key takeaways
- Ethereum is upgrading to Proof-of-Stake in the next few hours.
- Centralized exchanges, Ethereum dApps, and potential Ethereum proof-of-work forks could spell trouble for ETH holders.
- Although the merge may be volatile, it is expected to be beneficial for Ethereum in the long run.
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Centralized exchanges, dApps and Ethereum proof-of-work forks may face some hiccups during Ethereum’s much-anticipated merge to proof-of-stake.
Merge is upon us
Ethereum is finally gearing up to transition from proof-of-work to proof-of-stake. According to bordell.wtfThe highly anticipated transition, known in the crypto community as a merge, is currently scheduled to occur sometime between 04:45 and 05:36 UTC on 15 September. The upgrade is expected to reduce the issuance of ETH tokens by 90% and slash the blockchain. Energy consumption 99.5%.
At the time of writing, Ethereum kept Market capitalization of $192 billion and collateral value of over $32 billion off in its decentralized finance (DeFi) protocol. This makes Merge a particularly high-stakes upgrade. While the general consensus in the crypto community is that Ethereum has a high potential to easily switch to proof-of-stake, it is worth considering the issues that may arise.
Centralized Exchange Downtime
Centralized crypto exchanges, even major ones, regularly go down during highly volatile events. In fact, only this week, when Coinbase and FTX experienced significant losses after a massive collapse in the crypto market New CPI print of 8.3%. If the merge proves to be a volatile event, it would not be surprising for exchanges to go through technical difficulties.
Having said that, coinbase, BinanceAnd ftx Everyone has already indicated that they will prepare for the merge by stopping ETH and ERC-20 token transfers during the upgrade. Therefore, these exchanges are unlikely to blind themselves to this phenomenon; He also assured in the press release that trading services would remain unaffected.
DAP malfunction
According to DappRadar, Ethereum host It has over 3,460 decentralized applications (DApps) on its blockchain. These include decentralized exchanges, NFT marketplaces, lending protocols, social media platforms, and games. DApp developers need to adjust their code because the merge will cause key elements of Ethereum’s structure to change; Those who do not get their applications are facing blockages. DeFi protocols can be particularly sensitive, as algorithms that manage liquidity pools, stablecoin support, and automated market makers may need to be updated. Post-upgrade prices can fluctuate and cause stress.
However, it appears that major DeFi protocols are gearing up for the event. Lending platform Aave recently halted ETH loans to mitigate liquidity risks associated with the merger. Meanwhile, Uniswap, the top decentralized exchange Signal that it was “eagerly awaiting” the merge and that the services would continue to run smoothly.
Proof-of-Work Forks
After separating from proof-of-work, Ethereum will no longer need miners, as the security of the blockchain will be assured by validators instead. While some Ethereum miners have begun to migrate to other compatible proof-of-work blockchains (such as Ethereum Classic), others have announced their intention to fork Ethereum in order to keep running a miner-friendly version of it. Can go This would actually cause Ethereum to split into two chains, one with a proof-of-stake consensus mechanism, the other with a proof-of-work.
In such a case, ETH holders would be awarded with New Ethereum Proof-of-Work (ETHW) token in 1:1 ratio. While this is good news for market participants, airdrops can come with difficulties. Depending on how efficiently the Ethereum fork is implemented, users can suffer from replay attacks, meaning transactions broadcast on one blockchain can be mirrored on another. For example, a user might accidentally sell 10 ETH when they were trying to sell only 10 ETHW. Therefore ETH holders should act carefully with their funds immediately after the merge.
final thoughts
Ultimately, it’s worth remembering that no matter how volatile the merge, an upgrade is almost certainly a net positive for Ethereum in the long run. Nothing is required of ETH holders or NFT collectors during the event itself: for most users, the transition to Proof-of-Stake will be completely seamless.
Disclaimer: At the time of writing, the author of this article owns BTC, ETH and many other cryptocurrencies.