7th July 2022 > > Ethereum.

tl;dr

The Merge is coming!

Market Snap (at time of writing)

Market Wrap

US Treasury 2s-10s inverted yesterday and remains at -6bps. This is a reliable and consistent indicator for a forthcoming recession 6 months out from now, unless it reverts quickly. Rapid rate rises are needed because of the huge damage and destruction caused by Quantitative Easing (QE), a policy designed to make the rich richer, and the poor poorer.

Rate rises in the teeth of a recession is surely every policymaker’s stuff of nightmares, but they have only themselves to blame for this unholy mess.

Curious Cryptos’ Commentary – The Merge

Regular readers know already that the Ethereum network is moving from proof-of-work (POW) to proof-of-stake (POS) consensus mechanism.

One of the driving forces behind this transition has been criticism of the energy demands incurred by POW as miners compete to complete the next block.

The debate around this issue is rather more nuanced than some commentators realise, but of course it is impossible to discuss energy requirements without some people making it a political issue, as witnessed by the failed attempt to hijack the EU’s Markets in Crypto Assets (MiCA) regulation in order to distort it to “ban” POW cryptos, notably BTC itself.

However, the CCC remains - as ever - entirely apolitical, so we will leave that particular discussion to other more heated arenas.

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Ancillary benefits of the transition to POS will be faster processing times, using a technique known as sharding, which effectively imports a Layer 2 solution into Layer 1, forcing current Layer 2 protocols to increase their own utility, which is a good thing in itself.

Transaction fees will fall dramatically, and some will be burnt in each new block, raising the delightfully tantalising prospect (for holders of ETH) that ETH will become disinflationary.

To my mind, all these factors add additional upward price pressure on ETH, though of course this is simply a personal opinion, and is not to be taken as investment advice.

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Currently, the POS part of ETH – though live – is not being used to process transactions. Despite this, you can stake your ETH, and participate in the mining rewards, though at the cost of locking up your ETH until such a time as ETH fully transitions to POS, an event known as The Merge.

If you do decide to stake your ETH, either now or after The Merge, please be careful. There are many scams out there. If you want detailed advice and a guiding hand, the CCC team is ready and willing to help you through the process safely.

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Given the complexity of the transition (a verbal noun ideally suited to our times) to POS, it should come as no surprise that the deadline for The Merge has been delayed a few times. However, there is some good news with the successful completion of the latest test of The Merge on the public test network Sepolia.

Though not without hitches, it has been deemed a success, especially in terms of helping Ethereum developers and other stakeholders understand some of the potential pitfalls, and to help them prepare for the actual Merge.

Anthony Sassono, who writes a nearly-daily newsletter The Daily Gwei, is probably one of the planet’s greatest supporters of the Ethereum network. After hosting a live YouTube stream of the Sepolia test, Anthony had this to say on Twitter:

“Thanks to everyone who watched the Sepolia merge livestream!! The Sepolia merge transition went through successfully (and the chain finalized!) so now it's time for monitoring over the next few days.

Then we merge Goerli...

...then Mainnet

The Merge is coming”

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Over a quarter of the validators went offline in the test, due to wrong configs. That sounds like a lot to me, but I guess this is exactly why tests are important to do. All those validators that went offline are back up and running.

The final test on the Goerli network is due in the next few weeks. Assuming that goes well, a date will be fixed for The Merge.

Gosh, I just know you are all as excited about that prospect as I am.