Could This Dark Horse Cryptocurrency Be the Unexpected Beneficiary of Ethereum’s Merger?

Most interested observers are now aware of this Ethereum (ETH -4.68%) upcoming merge event where the second largest crypto by market cap will make its long-awaited transition from a proof-of-work consensus mechanism to a proof-of-stake. As merger excitement has grown, Ethereum has staged a furious comeback this summer, gaining 90% since its cycle low of $897.06 on June 18.

The move should be positive for the Ethereum network, but another cryptocurrency alongside the Ethereum ecosystem is already benefiting from the upcoming transition and has surprisingly outperformed Ethereum, gaining more than 190% since its low on the same day.

Let’s take a look Ethereum classic (ETC -3.48%). Why is this Ethereum alternative recovering and what lies ahead for the 19th largest cryptocurrency by market cap?

Image source: Getty Images

What is fusion anyway?

The merger, the move to Proof of Stake, is expected to take place between September 15 and 16, and observers believe it will bring several important benefits to the Ethereum network. Ethereum will become less energy intensive, and analysts Citigroup predict that Ethereum will consume 99% less electricity after the transition. Ethereum will also be more decentralized and more users will be able to earn rewards for joining the Ethereum network by staking their Ethereum.

Perhaps most notably for investors, analysts at Citigroup say Ethereum issuance will decline by 4.2% per year and will eventually transform from an inflationary asset into a deflationary asset, reducing supply growth and boosting its standing as a store of value.

These are all net positives, but not everyone is excited, especially when it comes to a specific group of Ethereum participants.

Enter Ethereum Classic

Most crypto mining activities are aimed at bitcoin, the largest proof-of-work cryptocurrency (and the largest cryptocurrency overall). But Ethereum also generates a significant amount of mining activity. Mining new Ethereum blocks is a lucrative activity, and data shows that Ethereum miners collectively generate $24 million in daily revenue.

But when Ethereum moves to Proof of Stake, this activity will come to a halt and no longer be possible. MIThe mining equipment is expensive and built specifically for cryptocurrency mining, leaving Ethereum miners with expensive equipment that cannot be used for much else.

Enter Ethereum Classic. Ethereum Classic was launched as a fork of Ethereum in 2016 after the Ethereum DAO hack. Like Bitcoin, Ethereum Classic has a limited supply – in the case of Ethereum Classic, this number is 210.7 million Ether Classic Coins or ETC.

Although affiliated with Ethereum, it is an entirely separate blockchain independent of Ethereum and will remain a proof of work. The data shows an increase in the hash rate (a measure of computing power) for Ethereum Classic, hitting an all-time high and seems to indicate that some Ethereum miners are already migrating to the Ethereum fork. analysts out JP Morgan are speculating that investors could also buy ETC as a “hedge against potential disruptions in the Ethereum blockchain during the move from Proof of Work to Proof of Stake,” according to CoinDesk.

distress of the miners

Some prominent figures in the crypto world like Tron Founders Justin Sun and Chandler Guo, one of the key figures behind the original Ethereum Classic fork, want to oppose the merger by creating a new Proof of Work Ethereum called “ETHW” or “ETHPow”. However, it stands to reason that Ethereum Classic would be a bigger beneficiary given that it already has significant infrastructure and ecosystem, not to mention a market cap of $5.1 billion. The theoretical ETHW would have to build the same value from scratch.

To his credit, Guo is open about the fact that ETHPoW is likely to be a long way off, stating, “There’s still a 90% chance it won’t happen… Forking ETHW will not be as easy as forking ETHC.” Guo sympathizes with miners, who he says have been let down by the move to proof-of-work, who say they’re using the money they’ve invested in mining equipment can never get back.

On the other hand, Antpool, which is backed by Chinese mining equipment maker Bitmain and runs large Bitcoin and Ethereum mining pools, recently committed $10 million in investments to develop new projects on the Ethereum Classic network to advance Even Ethereum co-founder Vitalik Buterin appears to have given Ethereum Classic his blessing, noting that “the original Ethereum” and that Ethereum users who like Proof of Work should “use Ethereum Classic.”

Is Ethereum Classic Worth Trying?

Ultimately, I am personally excited about the merger and bullish on Ethereum that I hold. I don’t mind the idea of ​​risk-tolerant inventors also holding some Ethereum Classic to see what develops there now that a large contingent of network participants with significant resources behind them have a vested interest in this smaller Ethereum fork the merger is successful.

That being said, it’s probably a speculative investment at best. Mining for Ethereum Classic is currently much less profitable than mining Ethereum, as the miners collectively generate around $700,000 in revenue per day, and that revenue may be shared among even more parties as more miners migrate to Ethereum Classic. Furthermore, since 2018, the Ethereum Classic network has not shown much growth in terms of transaction volume and has few users compared to other top cryptocurrencies by market cap. Ultimately, then, the ultimate long-term upside here may be limited once the post-merger situation settles down.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Michael Byrne has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

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