Ethereum: Eco-friendly ‘Merge’ update is just the first step

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Upgrading Ethereum took years. The blockchain platform has successfully transitioned from approving transactions via math problems to crypto assets, a shift known as a merger. The new “proof of stake” model is expected to reduce energy consumption by more than 99%.

Hailed as a watershed moment for crypto, the meltdown helped lift ether tokens nearly 50% from their June low. But prices remain well below last year’s high point. The crypto winter is not broken.

Ethereum’s Ether is the second best-known digital token after bitcoin. Merging the mainnet with an Ethereum network that already uses proof-of-stake transactions could help recast the reputation of crypto as an environmental disaster.

But while the merger was technically difficult, it didn’t change much for most ether holders. The blockchain’s energy requirements have been reduced but the fees have not gone down. Transaction times have not improved. It is possible that the shift to proof-of-stake will encourage more decentralized finance applications to run on the Ethereum blockchain. Again, they can wait for future updates designed to increase capacity. Investors remain more obsessed with inflation and are removing risk from their portfolios.

The change could also empower validators with a large ether pool they can put to work, earning a return to “stake” their tokens. Just as proof-of-work mining has benefited groups with access to great computing power, proof-of-stake will benefit those who already have a supply of tokens. The minimum bet required is 32 ether, which is just under $48,000.

There are risks. Tokens may be confiscated if transactions are invalid and stakes cannot be withdrawn until the next software change, which could take a year.

Truly transformative news this week came from Fidelity, Citadel Securities, Schwab and others, who are creating a crypto exchange called EDX Markets. Wall Street’s continued interest in crypto may have a bigger short-term effect on prices than the meltdown.

Our popular newsletter for premium subscribers is published twice a week. On Wednesday, we analyze a hot topic from a global financial center. On Friday, we dissect the main themes of the week. Please register here.

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