Dispatch #105: Le Merge Is Here!
In this patch of your weekly Dispatch:
- Ethereum is now Proof of Stake
- Global electricity consumption down 0.2%
- A bad inflation surprise
The Big Idea
One of the Most Significant Events in Crypto History
On Thursday, September 15, 2022, Ethereum made history.
After years of research, experimentation, and testing, the Ethereum network transitioned from Proof of Work to Proof of Stake. It’s hard to overstate the significance of the event, which has implications for a slew of Ethereum properties:
- Security – Instead of security being provided by a decentralized network of computers trying to solve math problems, validators who have staked a significant amount of ETH will propose and be chosen at random to validate new blocks.
- Economics – The “triple halving” will reduce the issuance of token rewards significantly through token burning, locked stake, and reduced supply inflation, ultimately pushing Ethereum supply in a deflationary direction.
- Energy consumption – Alongside the security model changes, the switch from Proof of Work will bring a dramatic and immediate decrease in the energy consumption of the Ethereum network.
- Politics – This new environmental reality could shape the political response to Ethereum and crypto in general, but PoS also has potential implications for censorship as large staking bodies could be forced to comply with sanctions.
The reality is no one knows what all the long-term implications of this monumental transition will be. What’s clear, however, is that it is one of the most significant events in the history of the industry. Congrats to all those who have been working for years to make this a reality. Bringing together so many independent actors is not just an engineering challenge, but a social feat as well.
The Latest In…
The United States stock market saw its worst day since June 2020 this week. The catalyst? A surprise in the August CPI numbers showed core inflation more than doubled economists' predictions month-over-month. Markets had been trending upward on the idea that the August numbers would continue July’s trend towards lower inflation. The surprise has many investors on Wall Street speculating that the Federal Reserve will even increase the speed with which it tightens with a possible 100bps rate hike next week. Until we’re through this inflation vs. the Fed phase, do markets have even a hope of coming back?
The Latest In…
Long Time, no NFT
NFTs haven’t exactly been the talk of the town over the past few months. Yet this week, they exited hibernate mode. Firstly, NFT collection y00ts pushed Solana trading volume to the highest since May. Secondly, Reddit co-founder Alexis Ohanian led a $54M funding round in Ethereum NFT collection Doodles. Finally, a collective sigh of relief was in order – after global NFT sales declined 675% in August from last year, post-Merge we saw Bored Ape Yacht Club and CryptoPunk sales soar as demand jumped. The Merge is live in action, folks.
The Week’s Most Interesting Data Story
The Hashrate Drop that Never Happened
In the leadup to the Merge, there was much speculation that Ethereum PoW would see a significant drop in hashrate. The presumption was that miners would be racing to sell before others. Instead, hashrate has remained nearly consistent. Part of the reason may be an attempt to convince the market to invest in a PoW fork post-Merge. Whatever the case, it’s a good reminder that when we do novel things, it’s hard to predict how others will respond.
What the Community Is Discussing
Some said the Merge was anti-climactic. This explains why.
What to Watch for Next Week:
- Will the Merge cause market excitement?
- Will they catch Do Kwon?
- Will Solana NFTs continue to surge?