Ethereum Classic Is Not Ethereum so a Merge-Fueled Rally Won't Last: Messari

It's unlikely Ethereum Classic has any long-term viability, despite interest by miners, according to analyst Tom Dunleavy.

AccessTimeIconAug 3, 2022 at 9:11 p.m. UTC
Updated Aug 4, 2022 at 2:18 p.m. UTC

Jimmy is a CoinDesk markets reporter.

Crypto miners have been showing increasing interest in Ethereum Classic because the Ethereum blockchain is in the process of moving from an energy-intensive proof-of-work system to proof-of-stake, which removes miner incentives. The process is known as the Merge.

Ethereum Classic, whose token is ETC, is an offshoot, or fork, of Ethereum. Unlike Ethereum, however, it is not changing systems, and that is what is making Ethereum Classic attractive to miners.

But hold on, said crypto data and analysis firm Messari’s senior research analyst Tom Dunleavy.

In a new report he said Ethereum Classic has little long-term viability. While the price of ETC may surge in the days leading up to the Merge, the token is unlikely to experience sustained growth.

Ethereum mining currently makes up 97% of graphics processing unit (GPU) mining revenue and has a daily revenue of $24 million, according to Messari.

After the Merge, users will be able to validate transactions by “staking” ETH rather than executing energy-intensive computations, rendering Ethereum-based mining tools nearly obsolete.

Miners will be forced to either sell their equipment or switch to mining ETC, which currently makes up 2% of GPU mining revenue and nets about $700,000 in daily revenue, according to Messari. This significant gap in profitability means that even if a “meaningful portion” of miners migrate to ETC, mining difficulty will increase drastically and render many miners unprofitable.

ETC rallied over 30% last week after the bitcoin (BTC) mining pool AntPool invested $10 million for development and exploration of Ethereum Classic mainnet applications.

However, Messari wrote that ETC has a history of price spikes when it shows up in crypto headlines, so its current surge is not representative of the network’s long-term growth.

According to Messari, Ethereum Classic has less than half the number of active addresses as Cardano. The network’s current level of development is less than one-tenth of Ethereum and Cardano and has not had a meaningful change in transaction volume since 2018.

“At the end of the day, prices should have some fundamental linkage to network usage and underlying economic activity,” Messari wrote. “Unfortunately for ETC holders, there isn’t much of either.”

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Jimmy is a CoinDesk markets reporter.

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Jimmy is a CoinDesk markets reporter.