Crypto Drops After Ethereum Update – 09/15/2022 – The market

Major cryptocurrencies deepened their losses this Thursday (15), a few hours after completing an update to the Ethereum platform that is considered historic for this market. Despite the success of the change, which has been dubbed “The Merger”, the global scenario of inflation and rising interest rates overshadows the long-term benefits it will produce, analysts say.

Ether, the second digital currency behind bitcoin, fell 4.77%. A decline similar to that recorded by Litecon, one of the most traditional digital assets. Bitcoin itself lost 1.38%.

Variations that are considered even small for the volatility of this type of asset, and especially at a time when the appreciation of fixed income, due to the global rise in interest rates, makes investors less willing to invest in variable income, especially the riskier ones, Paulo Aragão, founder of CriptoFácil, a content platform specialized for this sector.

“The Ethereum upgrade this morning went well, but the merger was not counted because good news is being ignored in this crypto winter,” Aragão commented.

Crypto Winter is how market participants talk about a severe fall in cryptocurrencies. ether and bitcoin, for example, have accumulated losses of approximately 60% this year.

“The macroeconomic scenario is very unfavorable for crypto assets,” says Ayron Ferreira, principal analyst at Titanium Asset Management. “The change in Ethereum is definitely positive and that will be very clear when this bear cycle is over,” comments Ferreira.

The effects of the merger will be felt at times when the traditional stock market is stable, according to André Franco, head of research at Bitcoin Market. The best thermometer to evaluate this, according to the expert, is the American stock exchange focused on companies from the technology sector, Nasdaq.

Sensitive to rising interest rates precisely because it depends on an environment of cheap credit for companies with higher growth potential to turn a profit, the Nasdaq has fallen more than 25% this year.

“The merger was a success and time will confirm that. It’s a reality that will impose itself,” affirms Franco.

Still with the apparent apathy of investors towards a significant change, Marta Reis, head of research at cryptocurrency exchange BeQuant, states that the novelty that brought recent gains to Ethereum has simply passed, and now the market has decided to take those profits and migrate to other assets.

In the last two weeks, ether has accumulated around 18% gains.

“Now the hype around the merger is over, and we don’t have a catalyst for Ethereum in the short term,” Reis told Bloomberg. – It would be natural to expect a small rotation.

What has changed on Ethereum

The biggest change in Ethereum in over a decade was completed in the early hours of this Thursday (15). This is a change that not only affects ether, which is an asset born with the Ethereum platform itself, but also affects all current and future cryptoassets that use the same system.

Ethereum is essentially a computer program that uses so-called blockchain technology to record transactions with digital assets. It is the most popular basis for a growing range of cryptographic applications such as NFTs (non-fungible tokens).

Before understanding the change, it is necessary to know that the Ethereum system does not belong to anyone. It was built and continues to be improved by an open community of developers.

The execution of this program was previously dependent on large computer centers around the world. The operators of these centers are called miners.

In order to issue Ether, developers had to decipher and merge blocks of code that developers posted online. That is why this technology is called blockchain, that is, a chain of blocks.

Mining is how this cryptoasset validation work became famous. The activity requires solving complex mathematical problems, which require the use of interconnected computers with high processing capacity.

When a miner decrypts the next block in this chain, they get Ether as a reward, explains Paulo Aragão of CriptoFácil.

To crack this code before the competition, a miner needs a lot of computing power. “That’s why cryptocurrency mining requires so many computers and consumes a lot of electricity,” says Aragão.

This complex validation system, called “Proof of Work” is a way to make blockchain technology secure, as it generates verifiable proof of the work done by the miner.

An Ethereum update changes this validation protocol. The new algorithm will automatically perform calculations on participants’ portfolios that have at least 32 Ether units.

This means that to participate in this process it is necessary to own about R$ 250,000 of cryptocurrency, given the current price of approximately US$ 1500 (R$ 7830).

It is the algorithm that will select the participant who will perform the mining and receive payment for it, although this participant does not need to do any calculations. The choice is not necessarily random, as criteria such as portfolio size may favor participant rotation.

This new verification system is called Proof of Stake.

Fusion was the moniker chosen for the update because during the development of Proof of Stake, the test platform used was Beacon Chain. With the completion of the process, the Ethereum blockchain technology merged with the technology tested in the Beacon Chain.

Aragão says there are two most significant changes in this process. The first is energy saving. It is estimated that without the need for large integrated computing centers for mining, electricity consumption could drop by more than 95%.

In addition, the number of transactions per minute tends to increase significantly, which allows for faster operations using the platform and lower fees.

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