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 cryptocurrency Ethereum Classic (ETC) recently demonstratedimpressive growth. Over the past 30 days, the value of the asset has increased by more than 100%.

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

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

Many community members are interested inwhether 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 price.

• As The Merge activation approaches, the price of Ethereum Classic is skyrocketing.
• Many community members and 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 sadfamous project The DAO 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 sovereign persons, have beenunited by a common vision to continue the original Ethereum blockchain that is truly free from censorship, fraud, or third party interference,” reads the Ethereum Classic Declaration of Independence.

Many then called the project “stillborn”however, this turned out to be far from the case. The cryptocurrency has maintained average market capitalization indicators for a long time. Its current competitors in the ratings are Litecoin, Monero, TRON and other well-known projects. 

After the hard fork, “uncompromised ether” was almost identical to the fork. However, over time, the differences between projects began to be expressed more clearly. 

In March 2017, Ethereum Classic developersimplemented a monetary policy somewhat similar to Bitcoin. It assumed a fixed supply of coins and a deflationary emission 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 important 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 did not become a strong contender for Ethereum. There are fewer developers working on it, and there aren't that many apps 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 first place in the ranking is occupied by the HebeSwap platform. 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 a series of 51% attacks in 2020. The developers have increased the resilience of the network with the activation of the Thanos hard fork.

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

However, according to analyst Wolfie Zhao,hashprice Ethereum Classic 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 important indicators of demand for cryptocurrencies and ecosystem applications, also differ significantly.

The daily number of transactions in the ETH and 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 and 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 taken by investors.

Data: Messari (as of 07/29/2022).

During the last Ethereum market cycleClassic 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 ongoing growthprices of Ethereum Classic by investors’ confidence in the ability of the “original ether” to get a significant hash rate 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 happy with 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 mining 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 terms of attracting hashrate, users, capital, dapps and “motivated organizers like Sam Bankman-Fried.”

Ethereum founder Vitalik Buterin stated that ETC is a “very good 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 participants in the Galois Capital Twitter poll are confident that The Merge activation will go smoothly.

However, a third of respondents believe that during the upgrade, a fork will still be created - 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 sure 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 compared to 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 as a result of the controversial hard fork in order to increase the stake in ETH.

Galois Capital analysts are also convinced that exchanges will give preference to ETH2-based instruments.

findings

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

The Merge: what to expect from the biggest update of Ethereum

Many miners support Ethereumclassic. Some, including the infamous Chandler Goh, are in favor of 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 important upgrade in the history of Ethereum.

It is possible that the revival of interest in Ethereum Classic will give impetus to the development of the ecosystem and the growth of hashrate. The latter often correlates with price and makes cryptocurrencies more resistant to attacks 51%. 

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

Be that as it may, the community is waiting for a lot of interesting events and unexpected twists.

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