Ethereum Merge Eve: At least 10 teams plan hard forks, with various interests surging beneath the surface

Author: Jessy, Chain Catcher

"Are we forking?"

"Why not?"

The conversation took place between Bao Er Ye and a volunteer from the AWSB community, He Xia (pseudonym). On July 22, it was just a small gathering among three friends in the Bay Area of the United States, where a group of Chinese engaged in the blockchain industry or achieving financial freedom through cryptocurrency trading often meet for meals and wine tasting. That day, someone found some good ladies' cigarettes and invited friends to try them out.

The Ethereum merge is the biggest hot topic in the quiet bear market and an unavoidable subject at gatherings in the circle. Bao Er Ye and He Xia hit it off, and they discussed forking a chain called ETH PoW. With his built-in traffic, Bao Er Ye took the stage to attract attention, while the volunteers from the AWSB community worked behind the scenes to complete a series of technical development tasks. When speaking to the media about the motivation for this endeavor, Bao Er Ye smiled and said, "I hope my epitaph reads 'the man who forked Ethereum twice.'"

At that small gathering, another person named Yang Kai (pseudonym) had already made a different choice. Unlike Bao Er Ye and others who chose to fork Ethereum, he turned to support the ecological development of ETC, establishing a community called "ETCDAO."

The interests behind the ETH merge upgrade are swirling, and this small gathering revealed that, like previous major events in the cryptocurrency world, the Chinese remain the protagonists of the story.

Lessons from the Past

History is astonishingly similar; those who once participated in Bitcoin forks are once again shouldering the banner of Ethereum forks.

Bao Er Ye, who forked Bitcoin God in 2017 and supported multiple ICO projects, has accumulated quite a reputation for "scalping" and is the most vocal among all teams participating in the Ethereum fork. Liao Xiang, who forked Bitcoin Gold in 2017, has invested in three teams to participate in the competition for the Ethereum fork. Compared to the first two, the head of the Ethereumfair community, with a technical background, is more low-key, having experience in successfully developing public chains.

More teams have yet to surface. According to multiple insiders interviewed by Chain Catcher, there are about a dozen teams currently working on the Ethereum fork, and more teams may emerge by the time Ethereum truly merges and upgrades.

Forking is not a difficult task; these fork teams only need to copy Ethereum's open-source protocol and make some modifications, which aligns with the spirit of blockchain.

However, there are various details that need to be handled with caution. From a coding perspective, forking requires removing all POS conversion logic from the Ethereum testnet code, deleting the difficulty bomb, and updating the chain ID for protection; mining software may also need to be updated, which requires cooperation with wallet providers to agree to support ETH POW; cooperation with exchanges is also necessary to agree to support ETH POW.

In addition to solving these issues, this Ethereum fork differs significantly from the Bitcoin fork in 2017. Ethereum has a large number of token assets, and a successful fork means that these token assets will also be replicated on the forked chain. Whether the token assets on the forked chain have value is determined by the market, but chaotic scenarios are sure to arise.

Faced with teams that have hastily begun preparing for the fork, there are always too many voices of distrust in the market. The public charity fund ETC Cooperative, focused on supporting the ETC ecosystem, called out to Bao Er Ye's team: "This is a huge and arduous coordination task, and with only a few weeks until the merge, the current prosperity is unlikely to be replicated on the new PoW chain." In their view, these teams are starting too late.

Once the fork chain is created, the real challenges begin. Does the fork chain have the support of computing power? Are the project parties willing to build an ecosystem on the chain? Only when the ecosystem is truly established can this chain be considered to have real utility.

In 2017, Bitcoin faced a split due to disagreements over scalability, ultimately resulting in the hard fork of the new chain BCH. With the outbreak of the 2017 bull market, more Bitcoin fork coins emerged, such as Bitcoin Gold (BTG), which opposed segwit2x, and Bitcoin Diamond (BCD), which increased block speed fivefold. At one point, there were over 70 fork coins on the market, but most had no value and lacked computing power support, quickly fading into obscurity.

ETC is an even more 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 modified the Ethereum software code to transfer all project funds to a specific refund contract address, reclaiming all the ETH stolen by the hackers.

Some miners disagreed with such modifications, leading to a hard fork of Ethereum into two chains: the old chain was renamed ETC, while the new chain is what we now see as ETH, with both chains representing different communities and consensus.

At that time, most miners and project parties chose to follow the new ETH supported by Vitalik. The ETC community has always adopted a "laissez-faire" governance approach, resulting in stagnation. In fact, although ETC is a mainstream coin, over the past six years, new public chains have continuously emerged, and living in the shadow of Ethereum, ETC has not had much competitiveness, as the ecosystem on the chain has never been established, becoming more of a speculative target.

No Profit, No Early Start

With Ethereum transitioning to PoS, where should the computing power that originally supported Ethereum go? Some miners will choose to mine other PoW tokens. Some computing power will flow to ETC. If the computing power comes in and the ecosystem on the chain is established, perhaps ETC's development can welcome a turning point. Yang Kai supports the development of ETC, betting that ETC will take on some of the computing power after Ethereum transitions to PoS.

People's optimism about ETC is also reflected in its price. In March 2022, news about Ethereum miners considering transitioning to ETC began to circulate, causing ETC's price to rise by 103% in 11 days. Although speculation surrounded the new ETHW fork after the merge, ETC rose again, with an increase of over 198% since July 12.

Yang Kai established a support group for ETC, where each new member must state what they can contribute to the ecological development of ETC, which volunteers from ETCDao then compile.

Yang Kai urged in the group, "Everyone hurry to build, don’t mind the traffic; when the tide of the fork chain recedes, all PoW traffic will converge on ETC, and then early builders will easily reap the global PoW traffic dividends."

Someone responded, "Just wait for the surge."

In addition to supporting ETC, forking is also a business that won't lose money. "Do you all think you can still make money like in 2017? No profit, no early start; all the hustle and bustle is just to make money," Liao Xiang bluntly pointed out everyone's original intention for forking.

He Xia told Chain Catcher that the initial investment for the fork was just the cost of purchasing a few servers, with about eight core developers, who are distributed globally and working voluntarily. Once the fork is successful, the ETHW team will hand over the project to the community for joint governance.

According to a set of rules for the fork chain from Bao Er Ye's team circulating online, their fork chain "maintains all functions consistent with Ethereum, except for the abolition of EIP-1559."

After seeing this, Liao Xiang directly confronted Bao Er Ye's team, saying, "They first announced that they would recover the coins destroyed by EIP-1559. That would recover about 2.5 million coins; how will these coins be distributed? They said no pre-mining and no inflation, but isn’t that just pre-mining and inflation?"

Liao Xiang commented on the fork teams competing with him, "These teams have two ways to profit: one is a long-term strategy, and the other is a short-term strategy. The short-term strategy is to create a coin, collaborate with some exchanges, pump and dump, and then leave after scalping."

He himself stated that he wanted to hedge against the uncertainty and risks of Ethereum's upgrade, so he chose to invest in and support three different teams to fork Ethereum. "I don’t know which one will succeed."

However, from the perspective of another fork team's leader, "Liao Xiang's team has investments in it, which means that these interests already exist, and some of the teams under him have even changed the mining rules. How will the distribution of what miners mine and what you invest in be handled?"

For the fork teams, interests are certainly present. The Ethereumfair community also does not shy away from the fact that their fork chain will bring benefits to their team. Firstly, if the fork chain is successful, it will bring fame to the team. Secondly, the team is discussing that on the existing Ethereum, the account holding the most coins has 13 million ETH, which is the staking contract address for the PoS beacon chain controlled by the Ethereum Foundation. The team believes this design is flawed, so during the fork, they can unsynchronize the ledger of these 13 million ETH. According to current plans, the team intends to allocate 70% of the 13 million candy coins after the fork to the holders of the tokens for another public chain developed by the team, ClassZZ, as well as holders of BTC, DOGE, and ETC tokens, with the remaining 30% going to miners, technical communities, exchanges, etc., supporting the fork chain.

Not only can the participating fork teams gain benefits, but Liao Xiang recalled that before the hype around Ethereum's merge upgrade had heated up, he often faced cold shoulders when seeking cooperation with mining farms, exchanges, and project parties. However, in the past month and a half, he has been in endless meetings with countless partners.

As the largest "casino" in the cryptocurrency world, exchanges will not miss this wave of traffic. Currently, three exchanges, Poloniex, MEXC, and Gate, have launched futures for the fork coin ETHW, with the price of this futures product reaching nearly 80 USDT at its peak. A participant from a fork team told Chain Catcher that this price has exceeded his expectations, and he believes that when the fork token goes live, $1 should be a more normal price.

Speculative enthusiasm 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 they will receive corresponding "candy" benefits.

One of the fork teams supported by Liao Xiang has already started a fork arbitrage group, where participants need to pay 200 yuan to join. The group leader told reporters that experts will be invited to teach everyone how to arbitrage after the fork is successful. For retail investors, holding Ethereum and waiting for the candy after the fork is a surefire business.

The fund company FBBank currently holds around 300 ETH. The fund manager told Chain Catcher that they are just holding onto the ETH for now, and if they receive the fork tokens, they will sell them immediately. The fund does not have high hopes for these fork tokens; in the eyes of the fund manager, he does not trust the fork chains and believes they will be hard to establish.

However, regarding Ethereum's transition to PoS, he maintains a devout belief, saying, "After transitioning to PoS, Ethereum's gas fees will be lower and more efficient." He believes that Ethereum's ecosystem will become richer, and this upgrade is also an opportunity for miners to offload their assets. He sees the post-PoS ETH entering a deflationary phase. After transitioning to PoS, he believes that other PoS public chains will no longer be competitors to ETH, and he is bullish on ETH's price in the long term, thinking that when ETH reaches $10,000, it will be time to sell.

Is the PoS and PoW Debate Related to Belief?

Whether it is the teams wanting to fork Ethereum or the members of ETCDAO, they all claim that they insist on PoW to uphold the ideal of decentralization or to keep a "Plan B" in Ethereum.

The main difference between PoS and PoW lies in how voting rights in blockchain consensus are determined. In PoW, voting rights are proportional to the computing power of the nodes; in PoS, the system's voting rights are proportional to the stake held. Simply put, after transitioning to PoS, the more ETH one holds, the greater the voting power, which has become one of the reasons PoW supporters attack PoS. However, delving deeper, the competition behind computing power is closely related to capital.

"After switching to PoS, will the SEC in the U.S. regulate this PoS? Once you switch to PoS, it’s equivalent to having a controlled entity. But with PoW, you can't regulate it; the anonymous nodes are distributed all over the world," Yang Kai said.

Undeniably, regulation hangs over ETH like the sword of Damocles. In response, Ethereum founder Vitalik participated in a Twitter discussion about how the Ethereum community would react if regulators conducted protocol-level scrutiny of Ethereum through validators from certain agreements (like Lido, Coinbase, etc.). He stated that such scrutiny would be viewed as an attack on Ethereum, and the community would choose to destroy these nodes through 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 this development trend seem destined to be abandoned by the world. A miner still holding ETH graphics card mining machines commented on ETC: "ETC's code version is too old; it's an older version than Tron." Although his ETH mining machines can only switch to mining ETC after the upgrade, "he does not have high hopes for ETC's development and is still hesitating and observing. Outdated public chains will gradually fade away.

For miners, after Ethereum transitions to PoS, they can only "go with the flow." Whether to support PoW consensus is unrelated to belief and is almost entirely based on profit considerations.

This time, unlike the Bitcoin fork in 2017, when the largest Bitcoin mining power holder Bitmain led the Bitcoin fork, seemingly to protect the interests of miners.

Old miner Howie, who entered the industry in 2013, invested a lot of computing power to support Bitmain's BCH fork during the 2017 Bitcoin fork. Not only that, but they also connected resources to build an ecosystem, and in the process, they made money. However, a year later, the BCH community experienced a split in ideology, and he judged that BCH could not continue, so he stopped investing computing power. By the end of 2018, BCH's market value had shrunk by 90%.

Forking is easy, and building belief is also easy. But the collapse of belief can happen in an instant. Having the experience of supporting BCH, he now takes a more cautious and rational attitude toward whether to support the Ethereum fork chain. He has his observations and judgments about Bao Er Ye's ETHW chain. When the first version of the code was released, he felt the quality was average and the logic was incomprehensible, lacking a leading technical spiritual leader. Some bugs could even trigger security issues (which have been reported to the team).

"Today, there is no shortage of chains; what everyone is competing for is still attention, vying for support from all sides, while doing a good job on a chain, constantly iterating the code, and establishing consensus and ecology is much more difficult than in the past."

Now he has only a few hundred Ethereum mining machines left. After Ethereum's upgrade, these machines will only be able to mine ETC and Ethereum hash coins, while graphics card machines can be flexibly managed. His company managed to occupy 8% of Ethereum's peak computing power in 2016-2017. Having been in the industry for many years, he strategically adjusts the number of mining machines, such as selling many machines at the peak of last year's bull market. He has been closely monitoring various developments in Ethereum. On December 15, 2021, when the testnet went live, he observed the structure of the blocks and realized that many PoW elements would either be replaced or become obsolete, prompting him to recognize the irreversible trend and that it was time to sell the machines that needed to be sold.

However, more small miners lack foresight. Xie Zehai (pseudonym), a dealer of ETH graphics card mining machines and also a miner, currently has about one to two thousand Ethereum mining machines. Previously, he sold some of his lower-power mining machines, leaving these high-power ones. Once ETH fully transitions to PoS, he will switch all these machines to mine ETC. Last year, during the bull market, each mining machine could earn about 200 yuan a day, but now it’s only about 50 yuan a day. He calculates that when transitioning to the ETC mining network, each machine will also earn about 50 yuan a day. The expected income will definitely not be as high as when mining ETH, but he has accepted this outcome, saying, "At least there’s still something to mine."

As for various fork chains, he is not optimistic. He analyzes that if the price of a fork chain does rise, miners may rush to mine this fork coin within a month or two.

However, in the long run, miners still hope to hold onto their coins after mining and sell them at the right price. He calls this "having grain in hand, not panicking." Although the profits from mining ETC are not as high as those from ETH, he believes that this coin has been around for six years, and there are speculators behind it. When the speculators pump the price, it will be time for miners to sell.

Most miners have already prepared for the upgrade. Xie Zehai remembers that Ethereum has been planning to upgrade to PoS since around 2018. He has been mining with the mindset of maximizing his earnings for as long as possible.

Having been in the industry for a long time and having made money, he analyzes that for those who bought mining machines when prices were high last year, combined with the subsequent decline in ETH prices, they only had three years to break even. For these small miners, Ethereum's upgrade has the most significant impact on them, and the payback period is predictably extended again.

As the Ethereum upgrade approaches, he has a lot of second-hand mining machines waiting to be sold. To sell these machines quickly, he has been misleading those who are not knowledgeable about the industry, claiming that Ethereum's PoW and PoS mechanisms will run in parallel for at least a year, and they can continue to mine ETH. In recent months, the sales of mining machines have far from matched last year's performance, dropping from ten thousand machines a month to only a few hundred now. For each machine sold, he can only earn one or two hundred yuan.