Ethereum merge – what is it and how you can profit from it
The Ethereum merge has a lot of hype – but how can you prepare and profit from this?
Do nothing. Yes, the best play here is to do nothing, you do not have to prepare for it. But if you want to know more and take advantage of it, this article is for you.
What is happening?
The famous and long-awaited Ethereum Merge is an upgrade from a proof-of-work model to a proof-of-stake model on the blockchain. The upgrade is beneficial to the entire crypto community as the new model is more energy-efficient and environmentally friendly, thus reducing the negative impact on the environment and keeping the harsh anti-crypto critics away. The process has started with the Bellatrix update completed but the actual merge is expected to take place either on 15 or 16 September.
The miners are unhappy with this merge, however, and they want to create a fork of the existing Ethereum chain that will still use the proof-of-work mechanism.
Understanding the process behind a fork
What is a fork and why did it happen?
Disagreements in views are common, and developers are no exception. Therefore, when one group disagrees with the other on the direction of a cryptocurrency, a fork happens and the members decide to go their own way. Think of it as a divorce.
From the illustration above, we can see the different paths between the two forks and their differences.
TL; DR. A fork occurs when a faction of a cryptocurrency community disagrees with how the associated blockchain should move forward and creates a new chain with new rules.
The Role of Blockchain Technology
Soft and hard forks
A fork can be either a hard fork or a soft fork. When a particular segment of the crypto community decides to go their way, they will create new rules by copying the original protocol code and making changes to it.
A hard fork happens when both blockchains are incompatible with each other and no interaction will happen again. They also do not acknowledge the transaction or nodes on the old blockchain. This is similar to where you and your wife agree on a permanent divorce, “Stay away from me, I don’t want to see you again!” *Cries internally* Ethereum merge is a hard fork.
On the other hand, a soft fork occurs when the developers decide to fork it (get it? Haha) and make changes that are compatible with the old blockchain. This is like when you break up, you two agree to “hey, let’s still be friends.”
Free money?
When a fork happens, a snapshot at a specific block number will be taken and a duplicate copy of the chain will be created. So, if you hold 50 ETH, you will also get the same amount in ethPOW. The value of ETHPOW is determined by how it performs and its popularity within the community.
If you hold ETH before the Merge, you will receive a balance of tokens. The process of claiming these tokens will differ. If you hold ETH on a centralized exchange like FTX, the exchange will take a few days to a week to list forked tokens for you to claim your share. If you are on the mainnet, the token drop should be immediate after the merge.
Are forks always good?
Nope. In 2017, a fork happened on BTC, when Bitcoin Cash (BCH) emerged. The value of BCH is around $114 today while BTC is around $20,000. Yeah, you get my point.
“Almost all the fork tokens are now dead as they are created solely to keep miners temporarily occupied with mining and have no incentive to grow their community and usage.”
CoinGecko co-founder, Bobby Ong, on his perspective on forked tokens.
Tips for ETHPOW play
The best play is to do nothing, but if you want to take advantage of this merge, here is what you can do.
- Check if your wallet or exchange supports the airdrop
Certain CeFi exchanges such as FTX support ETHPOW, while others do not. Find out if your CeFi platform supports ETHPOW, some exchanges such as Kraken do not support it, so there won’t be any ETHPOW coins for you. You may also hold ETH in a non-custodial Ethereum wallet such as Metamusk.
- Native ETH tokens on mainnet only
Deposit your ETH into mainnet.
To receive your new ethPoW token, holders of ETH on layer-2 applications like Arbitrum or Optimism must move it to the Ethereum mainnet. If you still have wrapped ETH, go and unwrap it now. Additionally, withdraw all your ETH in liquidity pools as they won’t be eligible.
- Borrowing on other Aave markets
Borrowing is a smart move to get ETHPOW using your stables, albeit more complex. You can borrow ETH from lending protocols such as Euler, compound, or AAVE, as ETH PoW will be dropped to anyone holding ETH when a snapshot is taken. While Aave has suspended withdrawals for the mainnet ETH market, there are many others still available. You can deposit stables, borrow ETH on Arbitrium, and bridge it back to mainnet. You can also provide liquidity on Aave and earn a yield on your ETH.
- Take advantage of this chaos
Track stETH/ETH chart. StETH is a good long-term play. The volatility for Staked ETH is high due to rising ETH borrow rates, therefore, it may depeg and you can buy at a discount from this if you are patient enough.
- Act now
Looking to deposit or withdraw from exchanges a day before the merge? Fat chance as most exchanges have already suspended ETH withdrawals and deposits ahead of this major upgrade. Plan and do it now if you can.
Additionally, I am also keeping a close eye on these few tokens, not financial advice:
- $FOLD –MEV (already mooned the past few days, be careful)
- $GMX/GLP – Earn more ETH
- Cosmos (Atom)- Airdrops
- Near
- LDO
- Other “Real Yield” protocols – DYDX, CAP, GNS
If you are new to investing or crypto, make sure to build your basic foundation first, made an article on it.
Steps to add ETHPOW to your Metamusk wallet (to be updated after the merge)
- In MetaMask, click on network at the top of the browser extension and select “Add Network.”
- You will then need to input the ETHPOW chain’s name, RPC URL, and Chain ID (further details to be announced after the PoW chain launches).
- ETHW Mainnet Info Network Name: ETHW-mainnet
- New RPC URL: https://mainnet.ethereumpow.org
- Chain ID: 10001 Currency Symbol:
- ETHW Block Explorer URL(Optional): https://mainnet.ethwscan.com
Conclusion
I think Ethereum is a long-term play and the merge is just a small bump over the years to come. Hold ETH, but also be smart and take profits along the way. As for the ETHPOW tokens, sell it. Why sell? I do not think that it will hold any value for a long time. Lastly, make sure to double-check everything before sending transactions and stay safe.
Disclosure: At this time of writing, I own ETH and other cryptocurrencies.
If you have yet to sign up for FTX, you may use your friend’s or my referral link to get a 5.00% trading fee discount.
Cheers!
