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Post-Merge ETH ‘deflationary for first time’, says Coinbase

By Darius McQuaid


Updated

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In this article:
GOOG
Google
101.02 USD
-0.52 -0.520%
ETH/USD
Ethereum / USD
1274.94 USD
11.01 +0.870%
GNO/USD
GNO/USD
95.88 USD
0.8 +0.880%

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Representation of a silver Ethereum (ETH) token on a pile of bitcoins
Coinbase referred to the change as a “post-Merge milestone” – Photo: Getty Images

Ethereum (ETH) has become deflationary for the first time since The Merge, according to a Coinbase report.

This is the first time since ETH went from a proof-of-work (PoW) to a proof-of-stake (PoS) model that the crypto has become deflationary.

Coinbase, the largest cryptocurrency exchange in the US, called the news a “post-Merge milestone”.

The change occurred because more ether were burned verifying transactions than were created in the same period. This resulted in a -0.13% reduction in supply during the past week, as well as new ether creation falling by almost 90% since The Merge.

21 September 2022: Ethereum regulation: SEC says all ETH transactions belong under US jurisdiction

A US Securities and Exchange Commission (SEC) federal lawsuit filed against crypto influencer Ian Balina has claimed that the entire Ethereum (ETH) network falls under the US government’s scope.     

Balina, founder and CEO of data-driven cryptocurrency investment research platform Token Metrics, is being accused of an illegal sale of Sparkster (SPRK) tokens during an initial coin offering (ICO) in 2018.

The CEO of Token Metrics allegedly failed to reveal that he had been paid to promote the ICO, which the SEC believes is an unregistered securities offering.   

When analysing the SEC lawsuit, its 69th paragraph claimed that as Ethereum nodes are “clustered more densely in the US”, all Ethereum transactions globally should be considered of American origin, Decrypt reported.  

As 46.37% of Ethereum nodes operate from the US, according to Etherscan, it is clearly the top location for Ethereum transactions, which is followed in second place by Germany with 18.35% of Ethereum transactions.  

Has The Merge made ETH a security?

Additionally, SEC chair Gary Gensler said on 15 September that the Ethereum Merge – the switch from a proof-of-work (PoW) to proof-of-stake (PoS) consensus mechanism – may now mean that the crypto falls under the category of a security.

Gensler detailed how cryptocurrencies and intermediaries that allow holders to “stake” their coins might pass the Howey test, which is a way to assess if a transaction qualifies as an “investment contract” and is therefore considered a security.

Gensler said: “From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,” reported The Wall Street Journal (WSJ).

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16 September 2022: ETH drops below $1,500 in price plunge after The Merge

After the completion of the long-awaited Ethereum Merge yesterday, ETH has plunged below $1,500, trading at $1,464.91 at 9:30 BST (UTC +1) this morning, Friday 16 September, down 9.24% in 24 hours. 

Ethereum has plunged almost 16% in the three days since 13 September, before the Merge.

ETH was ranked as one of the worst performing cryptos for the day yesterday, according to CoinMarketCap data, which placed ether in sixth place among the top losers with a 5.17% fall in price over the previous 24 hours, just behind gnosis (GNO), which was down by 5.93% in 24 hours and trading at $143.07. 

In contrast, the 24-hour daily trading volume of ETH, the second biggest crypto by market cap, rose by 52.02% yesterday to $27.7bn.

15 September 2022: ETH drops more than 7% after Ethereum Merge

Changpeng Zhao, founder and CEO of Binance, the world’s largest cryptocurrency exchange by trading volume, has reacted to the Ethereum Merge jokingly saying, “We are all still here”.

However, within hours of Zhao’s comment, ETH had plunged more than 7% in value.

The Binance CEO also welcomed via Twitter  the switch from proof-of-work (PoW) to a proof-of-stake (PoS) system and said: “Merge successful. PoS activated.”

In preparation for The Merge, Binance had suspended all Ethereum (ETH) withdrawals and deposits on its platform, an hour before The Merge took place.

Now PoS is live, all ETH mainnet deposits and withdrawals have resumed on Binance.  

Despite The Merge having finally taking place after numerous delays, at 16:00 BST (UTC+1) Ethereum was trading down 7.24% on the previous day, according to CoinMarketCap, at $1,482.68, despite having hit $1,648 earlier in the day.   

15 September 2022: ETHW Core intends hard fork 24 hours after The Merge 

Despite the anticipation surrounding the Ethereum Merge, not everyone within the Ethereum community is happy for it to happen, particularly the ETHW Core group which has voiced opposition about moving to a proof-of-stake (PoS) model.    

The ETHW Core wish to stick with a proof-of-work (PoW) Ethereum and plan to keep mining alive after The Merge.

Due to this, the ETHW group intend to split off from the main ETH blockchain and hold a hard fork for its token ETHW, within 24 hours after The Merge.

The ETHW Core said on Twitter: “ETHW mainnet will happen within 24 hours after the Merge. The exact time will be announced one hour before launch with a countdown timer and everything including final code, binaries, config files, nodes info, RPC, explorer, etc. will be made public when the time’s up.”

In an open letter, ETHW Core founders explained why they believe in PoW. They said: “PoS is indeed a game changer, but only in bad ways. Nevertheless, PoW has a 12-year track record of being reliable, robust and censorship resistant.

“It is only prudent to continue a PoW Ethereum, which should be a no-brainer for those who champion openness and the free market as there is no downside. After all, if PoS Ethereum is so great, why be afraid of competition?”

The Ethereum Merge took place today (15 September), which marks a significant day in crypto history where the second largest digital asset moved from an energy-hungry PoW to a to the leaner, greener PoS model. As of earlier on 15 September, ETH was trading at $1,597.69 – down 0.37% in the past 24 hours and down 1.37% over the past seven days.

ETH/USD

1,274.94 Price
+0.870% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 5.50

BTC/USD

17,162.00 Price
+1.030% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 66.00

LUNC/USD

0.00 Price
-2.630% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee -0.0500%
Overnight fee time 22:00 (UTC)
Spread 0.00000725

DOGE/USD

0.10 Price
+2.460% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 0.0015771

12 September 2022: ETH 2.0 Merge countdown clock added to Google 

Google (GOOG) has implemented a countdown clock to when the Ethereum (ETH) Merge is forecast to happen.

As of 16:06 BST (UTC +1) on Monday 12 September 2022, Google predicted the Merge would take place in two days, 19 hours and 22 minutes’ time.

An illustration depicting a black panda bear rushing to embrace a white panda accompanies the countdown. The animals will supposedly get closer as the Merge countdown moves to zero.

Google Cloud developer Sam Padilla had alerted Vitalik Buterin, co-founder of Ethereum, via Twitter on 9 September that he should go to Google for a “fun little surprise”.

Padilla added: “Everyone is so excited for what is coming and appreciative of the work that has been going into this for years.”

8 September 2022: Ethereum could ‘decouple’ from other cryptos after The Merge  

Chainalysis, the blockchain analysis firm, has said that the price of Ethereum (ETH) could “decouple” from other cryptos after The Merge, as its staking system becomes more attractive to institutional investors.

The Merge means that Ethereum will start to run on a more environmentally friendly proof-of-stake (PoS) instead of a proof-of-work (PoW) consensus model.

The change will also make staking rewards “similar to an instrument like a bond or commodity with a carry premium”. This will make it more attractive to institutional investors.

As staking rewards are due to increase these returns could make Ethereum a more attractive alternative to bonds for institutional investors.

Arthur Hayes, co-founder and former CEO of the crypto spot and derivatives exchange BitMEX has predicted that Ethereum could reach $10,000 (£8,660) by the end of the year.

Chainalysis data shows that what it deems “institutional stakers”, those with wallets staking more than $1m in Ethereum “has been steadily increasing”. 

7 September 2022: Bellatrix upgrade completed, but with concerns over missed block rate 

Despite the Bellatrix upgrade for Ethereum (ETH) being successfully completed, there was almost a one in ten missed block rate across the last 600 slots.

This was revealed by Martin Köppelmann, co-founder of Gnosis (GNO) via Twitter.

Köppelmann stated the missed block rate for the last 600 slots was 9% and “historically this rate has been around 0.5%”.

The Gnosis co-founder went onto say that this is “nothing dramatic” but clearly “Bellatrix caused some issues for some validators”.

Köppelmann did add that this was something that Ethereum should “keep an eye on”.  

Why did this happen?

As 24.4% of ETH nodes were not “Merge-ready” prior to the Bellatrix upgrade, one Twitter user asked Köppelmann if this may have attributed to the issue to which he replied that it “could be a reason”.

However, yesterday (6 September) 26.5% of Ethereum nodes were not ready for The Merge, so it has seen a decrease in number.  

Adam Cochran, partner of Cinneamhain Ventures, added on the matter “Hopefully this can get debugged before The Merge, we really don’t want to be seeing unexpected issues at this late stage.”

Christine Kim, researcher at Galaxy, a crypto and blockchain educational hub for institutions, start-ups, and qualified individuals believed the missed blocks were down to “offline validators”.

6 September 2022: Under three-quarters of ETH nodes are ‘Merge-ready’ 

Just under three-quarters of Ethereum (ETH) nodes are now “Merge-ready” prior to the Bellatrix upgrade, which is to take place today (6 September).

According to data from Ethernodes, 73.5% of Ethereum nodes are ready for The Merge. As this means 26.5% are not yet ready, Ethereum Foundation developer Tim Beiko has sent reminder messages via Twitter and stated, “Last chance to upgrade your node if you haven’t yet!”

The Bellatrix upgrade is said to be one of the last steps before The Merge takes place. The Ethereum Foundation says The Merge is expected to take place between 10 and 20 September.

Ethereum node operators need to comply with the Bellatrix upgrade by updating consensus layer clients before The Merge goes live.

What happens if you do not participate in the upgrade?

The Foundation outlined that if Ethereum miners or node operators are using a client which is not updated to the latest version, they will “sync to the pre-fork blockchain once the upgrade occurs”.

This means they will be stuck on an “incompatible chain following the old rules”.

The Merge means that after numerous delays, Ethereum will start to run on a proof-of-stake (PoS) instead of a proof-of-work (PoW) consensus model.  

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