Eco-friendly NFTs anyone?

November 11, 2022

Whether it’s The Merge, the Surge, the Verge, the Purge, the Splurge, or whatever ridiculous “-rge” word Lord Vitalik names subsequent Ethereum upgrades, I just got one piece of advice for you mate: do not make any degen moves during the upgrades! Go outside, touch some grass, let it all play out. Unless of course, you fancy the Robinson Crusoe story. Either way, it’s Merge season. And the Crypto community is excited, even Google has a countdown timer for the event. We are less than a day away from Ethereum’s much-expected move to a Proof-of-Stake consensus mechanism.

What does that mean for the broader ecosystem? let’s get you up to speed on what you should expect from this upgrade.

Key Insights

  • The Merge signifies Ethereum’s move from a Proof-of-Work consensus mechanism to a much more energy-efficient Proof-of-Stake model. Putting this into context, The Merge will cut Ethereum’s power consumption by ~ 99.9% according to reports from the Ethereum Foundation.
  • Users will be able to stake their ETH to take part in verifying transactions on the Ethereum network, eliminating the need for miners. These new actors are called Validators. The absence of miners also means the absence of miner rewards — a reduction in ETH issuance. The Merge is estimated to cut ETH’s issuance rate by ~90%.
  • NFTs minted post-merge will be greener and energy efficient. We will likely see more adoption, especially from investors who were previously skeptical of Ethereum based on its environmental unfriendliness.
  • Some members of the Ethereum community are resisting the Merge. Prominent Chinese miner, Chandler Guo, is leading the attempt to fork Ethereum and retain a PoW version of the network, which he’s calling ETHPOW.

On The Merge

The Merge represents Ethereum’s transition from its present energy-intensive Proof-of-Work model to a Proof-of-Stake consensus mechanism — a move that’s estimated to cut energy consumption by a whopping ~99.9%. Ethereum, just like Bitcoin, has always been faulted for its environmental impact.

The Digiconomist estimates that Ethereum’s electricity consumption stands at approximately 82 Terrawatts hours per year (TWh/yr), comparable to the power consumption of Chile; and a carbon footprint similar to Finland’s. The Ethereum Foundation however estimates that moving to Proof of Stake will reduce energy consumption to 0.01 TWh/yr, down by over 99.9%, a huge step towards a greener and more sustainable future for the ecosystem.

Energy consumption isn’t the only thing seeing a reduction Post-merge. ETH issuance rate — the rate at which new ETH is added to the supply, mostly through rewards — is also getting a ~90% cut. Looking into the technicalities of The Merge, Ethereum is moving from needing miners to validate transactions on the network and earn reward tokens to allowing validators stake their ETH to take part in the network. In the former, minting rewards range around $13,000 ETH/day. Post-merge, with PoS, rewards will drop by over 90% to 1,600 ETH/day.

Many experts say this may cause a surge in ETH’s price post-merge. Factor in Ethereum’s fee burn, then the Merge could potentially remove millions of dollars’ worth of sell pressure from the market, replacing it with millions worth of buy pressure long-term.

The Merge ft. NFTs?

Ethereum is a leader in the NFT market. It is home to NFT royalty, the ‘blue-chip’ guys — BAYC, CryptoPunks, MAYC, and Doodles, among many others. While Ethereum dominates the NFT ecosystem, it has lost market shares to other smart-contract platforms largely due to environmental concerns of the network. For one, The Merge ushers in an era of greener NFTs on Ethereum. Users will be able to mint NFTs in a more sustainable, eco-friendly way.

“This may cause a new, environmentally conscious user base to adopt the technology which would in turn help drive greater mass adoption of NFT and Web3 technology. Increased activity on Ethereum may also bring about new innovative use cases for NFT technology,” said Rarible’s Salnikov.

Now, the question is, will Ethereum reclaim market shares from other platforms, such as Solana, now it’s going green? My answer will be, not quite. Platforms like Solana are still attractive because of their speed and low gas fees. Kudos to Ethereum for achieving sustainability with The Merge, but speed and low gas fees? Nah, that’s a long way from now. Maybe after The Surge.

What’s with the fork rumors?

While most of the community is on board with the Merge and all its potential benefits, there is some resistance from notable entities. Some members of the Ethereum community plan on forking the blockchain to retain the current Proof of Work system. The most prominent example is called ETHPOW, led by prominent Chinese miner, Chandler Guo, set to launch within 24hrs following the Merge.

“ETHPOW mainnet will happen within 24hrs after the Merge. The exact time will be announced 1 hour before the launch with a countdown timer and everything including final codes, binaries, config files, nodes info, RPC, explorer, etc. will be made public when the time’s up,” the group wrote in a tweet.

What does this mean for NFTs?

As the ETHPOW or any other forks spinoff from the Ethereum mainnet, they will yield duplicate NFTs on all forks. If an NFT marketplace supports both the post-merge mainnet and the POW fork in question, then both versions of your NFTs may be listed. Scammers will eventually jump on this opportunity to sell duplicated versions of blue chip NFTs to less-experienced Crypto users — very predictable.

Another potential risk is the risk of a replay attack. “This is when a transaction happens on POW fork blockchain and can be repeated on the Post-merge mainnet,” Adams McBride, an NFT now host, pointed out in a tweet.

Here’s an analogy to help you understand: let’s say after the Merge, you sell your Doodle on the POW chain for 9 ETH hoping for some cool cash. Thing is, once you make that transaction, someone may be able to “replay” that sale on the Post-merge mainnet, selling your POS doodle for the same 9 ETH. Ouch.

To be clear, this is not guaranteed to happen, at least not on the ETHPOW fork. Replay attacks are only possible if the two blockchains share the same chain ID, and Guo has confirmed that won’t be the case with his fork version. This might not be the same for other forks, so the best way to protect yourself is to stay away from any POW forks.

However, the Ethereum foundation directs that, as a user, you do not need to do anything to protect your funds. Despite the switch, Ethereum’s historical records will remain unaltered. Whatever you owned before the merge will remain accessible post-merge. Do not fall for scams offering to “migrate” your assets to the POS mainnet. There’s no such thing.

How are projects and platforms preparing?

If in any case duplicated NFTs exist on NFT marketplaces post-merge, the extent of confusion in the ecosystem will be crazy. With no way of knowing the “official” or “legitimate” copy of any NFT, many users will end up being scammed of their money and NFTs. Even so, more sophisticated traders will attempt flipping the POW versions of their NFTs for bloated profits. But this will be short-lived. Very few members of the broader Ethereum community believe that other POW forks will gain any traction.

ETHPOW critic, and Ethereum classic developer Igor Artamonov, took to explaining in a tweet. “it’s like losing 90% of momentum just on launch… no one would take it [ETHPOW] seriously if it’s not a continuous/ non-stop chain.” Well, some project owners and platforms are not taking it seriously for sure.

Yuga Labs, creator of the Bored Ape Yacht Club, and now the owner of the CryptoPunks IP, confirmed two weeks ago that it will only recognize users with their NFTs on the merged proof of stake chain. Similarly, only those owners can commercialize their NFTs for derivative artworks and projects. Proof, the company behind Moonbirds NFT, also expressed a similar opinion in a statement released by the company.

It’s not just projects alone. Leading NFT marketplace, OpenSea, confirms that it will only support the proof-of-stake chain. The firm said that this is an effort to avoid confusion and protect investors from scammers looking to dupe unsuspecting victims. Nevertheless, Ethereum core developers believe that NFTs will function normally after the merge. Whatever craziness that comes with duplicate NFTs on the forked chains will only be shortlived, as such, there’s no obvious cause for alarm.

There’s no guarantee that everything goes as planned. After all, it’s software we are dealing with. However, the Ethereum developer community expresses confidence that the Merge will be seamless, and I won’t try to openly doubt the pros now, will I? Either way, the best play for NFT folks is to stay informed, avoid risky bets during the upgrade time, and let’s see what happens. I’ll leave you to your time now Anon. Cheers!

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