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🤯 The ETH Merge & its Misconceptions

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🤔 This week in Crypto and the Economy…

The markets are pumping. U.S. CPI inflation hits 8.5% year over year; this is below the expectations of 8.7%.

U.S. stock indexes locked in weekly gains Friday, notching another positive week after the investor exuberance that followed the better-than-expected inflation reading faded Thursday afternoon.

Ethereum’s final test, Goerli, is successful!

🔀 The Merge and its misconceptions.

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While the Ethereum merge, the migration of the protocol from POW (proof of work) to POS (proof of stake), has passed its final test successfully and is scheduled for September 19th while pumping the ETH price this past few weeks. There are many misconceptions that may not yield the results that some people think.

Misconception 1: Ethereum gas fees will reduce after The Merge

Ethereum’s impending upgrade will reduce Ethereum’s infamous gas fees (transaction fees) is one of the biggest misconceptions circulating among investors. While reduced gas fees top every investor’s wishlist, The Merge is a change of consensus mechanism that will transition the Ethereum blockchain from PoW to proof-of-stake (PoS).

Instead, lowering gas fees in Ethereum will require working on expanding the network capacity and throughput. The developer community is currently working on a rollup-centric roadmap to make transactions cheaper.

Misconception 2: Ethereum transactions will be faster after The Merge

It is safe to assume that Ethereum transactions will not be noticeably faster. However, there is some truth to this rumor, as Beacon Chain allows validators to publish a block every 12 seconds, which on the mainnet is roughly 13.3 seconds.

While Ethereum developers believe that transitioning to PoS will enable a 10% increase in block production, the slight improvement will go unnoticed by users.

Misconception 3: The Merge will result in downtime of the Ethereum blockchain

Contrasting the misconceptions that envision positive outcomes for Ethereum from The Merge, a popular rumor suggests that the planned upgrade will momentarily take down the Ethereum blockchain.

The developers anticipate no downtime as blocks transition from being built using PoW to being built using PoS.

Misconception 4: Investors will be able to withdraw staked ETH after The Merge

Staked ETH (stETH), a cryptocurrency backed 1:1 by Ether (ETH), currently lies locked on the Beacon Chain. While users would love to be able to withdraw their stETH holdings, the developer community has confirmed that the upgrade does not facilitate this change.

Withdrawal of stETH holdings will be made available during the next major upgrade after The Merge, known as the Shanghai upgrade. As a result, the assets will remain locked and illiquid for at least 6–12 months after the merger.

Misconception 5: Validators will not be able to withdraw ETH rewards til the Shanghai upgrade

While stETH remains blocked for investors until withdrawals are resumed following the Shangai upgrade, validators will have immediate access to the fee rewards and maximal extractable value (MEV) earned during block proposals from the execution layer or Ethereum mainnet.

As the fee compensation will not be newly issued tokens, it will be available to the validator immediately.

Conclusion: There are many benefits to the Ethereum merge, but there are many misconceptions, above mentioned. Sharding and sidechains will improve transaction speeds that will lead to lower fees, but the merge itself will not. Nevertheless, a successful merge will inject confidence into the space and we will see more price appreciation and more adoption as the technology gets more stable, safe, and robust.

🌪️ Tornado Cash sanctions, the first of many.

This week the U.S. government shook the entire crypto world to its core.

The Treasury Department sanctioned the crypto mixer Tornado Cash as well as several crypto wallet addresses associated with the service. That means the protocol and its associated smart contracts are now blacklisted, making them illegal for Americans to use.

Tornado is a privacy tool that lets users obfuscate where their funds have been and where they’re going. It turns the transparency of blockchain technology into a black box, hiding your crypto activity.

Roughly $7.6 billion worth of crypto has indeed passed through Tornado, but only $1.5 billion of those funds were illegally obtained (and, thus, laundered), Elliptic said in a report.

Chainalysis, another blockchain monitoring firm, also reported that nearly half of that $7.6 billion sum came from DeFi (none of which, according to Chainalysis, is necessarily illicit).

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Conclusion: The US and many other governments will continue to investigate and subpoena decentralized and centralized exchanges more aggressively to find more information about crypto transactions. As we know, the government’s job is to protect FIAT currencies and crypto poses a threat to fiat dominance. Decentralized exchanges are not safe from the government limbs as many think so and they are eager to enforce their power.

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🥊 Coinbase gets hit

The crypto winter has hit Coinbase hard. Financial results show the exchange suffered a $1.1 billion loss in the second quarter as the bear market scared away everyday investors. But attempting to put a brave face on the report, executives said: “It’s never as bad as it seems.” Trading volumes plunged by 30% in these three months to $217 billion. And while the exchange had 11.2 million monthly transacting users in the final quarter of 2021 — when Bitcoin hit a new all-time high of $68,700 — this figure has dwindled to 9 million. Transaction fee revenues are a big part of Coinbase’s business model, but many users are trading less. With $6.2 billion in the bank, Brian Armstrong wants to build his way out of the bear market.

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