On the eve of the Ethereum merger: At least 10 teams plan to hard fork, and the interests of all parties are surging

“Do a fork?”

"What?"

The conversation took place between Bao Erye and He Xia (pseudonym), a volunteer of the AWSB community. On July 22, it was just a small gathering among three friends. In the Bay Area of ​​the United States, there is a group of Chinese people who are engaged in the blockchain industry or achieve financial freedom by speculating in cryptocurrencies. They often make appointments with each other for dinner and wine tasting. On this day, someone found a good women's cigarette and asked a friend to try it together.

The Ethereum merger is the biggest hot spot in the silent bear market, and it is also a topic that cannot be avoided at gatherings in the circle. Bao Erye and He Xia hit it off immediately, and they planned to fork an Ethereum fork chain called ETH PoW. Bao Erye, who has his own traffic, stood in front of the stage to attract traffic, while volunteers from the AWSB community completed a series of technical development work in the back. Facing the media, talking about the original intention of doing this, Bao Erye smiled and said, "I hope my epitaph will say that I forked Ethereum twice."

At the gathering that day, another person named Yang Kai (pseudonym) had made a different choice before that. Unlike Bao Erye and others who chose to fork Ethereum, he turned to support the ecological construction of ETC, and a community called "ETCDAO" was established.

The interests of all parties behind the ETH merger and upgrade are surging, and this gathering also revealed that just like several previous major cryptocurrency fork events, the Chinese are still the protagonists of the story.

Lessons from the Past

History always repeats itself in a surprising way. Those who once participated in the Bitcoin fork have once again taken up the banner of the Ethereum fork.

Bao Erye, who forked Bitcoin God in 2017 and supported multiple ICO projects, has accumulated a lot of infamy for "cutting leeks" and is the most vocal among all the teams involved in the Ethereum fork. Liao Xiang, who forked Bitcoin Gold in 2017, invested in three teams to participate in the Ethereum fork competition this time. Compared with the previous two, the head of the Ethereumfair community, who came from a technical background, is more low-key, and the team has experience in successfully developing public chains.

More teams have yet to surface. According to interviews with several insiders by Chain Catcher, as far as they know, there are about a dozen teams working on Ethereum forks, and when the day comes when Ethereum is actually merged and upgraded, more teams may emerge.

Forking is not a difficult task. These fork teams only need to copy Ethereum's open source protocol and make some modifications, which is also in line with the spirit of blockchain.

But in terms of details, there are various points that need to be handled with caution. From a code perspective, the fork needs to remove all POS conversion logic from the Ethereum testnet code, remove the difficulty bomb, and update the chain ID to provide protection; the mining software may also need to be updated, which requires cooperation with wallet providers to agree to support ETH POW; it is necessary to cooperate with exchanges to agree to support ETH POW.

In addition to solving these problems, the Ethereum fork is also quite different from the Bitcoin fork in 2017. There are a large number of token assets on Ethereum. After the fork is successful, it means that these token assets will also be copied to the forked chain. Whether the token assets on the forked chain are valuable is determined by the market, but there will definitely be a chaotic scene.

There are always too many voices of distrust in the market when facing a team that has just started preparing for a fork. ETC Cooperative, a public charity fund dedicated to supporting the development of the ETC ecosystem, called out to Bao Erye's team: "This is a huge and arduous coordination task, and the merger is only a few weeks away. The current prosperity will most likely not be repeated on the new PoW chain." In their view, it is too late for these teams to start doing things now.

The challenge really begins after the forked chain is made. Does the forked chain have computing power support? Is the project party willing to build an ecosystem on the chain? Only when the ecosystem is truly established, can this chain be considered truly valuable.

In 2017, Bitcoin had disagreements within the community over the issue of capacity expansion, and eventually a new chain BCH was hard forked. With the outbreak of the bull market in 2017, more Bitcoin forks appeared, such as Bitcoin Gold BTG, which opposed segwit2x, and Bitcoin Diamond BCD, which increased the block speed by five times. At one point, there were more than 70 forked coins on the market, but most of them had no value and no computing power support, and soon died out.

ETC is a typical case. In 2016, due to a vulnerability in a project on Ethereum, hackers stole ETH worth $60 million at the time. The Ethereum development team then modified the Ethereum software code and transferred all the project's funds to a specific refund contract address, thereby taking back all the ETH stolen by hackers.

Some miners disagreed with this change, so Ethereum hard forked into two chains. The old chain was renamed ETC, and the new chain is the ETH that everyone sees now. The two chains represent different communities and consensus.

At that time, most miners and project owners chose to follow the new ETH supported by Vitalik. The ETC community has always adopted a "hands-off" governance approach, and its development has stagnated. In fact, although ETC is a mainstream currency, new public chains have continued to emerge in the past six years. Because it lives under the shadow of Ethereum, ETC does not have much competitiveness, because the ecology on the chain has not been established, and it has become more of a target of speculation.

No gain, no early rise

When Ethereum switches to POS, where will the computing power that originally supported Ethereum go? Some miners will choose to mine other PoW tokens. Some computing power will be diverted to ETC. With the computing power coming, if the ecosystem on the chain is established, perhaps the development of ETC will usher in a turnaround. Yang Kai supports the development of ETC, betting that ETC will take over part of the computing power after Ethereum switches to POS.

The bullish sentiment towards ETC is also reflected in the price of ETC. In March 2022, news about Ethereum miners considering transitioning to ETC began to spread, causing the price of ETC to rise by 103% in 11 days. Despite speculation around a new ETHW fork after the merger, ETC has risen again, up more than 198% since July 12.

Yang Kai established an ETC support group. Every new member of the group needs to express what he or she can do for the ETC ecosystem construction, which will then be sorted out by ETCDao volunteers.

Yang Kai called out in the group, “Everyone hurry up and build, don’t mind the traffic. When the tide of the forked chain recedes, all PoW traffic will converge on ETC. At that time, early builders will be able to easily reap the global PoW traffic dividend.”

Some people responded, "Just wait for the surge."

In addition to supporting ETC, forking is also a business that will not lose money. "Everyone thinks that they can still make money like in 2017. There is no such thing as profit. Isn't it all for the sake of making money?" Liao Xiang bluntly pointed out the original intention of everyone's forking.

He Xia told Chain Catcher that the initial investment for the fork is just the cost of purchasing a few servers, and there are about 8 core developers, who are distributed all over the world and all contribute for free. After the fork is successful, the ETHW team will hand over the project to the community for joint governance.

According to a rule of the forked chain of the Bao Erye team circulating on the Internet, its forked chain "except for the abolition of EIP-1559, other functions are consistent with Ethereum."

After seeing this, Liao Xiang directly criticized the Bao Erye team to the chain catcher, "The first thing they announced was to recover the coins destroyed by EIP-1559. That will recover about 2.5 million coins. How will these coins be distributed? They said there will be no pre-mining and no additional issuance, so isn't this pre-mining and additional issuance?"

Liao Xiang commented on the forked teams that compete with him: "These teams have two ways to make profits. One is a long-term approach, and the other is a short-term approach. The short-term approach is to create a coin, find some exchanges to cooperate with, pump and dump the price to sell, and then leave after making a profit."

He said that what he wanted to do was to hedge against the uncertainty and risk of Ethereum upgrades, so he chose to invest in three different teams to fork Ethereum. “I don’t know which one will succeed.”

However, the person in charge of another forked team said, "The fact that Liao Xiang's team has invested in it means that this interest has already existed, and some of his teams have also changed the mining rules. How will the miners' mining and your investment be distributed then?"

For the fork teams, there are definitely benefits. The fork team Ethereumfair community also does not shy away from the fact that their fork chain will bring benefits to their team. First of all, if the fork chain is successful, it will bring fame to the team. Secondly, the team is also discussing that on the existing Ethereum, there are 13 million ETH in the account with the largest currency. This address is the pledge contract address of the beacon chain of Ethereum to PoS, and the contract is controlled by the Ethereum Foundation. The team thinks that this design is not good, so when forking, the ledger of these 13 million ETH can be synchronized. According to the current plan, the team plans to invest 70% of the 13 million candy coins after the fork to the token owners of ClassZZ, another public chain developed by the team, as well as the holders of BTC, DOGE, and ETC tokens, and the other 30% will be obtained by miners, technical communities, exchanges, etc. who support the fork chain.

It is not just the team that participates in the fork that can benefit. Liao Xiang recalled that when the Ethereum merger and upgrade was not yet heated up, he always met with cold eyes when he went to the mining farms, exchanges, and project parties to discuss cooperation. But in the past half month, there are always endless meetings and endless partners.

As the largest "casino" in the cryptocurrency circle, the exchange will not miss this wave of traffic. Currently, Poloniex, MEXC and Gate have launched futures of the forked coin ETHW, and the price of the futures product is nearly 80USDT at its highest. A participant of the forked team told Chain Catcher that this price has exceeded his expectations. He believes that when the forked token is launched, 1 USD should be a relatively normal price.

The enthusiasm for speculation is surging in the hearts of retail investors. Where there is heat, there is room for speculation. For users holding ETH, a successful fork means that they will receive corresponding "candy" benefits.

A fork team supported by Liao Xiang has started to set up a fork arbitrage group. People who join the group need to pay 200 yuan. The group owner told reporters that this group will invite experts to tell everyone how to arbitrage after the fork is successful. For retail investors, holding Ethereum and waiting for the candy after the fork is a business that is sure to make money.

The fund company FBBank now holds about 300 ETH. The head of the fund told Chain Catcher that they are just keeping the ETH and will sell it immediately if they get the forked coins. The fund is not optimistic about these forked coins. In the eyes of the fund head, he does not trust the forked chain and thinks it is difficult for them to succeed.

As for Ethereum’s conversion to POS, he remains as devout as a believer, “After the conversion to POS, Ethereum’s gas fee is lower and more efficient.” He believes that Ethereum’s ecosystem will be richer, and this upgrade is also an opportunity for miners to sell their stocks. ETH will enter deflation after the conversion to POS. After the conversion to POS, other POS public chains will no longer be ETH’s rivals. He is bullish on the price of ETH in the long term, and he thinks it’s time to sell when ETH rises to $10,000.

Is the dispute between POS and POW related to faith?

Whether it is the team that wants to do a hard fork of Ethereum or the members of ETCDao, they all said that they insisted on PoW in order to uphold the ideal of decentralization, or to keep a "Plan B" in Ethereum.

The main difference between PoS and PoW is how to determine the voting rights in the blockchain consensus. In PoW, the voting rights are proportional to the computing power of the node; while in PoS, the voting rights of the system are proportional to the proportion of equity held. In layman's terms, after switching to PoS, the more ETH you hold, the greater your voting power, which has become one of the reasons why PoW supporters attack PoS. But if you look deeper into it, the computing power is closely related to the competition for capital.

“After changing to POS, will the US SEC regulate the POS? After you change the POS, it is equivalent to having a controlling entity. But you cannot regulate POW because various anonymous nodes are distributed all over the world,” said Yang Kai.

It is undeniable that regulation is the sword of Damocles hanging over ETH. In this regard, Ethereum founder Vitalik participated in a discussion on Twitter about how the Ethereum community would react if regulators conducted protocol-level reviews of Ethereum through validator nodes of certain protocols (such as Lido, Coinbase, etc.), and said that they would regard such reviews as an attack on Ethereum and choose to destroy these nodes through a broader consensus (social consensus). This response seems to threaten the asset security of Ethereum holders.

Emerging public chains generally adopt the POS consensus mechanism, which is undoubtedly an irreversible trend. Public chains that cannot adapt to the development trend seem to be abandoned by the world. A miner who still holds an ETH graphics card mining machine commented on ETC: "ETC's code version is too old, even older than TRON." Although his existing ETH mining machine can only be switched to mining ETC after upgrading. "But he is not optimistic about the development of ETC and has been hesitating and watching. Outdated public chains will always slowly fade away.

For miners, after Ethereum switched to POS, they can only "go with the flow." Whether to support POW consensus has nothing to do with faith and is almost entirely based on considerations of profit.

This time, it is different from the Bitcoin fork in 2017. At that time, Bitmain, the largest holder of Bitcoin computing power, led the Bitcoin fork, apparently for the purpose of protecting the interests of miners.

Howie, an old miner who entered the industry in 2013, invested a lot of computing power to support Bitmain's forked BCH when Bitcoin forked in 2017. Not only that, they also connected resources to build an ecosystem, and they made money from their investment. But a year later, the BCH community had a split in ideas. At that time, he judged that BCH could not continue to go on, so he stopped investing computing power. At the end of 2018, the market value of BCH shrank by 90%.

Forking is easy, and faith is easy to build. But faith can also collapse in an instant. With the experience of supporting BCH, he now has a more cautious and rational attitude towards whether to support Ethereum's forked chain. He has his own observations and judgments on the ETHW chain of the Bao Erye team. When the first version of the code came out, he felt that the quality was average and the logic was incomprehensible. There was no spiritual leader to lead the technology. Some bugs even caused security issues (the team has been notified).

“Today, there is no shortage of chains. What everyone is competing for is attention and support from all parties. However, it is much more difficult to build a good chain, iterate the code, and build consensus and ecology than in the past.”

Now he has only a few hundred Ethereum mining machines left. After Ethereum is upgraded, the chip machines in these machines can only mine ETC and Ethereum hash coins, and the graphics cards will handle it flexibly. In 2016-2017, the peak computing power managed by his company accounted for 8% of Ethereum. After years of hard work in the industry, he will consider the situation and deploy the number of mining machines. For example, at the peak of the bull market last year, his company sold many mining machines. He has been paying close attention to various developments in Ethereum. On December 15, 2021, the test network was launched. He observed the structure of the block and found that many POW things in the future would either be replaced or empty. At this time, he realized that the trend was irreversible and the machines that should be sold should be sold.

But more small miners do not have much foresight. Xie Zehai (pseudonym) is a distributor of ETH graphics card mining machines and also a miner. He still has one or two thousand Ethereum mining machines. Previously, he sold some of his low-computing mining machines and kept these high-computing mining machines. When ETH is completely converted to POS, he will transfer all these mining machines to mine ETC. When the ETH market was good during the bull market last year, each mining machine could earn about 200 yuan a day, but now, one machine only earns about 50 yuan a day. He calculated that when it is transferred to the ETC mining network, a mining machine will also earn about 50 yuan a day. The expected income is definitely not as high as when mining ETH, but he also accepted this result, "at least there is still something to mine."

As a miner, he is not optimistic about various forked chains. He analyzed that if the price of a forked chain coin is really driven up, miners may rush in to mine this forked coin within a month or two.

But in the long run, miners still hope to store their coins after mining them and wait for the right price to sell them. He calls this "having food in hand, not panicking mentally". Although the profit from mining ETC is not as high as that from ETH. But he thinks that after all, this currency has been around for six years, and there are bankers behind it. When the bankers pull up the market, it is time for miners to sell.

Most miners are ready for the upgrade. Xie Zehai remembers that ETH had started planning to upgrade POS since 2018. He mined with the mentality of mining as much as possible and earning as much as possible.

Xie Zehai has been in this industry for a long time and has made money. He analyzed that if someone bought a mining machine when the price was high last year, coupled with the subsequent drop in ETH prices, it would only take three years to get their money back. For these small miners, the upgrade of ETH has the greatest impact on them, and the payback period will be foreseeably extended again.

As the Ethereum upgrade is approaching, he has a lot of second-hand mining machines for sale. In order to sell these mining machines as soon as possible, he deceived people who don't know much about it, saying that Ethereum's POW and POS mechanisms will run in parallel for at least a year, and they can continue to mine ETH. The sales of mining machines in the past few months have been far less than last year. Last year's record of 10,000 units a month has now been reduced to only a few hundred units a month. And for each machine sold, he can only earn 100 or 200 yuan.