Ethereum has been upgraded to a new blockchain infrastructure. What does that mean for the crypto market?

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Last week, cryptocurrency giant Ethereum achieved a long-awaited milestone and turned its technology infrastructure into a more environmentally sustainable program. The new infrastructure, called consolidation, Ethereum energy consumption reduced by 99%. Although it is a highly anticipated change in the cryptocurrency market, it does have its risks.

What has changed Ethereum?

Before we talk about consolidation, let’s review what has changed in the Ethereum mainnet.

The mainnet is the blockchain technology responsible for transmitting cryptocurrency from the sender to the receiver. Since the beginning of Ethereum, Proof of Work mechanisms have been used to validate transactions and mine new coins.

However, to extract new coins, Proof of Work transactions needed computers to compete with each other to solve complex math problems. Bitcoin also uses Proof of Work systems to validate new coins.

This process consumes terawatts of energy and releases megatons of carbon dioxide into the environment. appreciate it Bitcoin mining requires the same amount of energy to run a small countryabout 130 TWh, according to Digitconomist’s Bitcoin Power Consumption Index.

Proof of Stake mechanisms secure block transactions by requiring crypto holders to use their Ether as collateral to validate the new coins. So, for Ethereum, gone are the days of crypto miners and comes crypto authentication.

Validators add newly validated transactions to a common block, and a group of validators will vote and agree that the transaction is legitimate. Once this happens, the block is closed and validators will receive more coins in return.

The main difference between mining and validation is that holders of cryptocurrency Rewarded for their share In a Proof of Stake network, compared to its reward for computer power in a Proof of Work network.

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What is merging?

Consolidation refers to merging the original Ethereum mainnet with a separate, more energy-efficient and environmentally friendly blockchain to create a single chain. The Ethereum blockchain powers much of the crypto market, including NFTs.

The founder of Ethereum, Vitalik Buterin, had visions to change the Ethereum consensus layer to a proof-of-stake system. As early as 2014, a year after it created Ethereum. New infrastructure delivers significant reduction in Ethereum power consumption, amid surge Concerns and criticism from US officials and environmental advocates about the impact of cryptocurrency mining on the environment.

The merger is good news for potential crypto investors who have been chilled by the impact of cryptocurrency on the environment. It’s good news for existing investors as well, because the merger has no impact on existing assets.

Just before the merger took place, Ethereum experienced a price increase as investors and crypto enthusiasts were sure that the new infrastructure would give Ethereum the upper hand to beat Bitcoin. The hype surrounding the merger gave investors hope that all cryptocurrencies would increase in price and Strengthening the faltering market.

But this did not happen. Ethereum declined and so did the rest of the crypto market.

What does consolidation mean for the cryptocurrency market?

The merging was a remarkable technical feat and a victory for the tree huggers. However, subtle changes in rhetoric and major changes in the Ethereum infrastructure are changing the meaning of investing in cryptocurrencies.

Contrary to the blockchain doctrine, proof of stake networks and crypto investors may have to share the pavement with a third wheel – the US government. After the merger, the US Securities and Exchange Commission introduced a new wrinkle in its proof of stake infrastructure incubation plan.

Blockchain is all about decentralization, which means that the government should participate as little as possible, or not at all. But SEC President Gary Gensler concluded that Proof of Stake transactions meant that tokens could be considered securities rather than coins.

Gensler spoke before the Senate Banking, Housing, and Urbanization Committee last week and told reporters, “From a currency perspective… this is another indication that under Howey’s test, the investing public is expecting profits based on the efforts of others,” according to The Wall Street Journal.

Gensler hinted that any cryptocurrency, not just Ethereum, that uses a proof-of-stake infrastructure can qualify as a security and can pass the Howey test. Howey اختبار test It is a decision of the US Supreme Court that determines whether the transaction is an “investment contract” and therefore requires government regulation, something crypto investors avoid like the plague.

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This assertion means that placing the coins in the Proof of Stake system must include improper investor protection for blockchain transactions. As a result, Ethereum fell by 11% and Bitcoin by 8%.

In general, the cryptocurrency market has fallen below a level All-time high of $2.9 trillion in 2021 to less than $1 trillion in the first half of 2022. Crypto market experts assert that the decline is a result of changes in US economic conditions, rising inflation, and now the Securities and Exchange Commission is raising concerns about the legality of cryptocurrency trading after the merger.

Cryptocurrency trading may not be the one-way ticket to millionaire status it once was — at least for now.

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