The World After The Merge: Whether To Wait For The Rise In The Price Of Ethereum Classic

The World After The Merge: Whether To Wait For The Rise In The Price Of Ethereum Classic

The World After The Merge: Whether To Wait For The Rise In The Price Of Ethereum Classic

The once popular, and in recent years, half-forgotten Ethereum Classic (ETC) cryptocurrency has recently shown impressive growth. Over the past 30 days, the asset’s value has increased by more than 100%.

The price perked up amid Ethereum developers’ statements and the approaching migration date to the Proof-of-Stake (PoS) consensus algorithm.

Recently, central mining pool AntPool announced a $10 million investment in the Ethereum Classic ecosystem. This further spurred growth.

Many community members wonder if miners will switch to Ethereum Classic after The Merge is activated. If so, how will this affect cryptocurrency quotes because hashrate and complexity often correlate with a price?

  • As The Merge activation approaches, the price of Ethereum Classic is skyrocketing.
  • Many community members, especially miners, perceive this blockchain as the main PoW alternative to Ethereum.
  • The likely success of a potential PoW-based ETH1 fork could dampen demand for Ethereum Classic and its ecosystem products.

Features of Ethereum Classic

Ethereum Classic appeared after the collapse of the infamous DAO project in June 2016. This cryptocurrency is a spin-off of a controversial Ethereum hard fork designed to enable investors to recover their funds.

“We, as a community of sovereigns, have been united by a common vision to continue the original Ethereum blockchain that is truly free from censorship, fraud, or third party interference,” Ethereum Classic’s Declaration of Independence says .

Many then called the project “stillborn,” but this was far from the case. Cryptocurrency has been holding average market capitalization for a long time. Its current competitors in the ratings are Litecoin, Monero, TRON, and other well-known projects. 

After the hard fork, “uncompromising ether” was almost identical to the fork. However, over time, the differences between the projects became more pronounced. 

In March 2017, the developers of Ethereum Classic implemented a monetary policy somewhat similar to Bitcoin. It assumed a fixed supply of coins and a deflationary issuance schedule. 

This was a significant difference from the second cryptocurrency in terms of capitalization. The latter was characterized by monetary flexibility, which created uncertainty.

The total supply of Ethereum Classic is limited to 210.7 million tokens. Miner rewards decrease every 5 million blocks.

Graph of changes in emission and rewards for the ETC block. Data: ethereumclassic.org.

The most crucial difference between the projects lies in the adherence of the “original air” to the Proof-of-Work algorithm. Ethereum developers, by contrast, have been exploring the possibilities of PoS since 2014.

ETC vs. ETH

Ethereum Classic has not become a strong contender for Ethereum. Fewer developers are working on it, and there aren’t many applications in the ecosystem. 

According to DeFi Llama, the TVL of the Ethereum Classic ecosystem is only $250,419 (as of 7/31/2022).

Data: DeFi Llama.

The HebeSwap platform occupies first place in the ranking. It is a fork of the leading Ethereum exchange Uniswap. The second and third places are also occupied by DEX – ETCSwap and Swap Cat.

Nevertheless, Ethereum Classic still managed to implement solutions for scaling and interoperability – Connext State Channels and ChainBridge from ChainSafe.

The hashrate of the “original ether” is small. This is one of the main reasons why attackers managed to carry out 51% of attacks in 2020. The developers have increased the network’s resilience by activating the Thanos hard fork.

Smoothed 7-day moving average graphs of ETH, and ETC hash rate dynamics. Data: Coin Metrics.

However, according to the observations of analyst Wolfie Zhao, the Ethereum Classic hash price has recently come close to Ethereum. In other words, against the backdrop of rising prices, the profitability of mining the “original ether” has become comparable to Ethereum.

The indicators of on-chain activity, which are essential indicators of demand for cryptocurrencies and ecosystem applications, also differ significantly.

The daily number of transactions in the ETH, ETC networks. Data: Coin Metrics.

The difference in the number of active project addresses is also incomparable.

Dynamics of the number of active addresses in the ETH, ETC networks. Data: Coin Metrics.

Assets differ significantly in other fundamental criteria, including trading volume and capitalization.

Data: Messari (as of 07/29/2022).

Ethereum Classic has a significantly higher Sharpe ratio. This means that the potential return better compensates for the risk investors take.

Data: Messari (as of 07/29/2022).

During the last market cycle, Ethereum Classic fell deeper against the all-time high price (ATH) compared to Ethereum. But in the summer of 2022, the “original broadcast” was restored much more actively.

Community Opinions

Journalist Colin Wu explains the continued rise in the price of Ethereum Classic to investors’ confidence in the ability of the “original ether” to get a significant hashrate and part of the users of the ecosystem of the second largest cryptocurrency by capitalization.

Wu also emphasized that Ethereum Classic is backed by giants like the Digital Currency Group (DCG). The Ethereum Classic Trust fund is the third largest in terms of assets of the DCG division – Grayscale Investments.

Data: grayscale.com.

Commenting on AntPool’s investment in the Ethereum Classic ecosystem, Head of Digital Currency Group Barry Silbert wrote that he is sincerely excited about The Merge in Ethereum.

Wu stressed that the Ethereum Classic developer community is very dispersed. It does not have leaders like Vitalik Buterin and a “centralized force” capable of promoting the project.

“Currently, there are practically no mature projects on Ethereum to be deployed in the ETC ecosystem,” the journalist noted.

According to him, miners and manufacturers of equipment for producing cryptocurrencies are now actively promoting the switching of capacities to the “original ether.”

“About $5 billion worth of mining equipment is rumored to be idle after The Merge,” Colin Wu wrote.

The journalist also expressed concern that the migration of leading miners to Ethereum Classic could immediately create risks of 51% attacks. This is fraught with the emergence of many forks.

According to Wu, Ethereum Classic is now the best alternative to Ethereum in attracting hashrate, users, capital, dapps, and “motivated organizers like Sam Bankman-Fried. “

Ethereum founder Vitalik Buterin stated that ETC is a “perfect chain” for PoW proponents.

Other rather interesting processes are also taking place. For example, Chinese miner and supporter of Ethereum Classic Chandler Goh is recruiting a group of developers to support the Ethereum fork on the PoW algorithm after The Merge.

Slightly more than half of the Galois Capital Twitter survey participants are confident that the activation of The Merge will go smoothly.

However, a third of respondents believe that a fork will still be created during the upgrade – ETH1 based on PoW, which Chandler Go stands for.

Almost 52% of respondents believe that the hashrate will be redirected to Ethereum Classic. 48.2% are confident that after The Merge, the aforementioned PoW-based ETH1 without the “difficulty bomb” will become relevant.

The representatives of Galois Capital themselves noted that ETH1 has a much better developed DeFi infrastructure than ETC and significantly higher on-chain activity.

There have also been heated discussions on the Reddit platform. Many in the community are skeptical about a potential fork. In their opinion:

  • ETH1 will not attract users;
  • the decentralized finance and NFT sectors will collapse on the PoW chain;
  • Traders will be dumping the ETH1 tokens that emerged due to the controversial hard fork to increase the stake in ETH.

Galois Capital analysts are also convinced that exchanges will prefer ETH2-based instruments.

Conclusions

The transition of Ethereum to PoS is already close. As the activation of The Merge approaches, heated debate flares up.

Many miners support Ethereum Classic. Some, including Chandler Goh, favor supporting the PoW-based ETH1 fork. The “ Luddites of the cryptocurrency world” are easy to understand: billions of dollars worth of equipment needs to be deployed somewhere after the most critical update in the history of Ethereum.

The revival of interest in Ethereum Classic may give impetus to the ecosystem’s development and the hash rate’s growth. The latter often correlates with price and makes cryptocurrencies more resistant to 51% attacks. 

On the other hand, the likely success of PoW-based ETH1 could dampen demand for Ethereum Classic and its ecosystem products.

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