As Ethereum approaches its highly anticipated “merge” upgrade, the prospect of a fork becomes more likely—even if its odds for success are slim.
Recently, exchanges have stated they will consider listing forked tokens. Among them is Coinbase.
In an updated blog post on Thursday, Coinbase said it will “evaluate” any potential forked Ethereum tokens that might come after the merge. Originally published on Aug. 16, Coinbase’s post now says its “goal” is to “list every asset that is legal and safe to list, so that we create a level playing field for all the new assets being created in crypto while continuing to protect our customers.”
If an Ethereum proof-of-work fork arises post-merge, “this asset will be reviewed with the same rigor as any other asset that is listed on our exchange,” Coinbase said.
The merge—slated for mid-September—aims to shift Ethereum from a proof-of-work consensus model to proof of stake. Proof of work relies on miners to verify transactions, while proof of stake instead uses a trusted network of validators, among other differentiators. Though supporters of the merge are excited for the upgrade—especially as it will likely reduce energy consumption on Ethereum by 99%—countless miners aren’t thrilled for obvious reasons: The merge will end mining on Ethereum and effectively eliminate their source of income. This is where a possible fork comes into play.
To try and retain their income and continue a proof-of-work chain, a cohort of miners are planning an Ethereum fork—or blockchain split of sorts—post-merge to create what they call “ETHPoW.” If such a fork happens, projects and exchanges—like Coinbase—will have to determine which chain—proof of stake or miners’ proof of work—retains value.
This is important, as support from the likes of Coinbase and other big companies could make or break the success of such forked chains and their tokens.
So far, top crypto exchange Binance also noted it would review any forked token for potential listings, while other companies—like stablecoin giants Circle and Tether, and decentralized exchange Uniswap Labs—signaled support only for the Ethereum proof-of-stake chain.
Ethereum creator Vitalik Buterin acknowledged this divide could happen in early August during a press meeting, noting that “if a proof-of-work fork becomes large, then there’s definitely a lot of applications that will have to choose one way or the other.”
Nonetheless, Buterin isn’t worried about a prospective fork. To him, the only concern surrounds scams targeting retail investors during the merge transition. After all, possible forked chains named after Ethereum might be confusing for users if it’s not clear whether such chains are associated with Ethereum proper.
Coinbase acknowledges this, mentioning, “It’s important to always be on high alert for scams, but especially leading up to the Merge. We recommend you don’t send your ETH to anyone in an attempt to ‘upgrade to ETH2’ as there is no ETH2 token… [N]o action is required to upgrade on your part.”
The exchange knows the difficulty of forked chains first-hand—there was turbulence after the creation of Bitcoin Cash in 2017.
At the time, a group of Bitcoin miners and developers decided to fork Bitcoin and create Bitcoin Cash. Afterward, some exchanges listed Bitcoin Cash on their platforms, but Coinbase did not, “because it is hard to predict how long the alternative version of Bitcoin will survive and if Bitcoin Cash will have future market value,” the company wrote in a blog post. After controversy, Coinbase ultimately relented a few months later, listing Bitcoin Cash and airdropping the tokens to Bitcoin holders.
Now, as history sort of repeats, Coinbase is likely trying to prepare for a smoother process should any Ethereum forks happen post-merge—even though most within the Ethereum community see the proposed forks as a “retail trap.”
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