The transition of Ethereum to the new algorithm was successful, the developers announced, the power consumption of the network was reduced by 99.95%. However, the price of ether did not justify the hopes of those who expected a jump in quotations.
At the time of writing, according to CoinMarketCap data, the cryptocurrency is trading at $1,437 per coin. Before the merger, on September 13, the price of the coin rose to $1,743. Over the past three days, Ethereum has fallen in price by 17%. The maximum value of Ether in the last month reached $2,017.
The merger itself took place at approximately 7:00 am on September 15 Moscow time. The price of the cryptocurrency crept down sharply by the evening of September 15, falling by almost $100 – from $1,588 to $1,473. There is a version: the fall is due to the fact that some miners who decided to switch to the network fork at the last moment began to merge their coins.
Price is not the point
At the beginning of the month, Arthur Hayes, the former CEO of the BitMEX crypto exchange, suggested that thanks to the merger, the ETH price will reach $3,000 in 2022. The daily issuance rate of the coin will drop from $13,000 to $1,600, and the network’s popularity will increase, which will affect the positive course change. Note that Hayes predicted in April that ETH would jump to $10,000 by the end of the year.
According to Tether CTO Paolo Ardoino, the merger will not help ETH catch up with Bitcoin (BTC). In his opinion, bitcoin has long been perceived as a form of money, unlike ether, which, on the one hand, is a large platform for third-party projects, and on the other, the basis for the second largest cryptocurrency. Until the network reaches certainty, argues Paolo Ardoino, the price of cryptocurrency will not reach high values.
But, if you listen to the words of Ethereum co-founder Vitalik Buterin, the cost of Ethereum is not as important as the opportunities it will open. According to the programmer, the most important thing is the merger: it will make the network much more accessible to users, reducing energy consumption and, in the future, reducing the price of gas. The opportunities that the merger opens up for a multitude of projects, says Buterin, are almost limitless. Low network fees and improved scalability could bring back the popularity of everyday payments in digital currencies, which they lost in 2018. And environmental friendliness will attract large investors who were previously stopped by the energy consumption of the network.
At the same time, back in July, Buterin warnedthat the update will not immediately affect the price of ETH – it will fluctuate, and it will only start to rise with the advent of “correct market conditions”. But the transition should be a big deal for the decentralized finance (DeFi) industry, allowing developers to comfortably build much more interoperable and scalable applications.
It should be understood that in the coming months we are unlikely to see major changes caused by the merger. Blockchain is primarily an ecosystem that lives and develops through new projects and ideas. The transition to Proof-of-Stake is just the foundation provided by the Ethereum developers. Much depends on the community itself. If the upgrade brings new minds and new money into the ecosystem, it could increase the value of ETH – it just takes time.
Buterin is echoed by the CEO of the Binance crypto exchange, Changpeng Zhao. In a recent interview, he stated that traders and industry participants need to be patient. The network upgrade will not have an immediate impact on the ecosystem. Zhao is sure that it is wrong to believe that the transition will change everything at once.
Ethereum mining is dead, hello staking
While miners are waiting for the launch of the fork, which was announced by one of the largest miners in China, Chandler Guo, Ethereum validators are staking their coins with might and main.
The largest staking platforms right now are the decentralized autonomous organization (DAO) Lido Finance and the cryptocurrency exchange Coinbase. According to Messari, Lido Finance is the largest ETH staking pool operator, controlling more than 31% of all ETH locked up on the Beacon Chain. The platform offers its clients a yield of 3.9%. However, analysts from Nansen are concerned about the decentralization of the site. They draw attention to the fact that nine large DAO participants hold Lido (LDO) tokens – they control about 46% of the entire organization. Attempts by the Lido community to remedy the situation have not been successful.
Coinbase accounts for 14.7% of the total ETH staked on the Beacon Chain, which worries the community as much as the situation with Lido.
Since the crypto exchange is an American public company, it is required to comply with US law, which may lead to censorship of transactions in Ethereum. For example, if it seems to American regulators that Buterin somehow looked askance at them.
However, Coinbase CEO Brian Armstron promised that if this happens, the crypto exchange will stop participating in ETH staking.
Concerns and prospects
Co-founder and developer of the DeFi gateway Umbria Network, Barney Chambers, has previously spoken out opinionthat one of the main problems in the updated Ethereum will be the distribution of new tokens. According to her, the accumulation of coins will be concentrated in the hands of validators, who already owned a large amount of ETH before the merger. In the future, this will significantly affect both the price of Ethereum and the entire ecosystem.
A similar opinion is shared by Sphere3D CEO Patricia Trompeter. She believes that PoS will lead the network towards greater centralization – all power will be concentrated in the hands of the richest coin holders. The businessman also doubts the environmental friendliness of Ethereum 2.0: the network does not offer fundamentally new and sustainable solutions for the transition of the entire industry to renewable resources, but only provides temporary props.
In contrast, Apollo Capital’s Henrik Andersson believes that ESG (environment, social policy and corporate governance) principles have become one of the central factors in acceptance by institutional investors. And since Ethereum is now significantly less energy-intensive, says the chief investment officer, this could attract big market players.
However, part of the community expects that the merger will fundamentally change the basic principle of the Ethereum economic model and, therefore, significantly increase the demand for ETH due to low fees and potential high profits.
“Will my ether coins turn into a security?”
One of the main topics for discussion around the transition of Ethereum to PoS is the prospect of recognizing cryptocurrencies as securities subject to appropriate control. A new new algorithm of work, following the logic of the US regulatory authorities, endowed the ether with such a sign of securities as the expectation of making a profit.
The main contenders in the eyes of the US Securities and Exchange Commission (SEC) for the status of securities are now such digital currencies as Ripple (XPR), Zcash (ZEC), Stellar (XLM) and Horizen (ZEN). So far, the regulator has not even expressed its intention to include ether in the list, which has generated discontent in the communities of the above digital currencies.
For example, XPR supporters accused the developers of Ethereum of premine (pre-release of new coins), and stated that the SEC, in fact, made an indulgence for Ethereum.
However, according to Adam Levitin, professor of law at the Georgetown University Law Center, ETH will not become a security. Reason: SEC Chairman Gary Gensler intends support a bill giving the Commodity Futures Trading Commission (CFTC) the power to oversee bitcoin and ether. If the law is passed, ETH could officially become an exchange commodity. Recently, Gensler publicly reminded the Ethereum community that a merger could turn the cryptocurrency into a security.
If ETH gets the status of a security, this could lead to a wave of huge fines for the platform from the authorities. Ethereum is likely to delist most cryptocurrency exchanges. It is clear what will happen to the rate of the second cryptocurrency in terms of capitalization in this case. This will turn out to be a disaster for the entire platform, users and many projects based on the popular blockchain.
However, if ETH is called a security only on the basis of “expectation of making a profit”, then regulators will have to do the same with all PoS tokens. And this is very unlikely.