and private keys on the two chains are the same, and the transaction formats are exactly the same, transactions on one chain are completely legal on the other chain. Transactions initiated on one chain will also be confirmed if they are replayed on the other chain.

ETHW was not unprepared for this. During the fork preparation, the ETHW team implemented replay protection at the code level, requiring all transactions to be signed with the chain ID. But despite this, someone still found a loophole.

According to analysis, the attacker first transferred 200 WETH to the ETH network through the Omni cross-chain bridge of the Gnosis chain, and then replayed the same message on the PoW chain to obtain an additional 200 ETHW. Although the amount of assets involved in this attack is not large, it has caused users to question the technical capabilities and security of ETHW.

Subsequently, ETHW officially released a statement saying that this attack was not a chain-level transaction replay, but a call data replay caused by a defect in a specific contract. But even so, people's concerns about ETHW are still difficult to dispel.

Looking back on the journey of ETHW, whether it was the use of the same Chain ID as the SmartBCH testnet during the mainnet launch, or the occurrence of replay attacks, it left people with a bad impression of ETHW.

But in reality, these problems that can be solved quickly are all minor technical issues, but the morale collapse they bring is the real fatal blow.

Miners flee with computing power

After the ETHW mainnet was launched, many mining pools such as F2Pool, Poolin and BTC.com announced their support for ETHW mining. The ETHW community also cooperated to launch a backup mining pool - Ethwmine, which is committed to providing long-term mining pool services for ETHW.

These mining pools that serve miners hope to continue to earn revenue from miners who have transferred to ETHW. However, they did not expect that the computing power of the ETHW network would be lost rapidly in just a few days.

When the ETHW mainnet was first launched, some of Ethereum’s original miners switched their computing power to the ETHW network, with the total network computing power reaching a maximum of 80.56 TH/s.

But on September 19, ETHW's total network hashrate dropped to 29.92TH/s. In just four days, ETHW's total network hashrate dropped 62.8% from the peak of 80.56 TH/s after the mainnet was launched. At its current hashrate level, it only accounts for 3.89% of the total hashrate of 769 TH/s before the Ethereum mainnet merger.

In contrast, networks using the same mining algorithm, such as ETC, RVN, and ERGO, have all seen a significant increase in computing power, especially ETC, which has increased from 50 TH/s before the merger to more than 200 TH/s. This also means that ETHW is not the only choice for the original Ethereum miners.

In fact, the reason for the decline in computing power is not difficult to understand. As we mentioned above, in just five days after ETHW went online, its price fell sharply due to large-scale selling by holders.

Due to the poor performance of ETHW prices, more and more miners began to flee with their computing power due to lack of profitability. In the case that the consensus foundation of ETHW is relatively weak, the miners also abandoned it due to lack of profitability, and this forked chain, which has already suffered a lot, now looks even more bleak.

How should ETHW face the future?

It is difficult for us to remain optimistic about the future development trend of ETHW. As we all know, the value of the public chain depends on the construction of the on-chain ecology. The more prosperous the on-chain ecology and the more active the on-chain activities, the more recognized the value of the public chain. However, most of the core developers and mainstream applications of the Ethereum ecosystem currently do not support forked projects such as ETHW, which directly leads to ETHW being unable to inherit the mainstream on-chain applications of the original Ethereum. Therefore, the current ETHW on-chain ecology is very weak.

But ETHW is not completely without support. Ethereum's PoW to PoS not only involves the interests of the miners, but also forces major mining pools to respond. Therefore, many mining pools have announced their support for ETHW.

In addition, many exchanges will also list ETHW one after another according to market conditions, which will enable ETHW to gain certain ecological support in the short term.

However, from a long-term perspective, if ETHW still cannot strengthen the consensus foundation, it will undoubtedly face huge selling pressure and the price may continue to bottom out; and whether the price performance of ETHW can remain healthy depends largely on the public chain ecology and community construction. This is undoubtedly a long and arduous challenge.