In brief
- Ethereum is about to execute its long-awaited "merge" that will dramatically cut down the environmental impact of the network.
- There may be forked versions of Ethereum, which could cause confusion and lead to scams as duplicate NFT assets enter the market.
We're days away from Ethereum's long-awaited mergerin which the leading network for dapps and NFTs will shift to a more energy-efficient system. It's years in the making, but as the mid-September target draws near, many users are wondering what could go wrong—and whether anything will change with their owned assets.
That's especially true when it comes to NFTswith tens of millions of profile pictures, collectibles, and pieces of artwork now running on Ethereum—some of which have commanded eye-popping sums amid the NFT market's propulsive surge over the last couple of years. What happens to your NFTs after the merger?
The simple answer is: probably nothing. They'll still be in yours wallet and should function as usual on marketplaces and within dapps. But the overall picture is more complicated than that, primarily due to the expected emergence of community-led forks of Ethereum following the merger. Duplicate NFTs will appear as a result, potentially leading to confusion and scams.
What do you need to know about Ethereum NFTs going into the merge, and what could happen afterwards? Decrypt spoke to Ethereum experts about what to expect as the multi-billion-dollar NFT market reckons with some expected twists and turns ahead.
On the merged chain
The merger will see Ethereum shift from the current proof-of-work mining model—which requires ample decentralized power to process transactions—to a proof-of-stake consensus system that's expected to use over 99% less energy, according to the Ethereum Foundation. That's a huge step forward for Ethereum and especially for NFTs, effectively negating one of the biggest criticisms of NFTs.
As mentioned, the merge has been in the works for years, and Ethereum's core developers have painstakingly tested every process and worked through potential hitches. While that's no guarantee that the transition will be seamless, developers and creators widely expect a pretty smooth process ahead.
“Ethereum is software, and all software suffers from it the halting problem—in other words, it's impossible to determine with certainty if there will be any technical hitches," Eric Diep, co-founder of smart contract startup Manifoldtold Decrypt. “That said, I wouldn't bet against ETH's developer community.”
If everything goes according to plan, however, then Ethereum NFTs should function just fine on Ethereum's newly upgraded mainnet. They'll still be held within your wallet(s) and work as usual on marketplaces, and you don't have to do anything to prepare for the merger. That's all being handled on the developer side of things to hopefully ensure a seamless transition.
"Users should expect that their NFTs will safely reside on the new Ethereum [proof-of-stake] chain along with their ETH tokens,” affirmed Johnna Powell, NFT co-head at Ethereum-centric software company, ConsenSys.
Forked considerations
While most of the Ethereum community appears to be on board with the merger and its potential benefits, there are notable detractors. Some Ethereum supporters don't want the chain to shift away from proof-of-work miningeither due to the security benefits of the energy-intensive process or the rewards earned by miners that run the computer rigs.
As a result, some builders in the Ethereum community plan to fork the blockchain and create a spinoff chain that continues ahead with the current proof-of-work system. The most prominent example to date is called ETHPOWled by well-known Chinese miner Chandler Guo.
ETHPOW will not be the same as Ethereum's merged mainnet. It'll be similar in a way to how Ethereum itself forked away from its original chain in 2016 to deal with fallout from The DAO hack, and some users continued to support the original chain under the new name, Ethereum Classic. But a lot has changed since then, and there are loads more assets—including NFTs.
As ETHPOW and any other forks spin off of the Ethereum mainnet, they will yield duplicate versions of Ethereum's NFTs. An NFT is simply a blockchain token, and it can work as a deed of ownership to digital items like artwork and collectibles. A forked Ethereum chain will thus have duplicate deeds that point to the same artwork or media.
What does this mean? If an NFT marketplace supports both Ethereum's merged mainnet and the proof-of-work fork in question, then perhaps you'd see both versions of the token listed. That's sure to cause confusion, and there could be scammers with an aim of selling duplicate versions of prominent NFTs—like Bored Apes and Beeps—to less-experienced crypto users.
"If proof-of-work forks are successful and marketplaces support them," said Powell, "[then] there is bound to be market confusion and arbitrage that we can't really predict, which will play out in the market.”
"One can imagine more sophisticated NFT traders selling their high-value assets on the PoW chain at bargain prices to make a quick profit," she added, "while new traders may not detect the difference."
What about replay attacks?
In the run-up to the merger, there's been some chatter around the prospect of a "replay attack"—that is, that a transaction made on the proof-of-work fork could then be "replayed" on the proof-of-stake Ethereum mainnet.
Here's a theoretical case: a Bored Ape Yacht Club NFT owner might sell the duplicated version on the proof-of-work chain, but then if that same transaction were to be "replayed" by a malicious actor on the merged proof-of-stake chain, then the seller could also lose the original version on that chain. That could be a very costly lesson learned for some NFT collectors.
However, that's all unlikely to happen, at least with ETHPOW, the most prominent proof-of-work fork on the horizon. Replay attacks are only possible if the blockchains share the same chain ID, Ethereum core developer Marius Van Der Wijden told Decrypt—and Guo separately confirmed to Decrypt that ETHPOW will use a different chain ID.
"There will be no problem with replay attacks," Van Der Wijden said, given that ETHPOW will have its own unique chain ID.
That may not be the case with any other proof-of-work chains being forked from Ethereum, however, which opens the window to potential cross-chain chaos. Powell offered simple advice for NFT collectors to follow to avoid any issues—but it means missing out on the potential cash-in of flipping duplicate assets.
"The best way to protect against replay attacks is to not interact at all with the [proof-of-work] chain," she said. "If you don't interact with the [proof-of-work] chains, [then] you don't need to do anything and won't have to worry about replay attacks.”
Projects, platforms decide
In any case, duplicate NFTs will exist due to the ETHPOW chain and other potential forks, and there's likely to be some level of confusion around which assets are "official" or "legitimate." Even so, there could be a feeding frenzy for these copies as NFT owners attempt to flip the proof-of-work versions of their valuable tokens.
This might prove to be a short-lived window. Few in the Ethereum community believe that any proof-of-work fork of the blockchain will be a long-lasting endeavor with considerable user support.
We could see an initial barrage of NFT sales on the proof-of-work chain, but if there's little social sentiment about the value of assets on the chain, then there may be little demand. Prices for duplicate assets are likely to be a fraction of the real deal when it comes to popular projects, and even then, prices for the proof-of-work chain's NFTs could quickly dip.
"It is a high probability that the resulting proof-of-work chain will end up being just a shadow of the new [proof-of-stake] chain, and the amount of extractable value will decrease significantly over time," Manifold's Diep told Decrypt. “Something along the lines of, 'If a tree falls in a forest and no one is there…'”
There's the broader, blockchain-level social consensus that is apparently forming around the merged proof-of-stake chain as the "official" home of Ethereum NFTs. But beyond that, project creators and marketplaces are also signaling that they'll only treat Ethereum's merged mainnet as legitimate, and that forked copies will be just that: unofficial copies.
The Ethereum network is gearing up for the merger mid September. In line with the broader Ethereum community, in the event of a viable PoW fork, Yuga intends to only recognize NFTs on the PoS ETH chain as subject to the relevant NFT license and eligible for Yuga-offered utility
— Yuga Labs (@yugalabs) August 17, 2022
Yuga Labs, creator of the Bored Ape Yacht Club and now owner of the CryptoPunks IP, confirmed two weeks ago that only people who own their NFTs on the merged Ethereum proof-of-stake chain will be eligible for benefits within Yuga's communities. Similarly, only those owners can commercialize their images for derivative artwork and projects.
"In line with the broader Ethereum community, in the event of a viable [proof-of-work] fork, Yuga intends to only recognize NFTs on the PoS ETH chain as subject to the relevant NFT license and eligible for Yuga-offered utility,” the firm tweeted on August 17.
Proof, the startup behind the members-only Proof Collective and the valuable Moonbirds NFT project, expressed a similar stance in a statement to Decrypt.
"As and when the Ethereum merge is successfully completed, Proof will follow the wider Ethereum community in recognizing the new [proof-of-stake] chain—including for its own NFTs," wrote Proof's Director of Product, Angharad "Harri" Thomas. "Anyway [proof-of-work] forks made post-merge will not be recognized.”
It's not just projects, either. Leading marketplace OpenSea, which owns a commanding share of the Ethereum NFT marketplace, also said that it will only support the proof-of-stake chain. By refusing to list NFT assets on forked Ethereum proof-of-work chains, it may help a significant chunk of collectors avoid confusion and scams around duped NFTs.
In other words, Ethereum builders believe that NFTs will function as normal following the merge, that any momentum around duplicate NFTs on forked chains will be short-lived, and that creators and major marketplaces won't even recognize official copies on such forked chains.
Granted, that's no guarantee that everything will go according to plan. There could be technical hitches around the merger or significant interest around duplicated NFTs, which could lead to confusion and scams. The best play for NFT collectors in the weeks ahead may simply be to stay informed, avoid risky transactions or interactions, and wait for any issues to be resolved.
Additional reporting by Sander Lutz.