Ethereum Proof of Work Fork Explained

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Ethereum Proof of Work Fork Explained

Ethereum Proof of Work Fork Explained 2000 1125

Earlier this month we wrote about the successful completion of the Ethereum merge on September 15th, 2020.  The Ethereum network has migrated from a Proof of Work (PoW) consensus mechanism to the less energy-intensive Proof of Stake (PoS) validation. Although important for the evolution of the second largest cryptocurrency by market cap, the merge event resulted in a large quantity of Ethereum mining hardware, primarily NVIDIA GPU cards, becoming obsolete.

The result of the merge means that there will be a loss of income and invested capital for the community of Ethereum PoW miners who have validated the blocks on the network since its inception. Following the merge, this community has collaborated their efforts into creating a Proof of Work (PoW) fork of the Ethereum network with the ticker symbol ETHW. This forked network allows the owners of Ethereum mining hardware to continue their mining activities in a similar fashion as they have done so with pre-merge Ethereum. 

A one-for-one distribution of ETHW tokens was initiated shortly after the completion of the merge. This means that all of the holders of Ether (ETH) are entitled to receive the quantity of ETHW. While all investors are entitled to receive the forked ETHW, the ability of investors to receive those assets is dependent on the custodian and exchanges’ assessment of the new network. The distribution of ETHW tokens has the potential to add tokens and alter the valuation of the following funds that we offer:

Network forks are a regular occurrence with the larger networks getting forked almost daily. Even though forks happen daily it does not mean the digital asset ecosystem will adopt the new network or its token.  This merge event was unlike previous forks, with many market participants interested in seeing if the forked ETHW would gain traction with cryptocurrency investors.  

Based on early returns it appears as though the market has had a less than enthusiastic response to the new token. Few exchanges have listed ETHW. Similar to the review performed by trading platforms, our custodians and index provider partners have performed an assessment of the significance of the forked network and its corresponding token. CF Benchmarks, our index provider, has been monitoring the status of the forked network closely and has concluded its assessments on September 28th, 2022 using the criteria stated in CME CF Hard Fork Policy and CF Multi-Asset Index Series Ground Rules documents. The assessment concluded that the forked tokens are not considered a distribution event and will not alter the valuation of the Arxnovum Funds.

We welcome any questions from our investors.

The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks.  Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks.
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