The second major evolution of Ethereum is just around the corner. However, it seems to be different from the first one. In 2016, the first fork on Ethereum gave birth to ETH and ETC. A first big evolution since these two cryptos are currently 2nd and 9th largest crypto by market capitalization. The second major change will be the potential merger with Proof of Stake. And that could cause another fork. How is this time different, and why could DeFi on the new chain be a disaster?
First of all, it should be noted that the motivations for these two changes are totally different. Indeed, “the merge” is driven by an ambitious technological update. While it was a crisis situation that caused the evolution (the fork) of Ethereum in 2016.
- A fork on the Ethereum network duplicates all data on its original blockchain to the new one. Thus, much more data has passed to Ethereum since this fork.
- Besides that, Ethereum from 2016 was not the big ETH we know today. Its market capitalization at the time hovered around 1 billion. Whereas today it is more than 230 billion dollars.
- During the first evolution, NFTs were not really known to the general public. Today, there are over 130,000 NFTs on Ethereum.
- In 2016, DeFi was just taking its first steps. Whereas currently, DeFi on Ethereum consists of over 530 protocols. Smart contracts currently lock up $40 billion on the network ofETH.
Problems related to the new evolution of the Ethereum network
A fork Proof-of-work of the current Ethereum network could present significant challenges for developers and market players. It could also eliminate DeFi on the new blockchain.
Additionally, each ERC-20 token is always backed by another asset. Given this, it could be that each ERC-20 stablecoin is no longer exchangeable by an underlying asset, after the fork. While USDT, for example, accounts for 28% of Ethereum’s market capitalization. Already, some issuers like Tether and CirclePay have stated that after the fork, only tokens on the PoS network will be tradable.
To this end, users and smart contracts can attempt to liquidate positions on the new network. This will thus contribute to increasing the selling pressure on the new token. Added to all this are the technological differences. There will likely be a tough climb for those supporting Ethereum’s PoW network.
All this shows the difference between the first fork on Ethereum, and “the merge”, the second major evolution of the network. It is indeed much more complex and difficult than it seems. Given all these issues, wouldn’t it be easier for the protocol team to deploy a new instance of the protocol to ETC? This is another question that arises.
Receive a digest of news in the world of cryptocurrencies by subscribing to our new daily and weekly newsletter service so you don’t miss any of the essential Tremplin.io!