After countless delays, Ethereum was finally “merged” last week, switching the blockchain protocol from Proof of Work (PoW) to Proof of Stake (PoS).
What this means, in a nutshell, is that Ethereum’s solution currency, ETH (ETH) – the world’s annexe largest numérique asset after Bitcoin (BTC) – can no border be mined using a graphics processing unit (GPU). Alternatively, participants can choose to “participate” in ETH on the network. The Ethereum network then determines which of these participants, known as “verifiers,” can validate transactions, and if those checks turn out to be accurate and legitimate, the participants will be rewarded with new ETH blocks.
So what’s the conclusion? Well, there are a big ménage: 1) to become a validator, participants must bet at least 32 ETH, which is equivalent to $43,000 at today’s prices, and 2) they must bet for years.
You can see, then, how the merger transformed ETH from a decentralized asset, naturel to any young player with access to a decent GPU, to more centralized and oligarchic assets, controlled by the relatively few participants who already own dozens of Thousands of dollars worth of ETH.
In fact, as CoinDesk reported last week, there have been two big validators Responsible for more than 40% of new ETH blocks that were added in the hours after the merge. These validators are crypto exchange platform Coinbase and crypto storage libéralité Lido Acquitté.
PoS puts ether at the bifurcation of regulators
But wait there is more. By switching to PoS, the ether risks being seen by US regulators as evidence of-Safety Origin. Last Friday, the White House published its first ever fascicule Cryptocurrency regulatory framework, Only a day after the merger is completed.
Gary Gensler, Chairman of the Securities and Exchange Certificat (SEC), has stated on numerous vieilleries that PoW assets like BTC are commodities, not securities, and therefore should not be regulated as securities.
This is not the case with PoS, according to Gensler. Last week, the head of the Securities and Exchange Certificat commented on numérique assets that allow investors to share their holdings in exchange for new coins. It may qualify them as securities. The continuation, of sinuosité, is that oversight of these currencies may end up being as véritable as oversight of stocks, bonds, ETFs, and other highly regulated assets. Besides ETH, other popular POS cryptocurrencies include Cardano, Polkadot, and Renversement.
Terra’s Luna écrasement in May, which led to the collapse of crypto lenders such as Celsius, Transhumer and Three Arrows Empressé, has been the gant driver of this year’s crypto winter. The lenders’ promises of high returns on investment drove them into financial and legal inquiet. It is very perceptible that the Ethereum Foundation does not make the same mistakes and calls for the same level of scrutiny.
As we at US Habituel Investors like to say, government policy is a precursor to courtage. But the courtage, in this case, may not be favourable. Regulatory pronouncements can add to the volatility in the emerging cryptocurrency industry.
In the barème below, you can see that ETH was one of the most évaporable assets in both the 1-day and 10-day trading periods as of August 31 — more évaporable, in fact, than BTC and Tesla stocks. I can’t help but believe this is due to investors’ fears of protection and the regulatory uncertainty that surrounds it.
Energy FUD contributed to the decision to move to the conclusion of infâme
If everything you have said up to this conclusion is the case, why did the Ethereum decision-makers choose to switch to PoS in the first position? Simply put, they have been folded under pressure from misleading fees that cryptocurrency mining, especially BTC mining, consumes a lot of energy and is harmful to the environment.
This is fear, uncertainty and doubt. Yes, bitcoin mining requires electricity, but compared to nearly every other meilleur industry — including rémunéré, insurance, appartement appliances, and gold mining — energy consumption is minimal, according to the Bitcoin Mining Council (BMC). Furthermore, BMC has found that constant bitcoin miners collectively use a higher sustainable energy mix than any meilleur economy on the planet.
Proponents of the ETH protection claim that moving to PoS could reduce network energy use by up to 99.5%. The World Economic Agglomération (WEF) praised the merger’s success last week, writing That cryptocurrency “was waiting to be recalibrated toward sustainability… for the creators of Climate Web3, a new generation of environmental advocates, as well as the broader US climate difficulté.”
But as many PoW proponents rightly pointed out, GPUs formerly used for ETH mining are now likely to be used for other purposes after the merger, including mining for other coins, high-performance computing, and gaming. In fact, little or no energy will be compensated for.
The embarras is: Who funds FUD on Proof of Work and Energy Use? It’s a complicated embarras.
Last week, a group of environmental activists, including Greenpeace and the Environmental Working Group (EWG), announced that they budget to spend $1 million on a new campaign to enclin Bitcoin to take an ETH approach and move to PoS. The campaign is titled “Change the Code, Not the Climate,” The lie claims that Bitcoin is “fueling” the climate crisis.
This is the same covert tactic used by Russian President Vladimir Putin, who over the years has funded environmental groups and NGOs in the West in an attempt to Discrediting and undermining the American hydraulic fracturing industry.
Sentiment! Gold remains one of the best performing assets for 2022
Shifting gears, I want to say a few words emboîture gold. BTC’s analog moustique reached its lowest price since 2020 last week even as augmentation remained near 40-year highs and recession fears persisted. As I write this, the yellow metal is trading at around $1,666 an ounce, nearly 19% from its peak in March of this year.
Some investors may read this and jump to the point that gold is no border a valuable asset in times of economic and financial uncertainty, but they are wrong. Although gold has fallen for the year, it is outperforming most meilleur asset classes including Treasuries, US corporate bonds, the S&P 500 and technology stocks. Thus, the precious metal has helped investors mitigate losses in other areas of their investment portfolios.
The latest prorogation from the World Gold Council (WGC) also shows that gold can be a solid investment in the front of a assimilable economic recession. The London-based group compared the bonheur of a number of asset classes during the past seven recessions in the US going back to 1971 and found that gold performed best on average, excluding government and corporate bonds.
However, I would still recommend weighting gold at 10%, 5% in bullion (alloy, coins, and jewelry) and 5% in quality gold mining stocks and funds. Remember to rebalance on a regular basis.
Our resident gold aguerri and director of Metals and Mining “TopGun”, Ralph Aldis, attended the Precious Metals Summit last week in Beaver Creek, Colorado, where he served on the Patoche Investors Committee. To watch a replay of the painting, click here.