NFT: Bored Ape (BAYC) Owners and Other Cryptopunks Risk Big After Ethereum’s Merge, This Is It

News JVTech NFT: Bored Ape (BAYC) Owners and Other Cryptopunks Risk Big After Ethereum’s Merge, This Is It

Ethereum merge update

Since 2015, the Ethereum community has been patiently waiting for an update that will move the network from the second largest cryptocurrency to proof-of-stake (PoS). For a few months, we knew that this update, regularly posted, should come next September. This innovation should provoke the use of Ethereum.

Ethereum, like other cryptos, uses a proof-of-work system to secure its network. More commonly known as proof-of-work (PoW), this consensus uses computing power (graphics cards, ASICs, etc.) to secure the network. By participating in the correct operation of the network, participants who use their machines are rewarded with ether.

This method of validation, considered polluting, will be replaced by proof of stake or proof-of-stake in English (PoS). The alternative changes the mechanic based on the energy of the calculation to another, based on the active use of its storage. Therefore, it allows the holders of the asset in question (in this case Ethereum) to use their capital, instead of the graphics card, to validate the blocks.

NFTs are mostly Ethereum

Ethereum smart contracts are the origin of the “CryptoArt” universe with NFTs. In fact, the cryptocurrency and its network were at the beginning of the NFT phenomenon that we know today with the arrival of the first collection called CryptoPunks in 2017. Each of the tokens built on Ethereum has a unique value and therefore cannot be replaced by another token, unlike cryptocurrency.

In addition to the changes it means for Ethereum miners, this notable update could affect the entire NFT sector. When The Merge happens, NFT owners will also have to adapt to how cryptocurrency works.

Forks: Ethereum clones

While most members of the Ethereum ecosystem eagerly await these changes, for reasons of efficiency, speed and sustainability, others are more attached to the PoW version of Ethereum.

In this context, the cryptocurrency will see an explosion of its “hard forks” to satisfy the majority of users.

A fork, which literally means “branch”, occurs when there is a divergence of the common rules within a blockchain (network of a cryptocurrency). Concretely, this phenomenon will result in the division of a part of the network if the users do not agree with the current version. In short, this separation allows users of the fork to enjoy a similar network before the appearance of any update. For example, some prefer world of warcraft classic over its current version. There are many hard forks of Ethereum such as ETHPoW or Ethereum Classic.

Copies of NFTs on multiple blockchains

With the arrival of the new Ethereum PoS update, NFTs will likely be available on both chains. In the process of its update, Ethereum is expected to copy its tokens to its new network. Therefore, the original NFTs must be present in both the initial PoW chain and the new PoS.

In this perspective, the biggest studios behind the collections are leading the way. Yuga Labs, owner of Bored Ape Yacht Club or Cryptopunks, has clarified that it will only consider NFTs from the new Ethereum PoS chain.

This change will certainly make digital license owners question which NFT has the most value: the one in the initial blockchain or the one in the new version?

Beyond questions about the “authenticity” of the new NFT, this update could have real consequences for uninformed token holders.

A mistake that can be expensive

Adam McBride, an NFT “archaeologist” explains the potential risks for NFT owners as a result of The merge.

In a thread on Twitter, McBride highlighted the possibility of a “replay attack”. A replay attack is an event where an action is repeated simultaneously in two chains.

Imagine: you sell your NFT Bored Ape registered in the initial PoW chain for a small amount because it only has value in the new Ethereum PoS chain. In itself the idea seems interesting because some want to get these tokens that are considered “original”, so why benefit for the last time from the advantages of your token by recovering some ether.

Only, once sold, the second owner can repeat the same transaction, and this time with a new version of Ethereum. In this case, if you sell your Bored Ape on the 1st of the old chain, it can leave at the same price as the PoS chiane, while it costs 70 times more.

Even if the theory is true, in practice it doesn’t happen. To do this, most NFT platforms must have integrated forks of Ethereum PoW, but this is not the case with the projects of market leaders such as Opensea.

Future changes around NFTs after The Merge update include thinking about non-fungible tokens and their new uses in Ethereum 2.0. The big differences are because NFTs are one of Ethereum’s engines, which contribute a large part of the network’s participants’ income. In addition to these questions, this update presents more than positive points for NFTs, namely the increased flexibility and speed during transactions.