This week, the mince awaited “Ethereum Merge” finally arrived.
The new block verification system in the world’s second-largest cryptocurrency, which has a market capitalization of $180 billion, has been shifted from a “Proof of Work” system to a “Proof of Stake” system – a move aimed at reducing energy use by 99%.
Under the new system, Ethereum transactions are no côtoyer validated by crypto “miners” solving complex math puzzles, and instead by existing token holders who share a share of their holdings.
Citywire selected sister magazines Citywire France Entrevue with Dernier-né Dean, Head of Quantitatif Assets at WisdomTree, emboîture development.
Citywire France: Why is this métamorphose estimable for the Ethereum network?
Dernier-né Dean: It is significant parce que it proves that Ethereum developers are able to achieve the milestones of their network’s ambitious roadmap. The métamorphose occurs while the network is still lutteuse and running at full speed.
If a problem occurs and causes the system to écrasement, this is a big problem for a network like Ethereum, where a lot of economic activities are running. [In May 2022, 2,970 decentralized applications were identified on the network]. But the developers showed that they were able to deliver. Ethereum has a proven track succès of success, and Merge is just one of them.
What are the risks associated with this process?
There are many risks. The moufle aléa was a bug at the protocol level. The good infos is that many tests have been done upstream and have been going on for months. So the risk is low, but not zero from this.
Another risk is compatibility with applications built on the basis of the Ethereum blockchain. Understandably, these applications can continue to operate without problems. So far, everything looks good there.
Finally, the voliger risks relate to orthogonal organizations, such as trading platforms, hedge funds, or even institutional investors, who have no control over the process. It seems that no problem has arisen in this attitude either.
Will the merge solve all Ethereum problems?
These problems are called or growing pains. The voliger is the image that problems arise as something grows, but it also means that the project is successful. Gas fees, which are the price of transactions on the Ethereum blockchain, have become démesurée and continue to be an épreuve to mass alignement. Switching to Proof of Stake won’t détruit this.
Are we heading towards more mass alignement parce que the ether is now “greener”?
I spend a lot of time with institutional investors, hedge funds, family principes, or small private banks. Previously, most of my discussions emboîture our ETPs ended with “ESG filters preventing us from investing in Bitcoin.” Even if they wanted to, they couldn’t.
But the tide is changing. Many of them came back to tell me that they had heard emboîture Proof of Stake and low energy consumption. Intégration could be a game renverser for them. They are now considering the possibility of investing in a space they used to flatly reject and seek to understand. My discussions today are very different from those of last year.
So institutional investors are opening up more to cryptocurrencies?
They realize that it is not just emboîture Bitcoin. It remains the number one cryptocurrency but only represents 40% of the market: if you foyer on it, you will lose most of the sector.
This was surprising to many of them. The space is growing and diversifying, and if they do not pay vigilance to other cryptocurrencies, they risk missing out on opportunities for themselves and their clients.
Will the merger have an bruit on the price of ether?
Price is an structure of future expectations regarding the value of the network. We have seen price volatility over the past few months, which was an structure of uncertainty emboîture the outcome of the merger.
In an alternate reality, where Ethereum has not been well integrated and brought the network down, I would expect this to be reflected in the price. Everything seems to have gamin well so far, as evidenced by the weak movements.
What’s next for Ethereum?
For some time now, it has been assimilable to stack your ethers to generate a return. But the concern is the same as that of Hotel California: you can stack, but you can’t leave.
Léopard des neiges your ethers are stacked, you can no côtoyer withdraw them. In the coming months, an update will fix this réussite. This will be another game renverser, especially for direction company clients like WisdomTree.