ETH POW Fork After the Merge: Can You Trade It?

ETH POW

The Ethereum Merge has been estimated to happen around September 15th. The role of the current Ethereum miners will be played out. Or will it? If they choose to continue mining the current (then: old) Ethereum chain, will there be two Ether coins? Indeed. Some exchanges have already signaled they will list a possible ETH POW coin post-Merge. How to deal with this?

First, a reminder of what the Merge is. The network that we know as Ethereum (ETH1) will be merging with the Beacon Chain (ETH2). Until the Merge, the Beacon Chain is a separate network running parallel to Ethereum. The Ethereum Merge refers to the merging of the current Ethereum blockchain and the chain that is now running in parallel and being tested: the Beacon chain. This Beacon chain, which is based on Proof-of-stake (PoS), will become the main chain after the Merge. It will, as it were, swallow the old chain, including its entire history.

eth POW

Source image: Ethereum.org

Will you Own Double the Amount of ETH Coins Post-Merge?

In principle, and after all the dust will have settled, nothing will have happened. So don’t stress. Your existing ETH will work just as it always has and be unaffected. You do not need to do anything. You don’t need to buy another ETH asset to participate in Ethereum 2. But for those of us who are interested in deep-dives and trading, listen to this.

After the Merge, the miners are no longer needed to secure the Ethereum blockchain and are invited to switch off their equipment – or move to Ethereum Classic, which will stay a proof-of-work chain. But miners have a financial incentive to keep mining the old chain and extract the last bit of value out of it. And nobody can tell anyone not to trade the coin associated with the old chain. Let’s call that coin ETH POW. Exchanges like Poloniex have already stated that they will support this potential Ethereum POW coin:

‘Prior to the official ETH 2.0 upgrade, ETH holders on Poloniex can go to the swap page to swap their ETH into two “potential forked” tokens, ETHS [IOU] and ETHW [IOU], at a 1:1 ratio’. 

So on an exchange like Poloniex, you can make sure that you will get both the old ETH POW token and the new Proof-of-Stake (POS) ETH token. And you could sell that ETH POW token on the market as you choose.

What if the Merge will complete without a fork? In that case, nothing happens. Poloniex will just keep the ETH symbol. ‘In this case, Poloniex will suspend and delist ETHS, ETHW, and their associated markets.’

Historical Parallels: Bitcoin Cash and Ethereum Classic

Just look at the continuing existence of Ethereum Classic (ETC): it proves that old and unused chains can still have a price. Ethereum Classic, as the name suggests, was the original Ethereum. After the DAO hack of 2016, Ethereum decided on a hard fork. All app development since, has happened on the new Ethereum chain, which we simply know as Ethereum. Still, ETC, the coin of the ‘ghost chain’ Ethereum Classic, trades at 40 dollars.

A hard fork is like an airdrop to holders of the original token. For example, people that held Bitcoin before the Bitcoin Cash hard fork in 2017, would automatically be ‘airdropped’ a similar amount of Bitcoin Cash. They could opt to hold or immediately sell. As can be seen from the below graph, hodlers of BCH were not rewarded: since 2017, BCH has lost 95% of its value in Bitcoin terms.

potential fork

BCH to BTC (source: Coinmarketcap)

The price history of Ethereum Classic (ETC) versus ETH has a very similar look. ETC has even dumped faster. 

POW potential fork

 ETC to ETH (source: Coinmarketcap)

Implications of an Ethereum Fork Post-Merge

It is interesting to consider the intricacies of a fork. What happens in the background? Unlike the Bitcoin and Ethereum forks of the past, there is now a gigantic ecosystem of apps and tokens making use of the Ethereum blockchain. If the miners continue to run the old chain, they will create a sort of parallel universe of sorts in which the Merge never happens. It will have the Ethereum-supported assets living on like ghost assets.

So in that science fiction sense, you will have twice the amount of USDC you owned before the Merge, and twice the amount of (Ethereum-based) NFT’s. But in practice, it won’t matter. The major players have signaled support for the POS chain. For example, USDC, won’t recognize coins on the potential ‘parallel universe twin USDCs’ on the hard-forked POW chain as valid. The same goes for Chainlink, which has said it would not support any network that is a forked version of Ethereum. “Users should be aware that forked versions of the Ethereum blockchain, including PoW forks, will not be supported by the Chainlink protocol.” 

So What is the Potential Trade?

After the Merge, all tokens on the POW chain will probably become worthless… except the Ethereum POW coins themselves. After all, it will be a functioning chain that offers a real alternative to POS Ethereum, which has its vulnerabilities.

The trade is generally speaking to buy ETH, loan ETH and then try to get your hands on the POW Tokens. Remove any ETH on Layer 2’s to the Ethereum main chain. If you own staked ETH, which is locked, then loan ETH against staked ETH. Why? In both cases, the Layer 2’s nor the stETH will be forked and hence won’t get the ETH POW ‘airdrop’.

So how do you get your hands on the ETH POW? There are two main ways. First, get them on centralized exchanges that recognize it. Second, buy them on decentralized exchanges.

1. ETH POW on Centralized Exchanges

If you want to trade a possible ETH POW coin, make sure you have an account on an exchange that will support the fork. As of now, we know the following exchanges will (this list could grow, of course):

  • Poloniex
  • BitMEX
  • MEXC Global
  • Gate.io
  • OKX

2. ETH POW on Decentralized Exchanges

Another, more nerve-racking option would be to try to buy ETH POW on dexes like Curve or Uniswap. They might list the ETH POW tokens before cexes. It will possibly be a crowded trade, with liquidity pools that get drained of ETH POW right after the merge. See, that’s the irony: in order to dump ETH POW, first, everyone has to get their hands on it. This may lead to quite high prices.

3. ETH POW on the Futures Market

Another trade is the futures trade. BitMex has listed ETHPOW futures. ETH POW has been trading in the 60 – 80 dollar range for a few weeks. No need to say that trading these futures is speculative. For a start, it isn’t even a certainty that the ETH POW token will exist at all.

Conclusion

For people who sit on the sidelines: get your popcorn, the markets after the Merge will be fun to watch. For those who want to trade: be careful out there. There are quite a few moving parts you’ll have to manage. Be prepared to get in a dog fight with trading bots.

Firstly, moving your coins to a cex always comes with a slight risk. If your exchange doesn’t support the potential fork(s), you’ll have to make an account on a different exchange, possibly one of lesser reputation. 

Second, always be aware of scammers that might want to lure you into fake trades. 

And to be clear: don’t expect the forked POW Ethereum to have lasting value. Even if the Merge won’t be an immediate technical success, issues will be fixed. In the long run, POW Ethereum will trend down in terms of ETH POS. The ETH POW token might spike to decent values though right after the Merge. 

Even though trading is fine, DON’T INTERACT WITH THE HARD FORKED CHAIN. There is a danger of so-called replay attacks, meaning duplicate transactions on the POS chain. Imagine sending ETH POW to someone and them duplicating the same transaction in the POS chain! You will have sent your POS ETH without intending it. 

If you want to trade, be in for a rough ride immediately after the Merge. The first minutes and hours after the Merge, buying and selling ETH POW tokens will be a crowded trade. Probably, it will be easier for centralized exchanges (cexes) to handle the volumes than for dexes. On dexes, you will be troubled by spikes in gas fees.

ETH POW Fork After the Merge: Can You Trade It? - - 2022

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ETH POW Fork After the Merge: Can You Trade It? - - 2022

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