In less than five weeks, and barring any unexpected hitch, Ethereum will merge its proof-of-work (PoW) mainnet with the Beacon Chain based on proof-of-stake (PoS).The event, dubbed The Merge, will initiate the phasing out of the PoW and introduce the mainnet to the PoS, but not everyone within the community is on the same page.Some remain disgruntled about this upgrade, which has been in the pipeline for a long time and even seen postponements on several occasions, which didn’t make headlines until recently.
Ethereum Classic development team enters the chat
The conversation around the Ethereum PoW hard fork has continued gaining momentum.On Friday (August 12), the Ethereum developers’ sect pushing for the Ethereum PoW hard fork shared an open letter describing their proposal as an ‘inevitable’ prospect.The ETHPoW team, led by Chandler Guo, also divulged more details about the potential Ethereum hard fork.
The motive behind retaining a PoW hard fork after The Merge is to perpetuate the revenue source for Ethereum miners.The prospect, however, means that there will be two blockchains after the transition, each with a unique native token.
The open letter from the team also responded to a recommendation suggested by the development team behind Ethereum Classic, ETC Cooperative.The ETC Cooperative wrote to Guo on August 8, offering its view on why the Ethereum PoW fork is not only an impractical idea but also an “awfully hard” one to implement successfully.
“You will need to fork Geth (and probably also Erigon, Besu and Nethermind).
Each of those […] will need to have the POS transition logic removed […] the difficulty bomb disabled,” the ETC Cooperative wrote, listing more reasons the hard fork is a cockeyed and burdensome prospect.
ETC Cooperative second Barry Silbert’s recommendation
Pointing to the tedious work involved in forking/updating mining software, persuading the involved authors to accommodate and support the resultant changes, and getting wallet providers as well as exchanges on board so they can support the new native token [ETHW], among other reasons, the Ethereum Classic developers asked Guo to consider calling off this fork.
The team added that the fork would bring discord within the community and eventually collapse after an initial pump due to lack of adoption.The developers concluded the open letter by urging Guo and his fellow developers to consider migrating to Ethereum Classic to retain their revenue in the long-term – a suggestion advanced by Digital Currency Group CEO Barry Silbert.
Guo turned down the ‘offer,’ noting that the Ethereum Classic network is not huge enough to take in the migrating Ethereum miners.He also noted that ETC has failed to establish an ecology and remained stagnated for almost half a decade.
“It is conceivable that ETC will continue to be a giant baby in the future.ETC has not been able to attract the computing power pool in the past, and will naturally not be able to undertake the computing power pool that was abandoned by ETHPoS in the future.”
The ETHPoW team concluded that the need for another PoW besides Ethereum Classic is necessary.
Defusing the difficulty bomb is part of ETHPoW’s initial plans
Regarding the the ‘difficulty bomb’ mechanism, which makes Ethereum blocks harder to mine to disincentivize mining, the ETHPoW noted that it has removed the same from its version, allowing miners to start producing fresh blocks after the mainnet transition to PoS.The team further disclosed that it is working on an ETHPoW testnet – an environment where developers can carry out trials of the fork code ahead of its deployment.
The team intends to execute the fork in September, conceivably around the same time as the PoS transition event.The open letter outlined that the group of about 60 developers working on the hard fork had already updated the chain ID and added protection against replay attacks.
ETHPoW (IOU) price down 55% since launch
The native token of the proposed ETHPoW fork (ETHW) has gained value in some IOU markets over the past couple of days.The price of ETHPoW (IOU), which was highest on the first day, has declined by 54.85% in the past eight days, CoinMarketCap data shows.
Its market value was $63.85 at the time of writing, less than half the price last Monday.The potential token shed a significant chunk of its market value between August 9 and 11.
This market action suggests the adoption of the new fork will be uphill.
MakerDAO founder proposes seriously considering DAI depeg, Buterin disagrees
The debate around ETHPoW isn’t the only contentious blockchain subject that has cropped on in recent days.The US Department of the Treasury announced on Monday (August 8) that it had officially blacklisted the cryptocurrency mixer Tornado Cash over money laundering claims.The mixer, whose suspected developer was reportedly arrested in Netherland, is said to have facilitated money laundering, running up to $7 billion worth of crypto since 2019, per the Treasury Department’s Office of Foreign Assets Control.
In response to the decision, Circle, the issuer of the USDC stablecoin , froze all smart contract addresses linked to the virtual currency mixer, holding over 75,000 USDC.The move seriously raised eyebrows on censorship resistance of stablecoins and cryptocurrencies.This is particularly an issue when centralized stablecoins such as USDC are in play, an indicator of the very need for decentralization.
MakerDAO founder Rune Christensen has consequently suggested that the DAI stablecoin “should seriously consider” exiting its dollar peg as a coping mechanism.The move would see it unwind from its USDC exposure.Issuing the remarks on the DAO’s official Discord channel on Thursday (August 11), Christensen highlighted that the recent Treasury action might be more severe than initially thought, adding that depegging “is almost inevitable.”
Not as easy as it sounds
Any detachment would not be an easy task, as data from Maker Burn shows that DAI is 81.6% backed by stablecoins, most of which is USDC.In addition, there’s the issue of the peg stability module (PSM) which maintains the peg of DAI.
PSM works such that users can collateralize other tokens (USDC in this case) to mint DAI.As such, if DAI exits all its USDC collateral, the stability module would be affected and drive the stablecoin away from its peg.
Further, the intended conversion would see $3.5 billion of USDC sold for ETH, sending the latter’s backing of the stablecoin to nearly 60% up from the current 7.3%.Though Christensen considered such a risk acceptable to an extent, his proposition hasn’t been entirely welcome.
Ethereum co-founder Vitalik Buterin in a tweet responding to the remarks termed it a “risky and terrible idea.” He explained that were the price of ETH to fall massively, there’s a risk of a fractional reserve resulting, as the market value of the collateral would be tanking but Collateralized Debt Positions (CDPs) not getting liquidated.
Buterin instead suggested applying a negative interest rate or diversifying DAI’s collateralized assets such that no more than 20% is picked from one pot.Christensen, the MakerDAO founder, clarified in a later tweet that his suggestion would have considered partial yolo rather than the ‘suicidal’ option of yoloing all the USDC into ETH.
Vitalik Buterin divulges he used Tornado Cash to donate to Ukraine
The Ethereum co-founder separately wrote in a comment to a thread by Jeff Coleman, co-founder of Counterfactual, that he is one of those who made donations to Ukrainian earlier this year using the sanctioned virtual currency mixer Tornado Cash.The Ethereum co-founder clarified that the decision to use the service was motivated by the need to protect recipients and not himself.
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