As the king of public chains, Ethereum has been gaining popularity both at home and abroad recently. Whether it is the merger of Ethereum or the hard fork caused by the merger, it is the focus of discussion. What impact will the two major events of Ethereum merger and hard fork have on the future encryption industry? Please listen to us one by one.

ETH: Reduce energy consumption, reduce circulation

·ETHCirculation declines

The merger will make each year'sETHCirculation decreased from 4.3% to 0.43%.

This is because the PoS consensus mechanism brings a fundamental improvement in efficiency. PoS aims to provide the highest level of blockchain security at the lowest cost, and by reducing the amount of ETH that needs to be issued for payment security, these savings are transferred to ETH. PoW is costly and requires significant resource overhead to compensate security providers (miners) for their services.

In contrast, the cost of PoS security is simply the opportunity cost of funds and does not represent any real-world commodity or tangible cost. Unlike PoW, PoS does not require the issuance of large amounts of currency to pay for security. Therefore, these lower security costs make the PoS consensus mechanism more efficient.

Due to the reduced need to pay PoW miners, Ethereum was able to reduce annual ETH issuance from 4.3% to 0.43%.

With PoS, the issuance is reduced by more than 90%, and the management cost of being a PoS validator is basically reduced to zero. In the end, the merger of Ethereum will bring ETH into the era of deflation.

Consolidation reduces energy consumption, but notGas fee

blockchainblockchain. Therefore, the remaining energy required to maintain Ethereum is comparable to basic computer usage;

With PoS enabled, the energy cost of Ethereum is just to run a node - about 2.6 MWh per year. Ethereum would actually be the greenest financial system in the world, roughly equivalent to the energy consumption of the Netherlands.

consensus mechanismconsensus mechanism. In practice, it will not have any impact on the current Ethereum user experience.gas feeis a function of the block space requirement as a variable and is not affected by the consensus mechanism.

Ethereum's vision is to be a decentralized, secure, energy-efficient, and scalable network. After the merge is complete, it is time to start sharding andLayer2These two points will be of great significance to the scalability of Ethereum.

·The income of pledged users increases

Users who stake on Ethereum will earn about 4.2% APR, before deducting server costs. Kraken predicted in the report "The State of Staking Q1 2022" that after the Ethereum Merge is completed, the annual interest rate for staking users will increase to 8.5%-11.5%.

pledgepledgeETH is a one-way operation, stakers cannot withdraw their ETH rewards, and will be withdrawn after the merger of Ethereum, and when the 12 million pledged ETH is unlocked, ETH will be sold in large quantities.

We have reservations about this view for the following reasons:

Merging does not unlock any ETH. Unlocking will happen in the first hard fork after the merge, probably 6-8 months later. This means that within a few months, no additional ETH issued by PoW (about 13,000 ETH/day) will be sold, and no ETH issued by PoS will enter circulation.

Just as there is a queue for depositing ETH, there is also a queue for withdrawing ETH. Assuming a large-scale sell-off event occurs, everyone will be in the queue and unlocked at a rate of 1125 per day. So there is no moment to "open the gate and release the water". It takes more than a year for everyone to unfreeze. During the year, about 38,000 ETH enter the circulation field every day (about 1% of the daily average amount).

pledgepledge. Since they can accept 5% ETH yield, I don't think they will give up depositing when the yield becomes 10%.

Ethereum ecology: Goodbye to miners, the road to compliance is smoother

Miners will no longer be able to mine on Ethereum

Before the merger, EIP 1559 had been activated on Ethereum, and by the time the merger occurred, most of Ethereum’s transaction fees had been burned for almost a year. The remaining fees that are not burned after EIP-1559 (called "tips" or "priority fees") will be paid to the block proposer of the PoS block, not to the PoW miner.

If any nodes continued to mine on the PoW version of Ethereum, they would be a forked minority whose economic value of block rewards would be far less than their operating costs. Since miners are driven by interests, it is expected that the miner group after Merge may:

1. Mining other PoW tokens

2. Provide high-performance computing data center

3. Provide computing for Web3 protocol

4. Sell the mining machine and pledge the mined ETH to participate in PoS

·Technology platform upgrade

contractcontract。

To help improve this system and make it easier for newcomers to the platform, the Ethereum upgrade will replace the EVM with a new system called Ethereum WebAssembly (ewasm). The system will allow developers to write code creatively and freely without having to learn Solidity, the native Ethereum-specific language.

·The road to compliance is smoother

The recently enacted Responsible Financial Innovation Act (Responsible Financial Innovation Act) aims to encourage 'responsible innovation' by integrating digital assets into existing laws and provides a clearer framework for the crypto industry. The SEC (U.S. Securities and Exchange Commission) will regulate digital assets classified as securities, while the CFTC (U.S. Commodity Futures Trading Commission) will be responsible for supervising digital assets that are recognized as commodities. This may pave the way for the arrival of the Ethereum upgrade, PoS that converts ETH into internet bonds - a viable alternative to US Treasuries. Even though ETH is more volatile than bonds, it promises a higher yield, and if the ETH price doesn't crash, the real return would still be better. The conversion of Ethereum to PoS may be an initiative that other cryptocurrencies may follow in the future, and even prompt some organizations or governments to fully accept cryptocurrencies. This practice can greatly boost the adoption of Ethereum and lead the cryptocurrency towards a better future.

Public chain competition landscape:

Optimistic expectations:

·Everything is executed smoothly, Ethereum is the only one, and even other public chains become the leader of EthereumLayer2。

Pessimistic expectations:

The merger has been postponed again and again, everyone has lost confidence in the execution of Ethereum, and other public chains have risen, and the merger has become a "waiting for Godot" game.

Multi-chain infrastructure such as Cosmos allows the multi-chain ecology to flourish and encroach on the market share of Ethereum.

What is a hard fork?

With the gradual approach of the merger node of Ethereum, community users of Ethereum have different views on the transfer of the PoS consensus mechanism. In fact, the main point of view is whether to carry out a hard fork? The main point proposers are eth miners and some stakeholder groups.

Encryption hedge fund Galois Capital shared a questionnaire: "Will Ethereum split into two chains after The Merge". Among them, 53.7% of the respondents said that the merger will go smoothly, but 33.1% of the respondents think that the chain may split. If it does split, there will be PoW and PoS tokens even though there is already a PoW version of ETH.

Hard forks often occur when the consensus rules are updated, which will cause the old "not yet updated" nodes to be unable to participate in the new consensus mechanism; and these unupdated chains will be retained on the separate original chain, Since then, the two chains have parted ways and do not interfere with each other's verification and broadcast blocks.

For a blockchain, a general hard fork is a normal upgrade, which is basically a planned update in the roadmap and belongs to the category of consensus. But sometimes some hard forks do not maintain consensus, and the split of the community leads to the creation of multiple blockchains. For example, in 2016, Ethereum split into two chains, ETH and ETC, due to the hacking incident of The DAO.

Since the birth of Ethereum in 2015, it has experienced many hard forks:

·ETC

blockchainblockchain, i.e. an acknowledgment of financial loss. ETC is the most controversial one, with the coin currently ranked 19th by market capitalization on CMC.

·ETZ

ETZ was initiated by a group of technology enthusiasts in 2018 to create a better decentralized application platform. But it seems that there are too few supporters, the dapp has not developed, and the token price has almost returned to zero.

·Resetting the hard fork made by the difficulty bomb

The purpose of the difficulty bomb is to allow Ethereum to smoothly shift from the PoW chain to the PoS chain, artificially increasing the difficulty of blocks, so that miners cannot continue to obtain rewards and blocks, and avoid the result of the coexistence of new chains and old chains. However, due to the technical process of ETH2.0, the difficulty bomb has been delayed and reset 6 times, resulting in six hard forks. These hard forks were not contentious and there were no new forked chains.

Among them, ETC is regarded as a successful hard fork case of Ethereum, which has won the support of most miners. The hard forks that may be produced by the merger of the local currency Ethereum are very different, but people related to the Ethereum community (miners, developers, nodes, etc.) in the ETC era have relatively large differences in their perception of decentralization, and technology The implementation has a relatively low difficulty, and there is basically no need to consider the issues of smart contracts and tokens. For this merger of Ethereum 2.0, it needs to retain the function and completion history data of the execution of smart contracts on Ethereum, including the user status of all current Ethereum users, and the history of all smart contracts that have been run.

Although the relative probability of the success of Ethereum's merger is relatively high based on the current state and users' opinions, is the success of the hard fork necessarily a failure? Of course not necessarily, we can discuss it from two aspects.

What are the conditions for a successful Ethereum hard fork?

If the forked chain performs well like ETC, it will be difficult in the current environment of Ethereum ecology and public chain. The competition on the public chain track is currently fierce. Under the basis of the "impossible triangle", high performance and PoS consensus mechanism may become the general trend. If this hard fork does not have a large amount of investment and the blessing of more technical leaders, then forking for the "hard to go" fork will become more risky, and there will be no potential to complete subsequent ecological maintenance possibility. However, due to the uncertainty of the specific timing of the merger of Ethereum, this also gives the team that wants to create a hard fork more time for development and operation and room for risk control, which can also increase the probability of success.

In the short term, if the supporters of the hard fork can win more supporters, it is the most important and the most important condition for the opening of the fork chain. These people include miners, exchanges, developers and major KOLs. Combined with the current way out for Ethereum miners, there are not many options other than etc, and the current computing power of ETH is seriously overloaded for ETC, and it may even be barely consumed when ETC grows to $2,000 The existing ETH computing power, so they will take the lead in supporting the forked chain to reduce losses. At the same time, in order to obtain forked coins, some people will buy ETH to temporarily increase the demand for ETH.

In the long run, the fundamental reason for the merger of Ethereum is that Ethereum is currently the king of the public chain, and its performance is not enough to support activities on the chain, let alone support the supply of underlying facilities in the future web3.0 era. The PoW fork chain will also face this problem, and with the development of the ecology and the increase in the amount of calculation, the requirements for mining machines will continue to increase. Whether a miner is willing to commit to the development of a forked chain for a long time is also a question that needs to be carefully considered.

In fact, we can see that the current old PoW public chain does not perform very well in terms of performance and ecological construction, so the final opponent of the ETH PoW fork chain in the future is the PoW public chain of the same track and may have immature ecological development , a PoS public chain with insufficient users. If the project party provides complete and long-term technical support, the PoW fork chain can cooperate with the Layer2 team and may become a competitive public chain.

What are the risks of Ethereum hard fork?

51% attack and replay attack

The forked chain is the same as the mining machine of Ethereum, and the computing power is relatively easy to rent. If only a few or even a small number of miners support the forked chain, then within a short time after the completion of the fork, the forked chain The computing power and block generation time will be very unstable, and the rest of the miners can relatively easily carry out 51% attacks on the forked chain. In fact, this problem has happened many times on ETC. It is for this reason that it is impossible for a small forked chain to succeed.

tradetrade, you can go to another chain to rebroadcast, and it may also be confirmed.

·Smart contract risk

contractcontract. At present, most of the smart contract authority is in the hands of the project party, and the contract can be changed at any time to affect the situation of forked coins. These forked coins may be worthless, but they are inextricably linked with the ETH forked coins in the smart contract. Once the ETH forked coins have value, there will be room for arbitrage. Some can also carry out risk-free arbitrage through flash loans.

Finally, regarding the hard fork, I hope that everyone can think about the possibility of the encryption world and the construction level of future ecological problems through the important upgrade of Ethereum. After all, what we hope to see is the continuous improvement of the ecology.