Thread by @_blakewest

/1 The upcoming Merge has revealed that USDC has veto power over any breaking changes to ETH

The problem isn't just USDC. Anything that touches the real world can't support forks. This breaks a core power of crypto

I don’t think ppl appreciate the importance of this. A 🧵...

2/ First the context: On Sept. 15th, the Merge is scheduled, and there will likely be a hard fork of Ethereum to keep Proof of Work (PoW).

3/ In the past hard forks (eg. BCH or ETH Classic) have been over philosophical or roadmap differences. Which serves a great purpose as a release valve on big tensions. It allows ppl to stop fighting and start building!

Fork the chain, copy state, and let the market decide!

4/ But that was before stablecoins.

Now the PoW supporters can build all they want and none of it will matter unless Circle (company behind USDC) supports it. Which is nuts. I doubt Circle even wanted this power.

But It flows out of the fact that USDC ties to the real world.

5/ In the real world, you can’t “fork” the state.

So when the PoW fork goes live, the supply of USDC will — on chain at least — immediately double.

But of course the dollars in Circle’s bank account will not.

6/ Thus Circle must choose one and only one chain. They chose Proof of Stake.

And that alone kills the PoW fork. B/c the on-chain state becomes chaos if USDC value immediately drops to zero. It would honestly be kind of silly to even turn on the fork.

7/ And you may also support Proof of Stake, so you think "whatevs". But as a thought experiment, what if Circle also just so happened to run the world's largest PoW mining operation? What would the situation be like right now? Would they choose PoW? Would they delay PoS?

8/ Taking a step back... this fact that real world things cannot be forked goes well beyond USDC. As crypto become more mainstream, real-world tie-ins will get ever more common. For example, Tiffany’s just did NFT’s that can be redeemed for real diamonds.

9/ Do you think they’ll give away 2x the amount of diamonds just because of a hard fork. Doubtful.

They have to choose too. The growing trend of “real world” lending on DeFi has the same issue. As crypto gets more successful the problem gets more entrenched.

10/ Is this bad?

Well, the future I worry about is Ethereum becoming a “vetocracy”, where any of a handful of large entities (or even many small ones) can block breaking changes they don’t like, backed up by the threat of chaos on the chain.

11/ I’m really not sure how this plays out, but it feels like one of those lurking issues that isn’t a problem until it really is. Which is basically what everyone says about centralization in general. Except this is crypto itself.

idk. I welcome thoughts. I'm still pondering..