From the rapid growth of crypto to the dramatic volatility of the asset class, governments around the world are responding through regulatory and legislative actions. Some jurisdictions have announced clear and accommodating frameworks in the hope to create the crypto hubs […]
As a kid in suburban New York, I always loved going into the city, even back when the city was still pretty scary.
That was until I watched Escape From New York on late-night cable. It was terrifying: a lawless, anything goes, survival-of-the-fittest dystopian NYC.
And a close enough resemblance to the real thing that on my next visit to see my uncle in the East Village, I was sure I wouldn’t live to see the suburbs again.
After reading a lot of tweets by Galois Capital, I now feel the same way about the upcoming Ethereum proof-of-work blockchain. It’s going to be terrifying: A bizarro, lawless, anything goes, survival-of-the-fittest dystopian Ethereum.
A place where anything that can happen, will happen.
I can’t wait.
Q: What’s an Ethereum proof-of-work?
It’s just what the existing Ethereum blockchain will be called after the Merge, currently scheduled for September 15/16.
After that, “Ethereum” will refer to the proof-of-stake version of the blockchain, so the proof-of-work one will need a new name.
Some will probably insist on calling them ETH1 and ETH2 — like Thing 1 and Thing 2 in Dr. Suess, except they won’t get along: The first argument will be, which is 1 and which is 2?
Q: Which chain will my Bored Ape be on?
Both, I guess?
Your 1-of-1 Bored Ape will become a 2-of-2 Bored Ape. But they’ll both be yours.
Q: I only care about the original. Which one is that?
I’d say the one on ETH PoW will be the original.
But, if, like me, you mostly care about money, that’s not the one you’ll want: Social consensus will make the one on ETH PoS more valuable. (Because what is crypto but social consensus?)
Which is kind of weird because art NFTs are pretty much just a proof-of-purchase for the original version of a digital artwork — but it’s the non-original version that will retain its value.
I’d bet, though, that the NFT that lives on ETH1 (proof-of-work) will have some value, too.
There has to at least be some bragging rights to owning an original Bored Ape on the original Ethereum chain.
Stolen art is said to be worth something like 5% or 10% of its non-stolen market value.
So that’s my highly scientific prediction for NFT prices on ETH PoW: 5%-10% of what it’s worth on ETH PoS.
Whatever the price, I’d recommend keeping them both: You don’t really want to get in an argument about which is the real NFT.
If you’re arguing, you're losing.
Q: Will the ETH PoW token have any value?
If enough “state” retains value, then the underlying chain should have value, too.
(“State” refers to the entire history of a blockchain — or the things that live on a blockchain, such as NFTs and dapps.)
People appear to think that will be the case: The ETH PoW token is already trading at $80 on Poloniex.
And ETH Classic, which has no state (because NFTs and dapps weren’t a thing yet in 2016), is valued by the market at $6 billion.
There’s nothing happening on ETH Classic, so I’d ascribe that rich valuation to “meme value.”
ETH PoW should have the same meme value as ETH Classic, plus some upside for potential utility from all of the NFTs and dapps that will still be on there.
Q: Is this just a scam for miners to eke out a last little bit of profit from their ASICs?
That could be, in which case, it won’t be particularly interesting.
Stablecoins like USDC should immediately go to zero.
But all of the smart contracts currently on Ethereum will still work on ETH PoW, so it may be that the tokens are worth something.
They presumably won’t be worth much, but if they retain even a few percent of their value, people will want to trade them.
And if people trade them, the ETH PoW versions of things such as Uniswap and Curve will have value.
The logic is a bit circular — tokens will have value because people want to trade tokens — but that’s pretty much all DeFi is at this early point in its development.
If the circular logic gets some early momentum, an alternative, slightly bizarro version of DeFi could develop.
Q: What do we want with a bizarro version of DeFi?
It’s not really wanting or not wanting. If miners think it can be profitable, they will mine the blocks to keep ETH PoW alive.
And why wouldn’t they? They’ve got nothing else to do with all the mining equipment that will otherwise be idle after the Merge.
And if it’s not profitable to mine ETH PoW, they can just change the rules: Cancel the difficulty bomb. Or double the miner rewards. Or triple the miner rewards.
Or all of the above — in which case we’d have ETH3, ETH4, ETH5, etc. A regular multiverse of Ethereum chains to choose from.
Q: But none of them will have stablecoins, so what’s the point?
Maybe that is the point!
After this week’s news on OFAC, I can see the value of a DeFi ecosystem that operates without stablecoins.
It would be a far, far less useful ecosystem. But consider it an escape pod in case the US Treasury chooses to shutdown DeFi.
I don’t think they will, but it’s not impossible.
Rune Christensen, founder of Maker DAO, is concerned enough about the OFAC news to consider YOLO’ing Maker’s $3.5 billion of USDC into ETH.
That is a pretty wild development. Maker is a foundational DeFi building block, so you have to be pretty concerned about DeFi’s reliance on centralized stablecoins to consider messing with it.
Given that level of concern, it seems entirely possible that people might put some resources into promoting a stablecoin-free version of DeFi on ETH PoW.
All the applications will be there and fully operational.
The original developers will likely abandon them, but new developers (maybe funded by miners? Or exchanges?) might take them over — like hermit crabs moving into empty shells.
Or not. It may be that the NFTs have no value, the blocks cannot be profitably mined, and the dapp shells remain empty.
But, either way, it’s going to be fun to watch — better than late-night cable, for sure.
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