Ethereum proof-of-work (PoW) powered by GPUs generated about $19 billion in revenue last year for ETH miners. But these revenue streams are at risk as Ethereum is expected to become a proof-of-stake (PoS) blockchain through “the Merge” upgrade in September.
Miners could then rebel against the new upgrade by continuing to mine the old Ethereum PoW after the hard fork chain split.
Ethereum’s GPU-powered proof-of-work (PoW) generated about $19 billion in revenue last year for ETH miners. But that income is in jeopardy, as Ethereum is set to become a proof-of-concept (PoS) blockchain through the “Merge” upgrade in September.
Miners could then rebel against this new upgrade by continuing to mine the old Ethereum PoW after the chain is split with a hard fork.
A recent survey by cryptocurrency hedge fund Galois Capital found that 33.1% of respondents believe that Merge would create two parallel blockchains: ETH1 (PoW) and ETH2 (PoS).
Question 1: What happens during the merger? If Option 2 or 3 go to Questions 2-5.
— Galois Capital (@Galois_Capital) July 27, 2022
Question 1: What happens during the Merger? If option 2 or 3, skip to questions 2-5. — Galois Capital (@Galois_Capital) July 27, 2022
Still, most respondents, 53.7%, expect the Ethereum chain to transition smoothly from PoW to PoS.
Is PoW ETH1 “illogical”?
But controversial hard forks are nothing new. In fact, the current Ethereum chain emerged in 2016 after a controversial hard fork to undo a $60 million exploit, leading to a chain split between Ethereum and Ethereum Classic (ETC).
This is where the discussion between Ethereum Classic and ETC1 begins. Since Ethereum Classic is already a PoW chain, creating a similar chain, ETH1, according to some Redditors, will not be of “major relevance”.
Some other Reddit comments explain why ETH1 will fail:
At the same time, most respondents to the Galois Capital survey also believe that exchanges and projects (especially Tether) will favor ETH2 over ETH1 in the event of a hard fork.
Question 4: How do exchanges handle perps and futs?
— Galois Capital (@Galois_Capital) July 27, 2022
Question 4: How are exchanges managed perps and the cassocks ? — Galois Capital (@Galois_Capital) July 27, 2022
What does this mean for Ethereum Classic?
After reaching an all-time high in May 2022, the hash rate of the Ethereum network is declining, indicating that miners are stopping or shutting down their installations in the weeks leading up to the Merger.
On the other hand, they could be stakeholders on the Ethereum PoS chain.
The departure of miners from the Ethereum network can be seen in the recent increase in GPU sales in the secondary market (versus a decrease in demand), according to Tom’s Hardware GPU Price Index.
However, the number of social media threads has also increased, indicating that the miners’ strategy after the Merger is likely to be to switch to a more profitable PoW chain.
As of July 29, Ethereum Classic topped miner interests due to its weekly profitability of 116%, according to data from WhatToMine.com.
Amazing – miner/hash revenue in USD for ETC has just surpassed the revenue for ETH… (chart @coinmetrics) pic.twitter.com/x5RJs7lUrj
— Noelle Acheson (@NoelleInMadrid) July 29, 2022
Unbelievable – USD/hash mining revenue for ETC surpassed ETH revenue…(chart @coinmetrics) pic.twitter.com/x5RJs7lUrj — Noelle Acheson (@NoelleInMadrid) July 29, 2022.
At the same time, the price of ETCs rose by more than 200% in July.
But that doesn’t take away from the fact that Ethereum Classic is a very small project compared to Ethereum.
As of June 29, Ethereum Classic had more than 53,000 daily active addresses, compared to 763,000 for Ethereum.
The difference suggests that the current ETC price rise is only speculative since Ethereum Classic is still underutilized as a blockchain with only a handful of projects. Therefore, ETC is definitely at risk of falling victim to a “sell the news” event after the Merger.
At the same time, a potential ETH1 PoW chain could also reduce the demand for ETC.
ETC price target
On the weekly chart, the price of ETC hit a confluence of resistance, waiting to be broken out as the euphoria around the Merger grows.
Also read: Cryptocurrency Mining Remains Profitable in the Long Term, Says an Expert
The confluence includes the 0.786 Fib line (~$43) and a multi-month downtrend. Historically, both have limited ETC’s bullish efforts in the past, as seen in the chart below.
However, a separate move raises the signal’s potential to reach $75 thereafter, due to its proximity to the 0.618 Fib line.
Conversely, a pullback move from the resistance confluence or the 0.618 Fib line could cause ETC to fall towards the support zone shown above. It is defined by the red bar, the multi-year rising trendline support (purple) and the lower trendline descending channel (green).
In other words, ETC will likely fall towards the $10-12 zone by September, a 75% drop from the July 29 price.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Cointelegraph.com. All investments and transactions involve risk. You should do your own research before making a decision.
