The Ethereum Merge to proof-of-stake finally completes: What does this mean for ETH hodlers?
15:22, 15 September 2022
On 15 September 2022, the Ethereum network finalised its much-delayed migration from proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism.
The final PoW block was mined, which was immediately followed by Ethereum’s original PoW chain merging with its PoS chain, dubbed the Beacon Chain, almost two years after Beacon was launched – and more than six years after Ethereum (ETH) developers first revealed the world’s second biggest blockchain's intention to move to PoS.
But what does the successful switch mean for ETH hodlers?
What is your sentiment on ETH/USD?
ETH to US dollar
Forked token ETHW airdrop
The Merge was seen as a historic event. But will it have any implications for those holding the biggest altcoin?
ETH holders will be eligible for a newly-dropped forked token, but if they choose to claim it, they should keep potential tax implications in mind.
“The Merge combines the old ETH1 chain (execution chain) with the new ETH2 chain (Beacon Chain). The Beacon Chain has replaced the miners, but the execution chain remains the same, hence ETH holders do not have to do anything as their ETH still operates in the exact same way,” said Marc Arjoon, research associate at CoinShares.
“However, miners no longer have a chain to sell hash power to, so a portion of the mining community has signaled support for a PoW fork. This fork is a copy of the original Ethereum chain right before The Merge.
Every ETH holder will be entitled to an equivalent amount of the new PoW ETH token (ETHW), said Arjoon, adding that ETH holders can claim their ETHW coins once the PoW chain is live.
Should holders who are also US taxpayers choose to claim the new coin, they should watch out for potential tax implications as the Internal Revenue Service may treat the new coins as taxable income.
BTC to US dollar
Window of opportunity for attackers
The new consensus mechanism comes with a possible opportunity for attackers, Arjoon also warned. But he added bad actors will not have an easy job.
He said: “Unlike PoW, under Ethereum’s PoS, the next block creator is known ahead of time. This opens a window for an attacker to spam the upcoming validator to prevent them from completing the task. However, this is a difficult attack to successfully execute and there are numerous defence mechanisms against it.
“Furthermore, PoS is a relatively new concept that adds additional layers of complexity above and beyond PoW. The health of the network will be determined by how many validators are online and whether the blocks are finalising (unable to be removed from the chain).”
Markets in this article
Related topics
