Leading smart contract platform Ethereum has undergone its biggest upgrade to date as The Merge was successfully executed on the morning of September 15th. Often compared to “changing the engine of an airplane in flight,” the platform switched the energy-intensive Proof-of-Work consensus mechanism for a greener Proof-of-Stake alternative.
While this migration will not have an immediate impact on Ethereum performance, it is a necessary first step towards subsequent upgrades to improve throughput and efficiency. Once these stages are complete, Ethereum will be able to handle thousands of complex platforms and applications utilizing NFTs.
However, that doesn’t mean that NFT holders, especially those based on Ethereum, don’t have important decisions to make today. For example, the widely anticipated fork of Ethereum, a derivative that sticks to proof of work, could lead to NFT holders holding duplicates with vastly different values. Additionally, NFT prices have fallen in the days since The Merge as part of the overall market decline.
Ethereum is the primary home of NFT activity and trading, 76% of all NFT volumes. This is followed by Axie Infinity sidechain Ronin with 11% share of trading volume, followed by Solana with 7%, Flow with 3% and Polygon with 1%. Merge’s success, with subsequent updates slated for the coming months and years called Surge, Verge, Purge, and Splurge, will give the network a head start over competitors offering cheaper and faster transactions. It should help you cut.
However, that doesn’t mean The Merge didn’t leave things unfinished. Angered by being cut off from the network by the upgrade, a group of Ethereum miners banded together to launch a forked version of the Ethereum chain that retained proof of work. The new chain is called EthereumPoW (ETHW). For NFT holders, this means they may own a copy of the asset, but its value depends on the level of exchange support and overall adoption of this forked network.
OpenSea, the largest NFT marketplace, announced Support NFTs only on upgraded Ethereum PoS chains. Similarly, Yuga Labs, creators of the Bored Ape Yacht Club collection, announced Intend to recognize the license and copyright of the collection only to the owners of the NFTs on the upgraded PoS chain.
On the contrary, competing NFT marketplace Rarible took the opposite position. Rarible says it recognizes copies of NFTs created by forks made with the same wallet address when held in Ethereum. Cloned NFTs can cause chaos and open the door to new scams and fraudulent activities in areas where bad actors and malicious activity are already prevalent. More companies and projects are expected to make similar decisions as the fate of the ETHPoW fork becomes clearer in the future.
There is no data on the value of ETHPoW NFTs yet, but the recent ETHPoW roller coaster shows that the value of those NFTs is significantly lower than their mainstream counterparts.
Since launching on September 15th, ETHPoW hit an all-time high of $60, or about 4% of ETH’s total network value, but quickly fell 82% in value to $11, trading on today’s trade. It has been. This trend shows that his Ethereum holders who were rewarded with ETHPoW airdrops are dumping the airdropped tokens as exchanges start listing them and added liquidity. increase.
Assuming this trend continues and EthereumPoS emerges as the winning canonical Ethereum chain, we may see similar dynamics among the duplicate NFTs currently present on the EthereumPoW chain. This leads to a significant discount in the value of NFTs on ETHPoW compared to his EthereumPoS counterpart.
“Merging can disrupt many NFT projects that are not ready for change and vulnerable. There could be more forks of Ethereum, and duplicate NFTs infiltrating the system could create confusion and lead to fraud. Otherwise, you may lose the original version of the NFT,” said Alex Obchakevich, co-founder of Misfits DAO.
Perspectives and Impact
Another important implication of The Merge and its reduced carbon footprint is that it could open the door for ESG-conscious developers and investors to enter the Ethereum NFT industry.
Having said that, Proof of Stake has not yet been tested on such a large network. It remains to be seen whether the network can remain decentralized and avoid gaining institutional value over time when large entities participate in staking and gain greater ownership shares and control of the network. No. There are already concerns that two entities, cryptocurrency exchange Coinbase and staking platform Lido, control almost 40% of the network’s total staking power. Additionally, SEC Chairman Gary Gensler hinted this week that Ethereum’s switch to proof-of-stake could bring it closer to a security in the eyes of regulators.
It’s also important to reiterate that Merge has not impacted scalability or transaction throughput. This means that transaction fees for sending and trading NFTs have not changed and may still remain high depending on gas usage and demand. Gas prices for NFT transactions can reach hundreds of dollars during periods of high activity, with many users slashing their prices and buying second layer chains such as Polygon and Arbitrum, as well as Solana, Flow, Tezos, and Avalanche. .
Low transaction fees are important, especially in the gaming and metaverse space, as high fees preclude many use cases for NFTs. Weapons, avatars, and skins in many NFT games are likely to trade at relatively low prices, requiring faster transaction speeds and lower costs to be economically viable .
Users should wait for the upgrade of Surge, Verge, Purge, and Splurge to lower transaction fees and greatly improve scalability.
It also remains undecided how or how intellectual property rights will be transferred to NFT copies in forked versions of Ethereum. Most NFT creators will likely grant rights only to the owner of her NFT on the most widely adopted post-fork chain, which he most likely is EthereumPoS.
Ultimately, the answer may be decided by the creators of the collection, as evidenced by Yuga Labs’ declaration that it will only allow IP rights of NFT holders on the legitimate EthereumPoS chain. In this case, new buyers should be aware of which version of her NFT they are looking to purchase. You may consider yourself the owner of the asset, but you may find that you do not claim any of the related rights.
If major players in the NFT ecosystem recognize the legitimacy of both PoS and PoW chains, the forked EthereumPoW chain could devalue existing NFT collections due to increased supply. This can also create a sticky situation over IP and commercial rights, leading to major disputes among NFT owners. Ultimately, the market will justify which of his NFT assets are worth based on liquidity and acceptance by the wider community.
Investors betting on the ESG narrative acting as a powerful catalyst for capital allocation among institutional investors may see the Ethereum ecosystem as a major beneficiary of the ESG movement. This not only supports the price of his Ether, but also indirectly supports the value of his NFT collection above the network. The winning smart contract platform will attract the most talent and capital, strengthening her entire NFT ecosystem specific to that chain.
Investors and traders may be wise to wait until the turmoil subsides before making any decisions regarding Ether or NFT assets. This may take days or weeks, or it may run completely. Additionally, investors should follow the guidance provided by marketplaces, wallets, and other service providers with whom they regularly engage to confirm the chains and assets they support.