Cryptoverse: After Merge, Ether Heads For $20 Billion Waste In Shanghai

Souvenir tokens representing the cryptocurrency networks Bitcoin, Ethereum, Dogecoin, and Ripple are submerged in water in this May 17, 2022 illustration. REUTERS/Dado Ruvic/Illustration/File Photo

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Sep 20 (Reuters) – The Merge came, saw and conquered. Not that you would guess based on crypto prices.

The mega-upgrade of the Ethereum blockchain finally went live on September 15, moving it to a less power-intensive Proof of Stake (PoS) system with almost no hiccups. Continue reading

Although anticipation of the event had seen Ether up about 85% since its June doldrums, it has since fallen 19%, which, along with Bitcoin and other risky assets, has been fueled by investor fears about inflation and the central bank policy was taken.

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Still, many market participants are optimistic about the long-term prospects of Ethereum and its native cryptocurrency.

“Previously, we spoke to sovereign wealth funds and central banks to help build their digital asset allocations…but direct investments were turned down due to energy concerns,” said Markus Thielen, chief investment officer at asset manager IDEG Limited.

“With the move from Ethereum to PoS, this clearly solves that last pillar of concern.”

Some crypto investors are now turning their attention to the next event that could rock prices.

The next significant upgrade for Ethereum is “Shanghai”, expected by market participants in about six months, which aims to reduce its high transaction costs.

It would allow validators who have deposited ether tokens on the blockchain for a return to withdraw, hold or sell their staked coins.

The stakes are high with over $20 billion in Ether deposits currently locked, according to data provider Glassnode.

The staked Ether cryptocurrency — viewed as a bet on Ethereum’s long-term success as it cannot be redeemed until passing Shanghai — is trading near par with Ether at 0.989 Ether, according to CoinMarketCap data, indicating confidence in future upgrades .

The coin had fallen as low as 0.92 in June.


Beyond Shanghai, a number of other upgrades are planned for Ethereum, which co-founder Vitalik Buterin has nicknamed “The Surge,” “Rand,” “Purge,” and “Splurge.”

The main focus of future upgrades will likely be the blockchain’s ability to process more transactions.

“With the merger delayed by several years, investors, traders and end users are very concerned about when Ethereum will meaningfully scale,” said Alex Thorn, head of firm-wide research at blockchain-focused bank Galaxy Digital.

Paul Brody, Global Blockchain Leader at EY, said: “The future of Ethereum must and will scale to hundreds of millions of transactions per day.”

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The main goal of the merger was to reduce Ethereum’s energy consumption as cryptocurrencies come under fire for their massive carbon footprint. The blockchain’s energy consumption has been reduced by an estimated 99.95%, developers claim, which could attract powerful institutional investors previously constrained by environmental, social and governance (ESG) concerns.

The merger and future upgrades are also hurting the investment appeal of so-called “Ethereum killer” blockchains like Solana and Polkadot, said Adam Struck, CEO of venture capital firm Struck Crypto.

However, institutional investors are yet to jump in as a fearsome macro environment dampens risk appetite.

In the longer term, however, the move to PoS is expected to reduce the issuance rate of Ether tokens – potentially by as much as 90% – which should push prices higher.

Additionally, the 4.1% annual returns for staking Ether tokens to validate transactions could prove enticing to investors.

While the Proof-of-Stake methodology enables these lucrative returns, many crypto purists point out that it is moving Ethereum away from a purely decentralized model as the largest validators could have greater influence on the blockchain.

For now, however, the Ethereum world might be advised to enjoy the merge moment.

“There may be some volatility in the coming days,” analysts at Kaiko Research said. “But now the community can take a well-deserved victory lap.”

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Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Pravin Char

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.

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