Crypto Falls After Ethereum Upgrade; understand

The main cryptocurrencies deepened losses this Thursday (15), hours after the completion of an update of the Ethereum platform considered historic for this market. Despite the success of the change, which was dubbed “Merge”, the global scenario of inflation and rising interest rates overshadows the benefits it will produce in the long term, analysts say.

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

Variations 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, he explains. Paulo Aragão, founder of CriptoFácil, a content platform specialized in this sector.

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

Crypto Winter is how market participants are referring to the severe downturn 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, chief analyst at Titanium Asset Management. “Certainly the change in Ethereum is positive and this will be very clear when this bearish cycle passes”, Ferreira comments.

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

Sensitive to rising interest rates precisely because it depends on an environment with cheap credit for companies with greater growth potential to deliver profits, Nasdaq has plunged more than 25% this year.

“The Merge was a success and time will confirm it. It is a reality that will impose itself”, affirms Franco.

Still on the apparent apathy of investors in relation to 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 reap this profit and migrate. for other assets.

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

“Now the excitement 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 little rotation.”

What has changed on Ethereum

The biggest change in Ethereum in more than a decade was completed in the early hours of this Thursday (15). This is a change that does not only affect ether, which is the asset born with the Ethereum platform itself, but also affects all current and future cryptoassets that use this 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 refined by an open community of developers.

The execution of this program used to depend on large computing centers around the world. Operators of these centers are called miners.

To issue Ether, programmers needed to decipher and string together blocks of code released on the internet by developers. That’s why this technology is called blockchain, that is, a chain of blocks.

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

When a miner deciphers the next block in this chain, he receives Ether as a reward, explains Paulo Aragão of CriptoFácil.

To crack this code before the competition, the miner needs great computing power. “That’s why mining cryptocurrencies 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 performed by the miner.

The Ethereum update changes this validation protocol. A new algorithm will automatically perform the calculations on the portfolios of participants who hold at least 32 units of Ether.

This means that, in order to participate in this process, it is necessary to own about R$250,000 of the cryptocurrency, considering the current price of approximately US$1,500 (R$7,830).

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

This new validation system is called Proof of Stake.

Fusion was the nickname chosen for the update because, during Proof of Stake development, 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 that there are two most notable changes in this process. The first is energy savings. 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, allowing for faster operations using the platform and lower fees.