The Ethereum (ETH-USD) Merge is complete, but ETH prices continue to fall. The Merge switches Ethereum from a proof-of-work system to one that is proof-of-stake.
The latter takes much less energy than the former, so the Ethereum Foundation is touting its environmental benefits. Regulators applauded the move. As far back as 2019, Ethereum mining was using as much energy as the nation of Chile.
Ethereum prices initially rose on the software upgrade but were falling again as U.S. financial markets opened Sept. 15.
Ethereum Crypto: What’s the Deal?
Proof-of-work required miners to validate transactions. The energy required for this was becoming a focus of criticism concerning all cryptocurrency. Proof-of-stake replaces miners with validators, who can leverage existing stacks of ETH to verify transactions and mint new tokens. Advocates said it makes the ETH protocol more secure and sustainable.
Regardless of how it works, Ethereum is down by more than 50% in 2022. It’s the second-largest cryptocurrency by market capitalization, behind only Bitcoin (BTC-USD), which still uses proof-of-work. As the Merge approached, the price of ETH relative to BTC rose. The market cap of all Ethereum is now about $194 billion, against $385 billion for Bitcoin.
Other cryptocurrencies related to Ethereum also rose after the Merge.
In the wake of the Merge, Ethermine, the largest Ethereum mining provider, shut down its servers. The group had created its own staking pool in August and will continue to participate in the market.
What Happens Now?
While most reporting on the Merge is related to energy and ETH’s price relative to Bitcoin, the lack of a business model could still take both down.
Cryptocurrency is meant to be a store of value, a hedge against inflation. But the currencies trade more like tech stocks, speculative assets that are still seeking utility. They will do so until we find a practical use for them.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
