Ethereum pulled off the Merge. Now what?
It finally happened. In the wee hours of Thursday morning, Ethereum pulled off a stunning technical upgrade that saw the popular blockchain adopt the proof-of-stake model for processing transactions. The upgrade, known as the Merge, will slash the chain’s carbon emissions by more than 99% and, just as importantly, shows that a rag-tag band of crypto developers can get shit done.
As DeFiant editor Camila Russo noted, the devs changed the proverbial jet engine mid-flight and did it without a hitch. This was no fluke: the reason the process went so smoothly was because the Ethereum community carried out the upgrade with the same sort of meticulous planning and rigorous testing that takes place at companies like Apple and Sony. Even Bitcoin curmudgeons like Pete Rizzo praised the merge as a “genuine technical feat” and a “reminder that it’s okay to disagree”—a gracious gesture that transcended the tribalism that too often has the crypto community fighting each other rather than helping each other.
The reaction of the market was decidedly more muted, however, as the price of Ethereum slumped as much as 7% after the merge. This isn’t entirely surprising as investors appear to have priced in a successful merge starting in July. But the subdued market reaction also demonstrates that Ethereum and the crypto industry need more than the merge to pull themselves out of crypto winter.
This means that, after the feel-good moment passes, the Ethereum community is going to have to address major challenges that are slowing the mainstream adoption of crypto. The top priority should be the exorbitant gas fees that make legacy payment and computer networks look cheap in comparison—Ethereum is never going to catch on if the first time someone tries it, the network dings them for $50 or more in fees. And while Layer 2 blockchains offer a way to avoid most of these fees, the reality is that using the likes of Polygon adds an unwelcome element of complexity that is off-putting to casual users.
This problem of complexity and janky user interfaces is the other top challenge that Ethereum builders and others must address. For years, the bulk of developers’ energy has gone into building evermore exotic DeFi features or self-serving projects designed to fill their bags at the expense of casual users. This has to change. Let’s hope the next wave of Ethereum innovation is based around building products that will be truly useful to ordinary people and show them why blockchain is such a great technology in the first place.
If Ethereum fails to do this, it will open the door for Solana—which has a special knack for innovation—or another rival will do this instead. But for this week at least, it is enough for the Ethereum community to take a well-deserved victory lap.
A final reminder: Mainnet starts this week in Manhattan. The event has already emerged as New York’s pre-eminent crypto conference, and organizers have just added a trio of A-list speakers: Coinbase CEO Brian Armstrong; Binance CEO CZ; and the founding genius of Ethereum, Vitalik Buterin. Hope to see you there.
MoMa selling $70M worth of pieces to buy more digital art
Celsius Network plots a comeback after a crypto crash
Mysten Labs raises $300M for Sui Layer 1 blockchain
Coinbase now lets users check which politicians are crypto-friendly
Fidelity weighs Bitcoin trading on brokerage platform
Ethereum could face an impending e-wastepocalypse
South Korea issues arrest warrant for Terra founder Do Kwon
Treasury Department to Warn of Crypto Risks
A Bad Year for Crypto Is a Really Bad One for Crypto Miners
FOMO NO MO
The advent of “Cold War 2” could spur mass crypto adoption. That’s the thesis of a new essay by finance professor turned blogger Noah Smith. A long-time crypto skeptic (Smith describes “the vast majority of web3 uses [as] a form of unregulated financialization), he makes the case that instability in places like Russia and China is likely to create waves of refugees looking to flee with their assets.
These economic refugees, who in the past would have stuffed “gold and jewelry into a sack,” will increasingly turn to crypto—in particular stablecoins—as a means to transport their valuables and elude capital controls, says Smith. He suggests dollar-backed stablecoins will be most popular but that, in time, we could see migrants snapping up “stablecoins backed by real estate.”
"Crypto-facilitated capital flight from China and Russia would likely strengthen the dominance of the dollar, and/or of the currencies of other rich countries allied with the U.S. It’s a far cry from the outcome that Bitcoin maximalists dream of. But helping to take down the statist financial systems of authoritarian countries is an idea that is not without its techno-libertarian appeal."
THE LEDGER’S LATEST
Law enforcement slowly waking up to the threat of DeFi exploits by Leo Schwartz
NFT collection y00ts pushes Solana trading volume to highest since May by Marco Quiroz-Gutierrez
Miners say they plan to fork Ethereum within 24 hours of merge by Taylor Locke
Doodles raises $54 million from Alexis Ohanian’s 776 to expand NFT offerings by Marco Quiroz-Gutierrez
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
IF YOU DON’T KNOW, CRYPTO
Wen letter h? In recent weeks, the phrase “wen merge?” has popped up a lot in relation to the big Ethereum upgrade. The “wen” reflects the crypto world’s penchant for goofy phonetics, and is most commonly found in the phrase “wen moon?” that asks when prices will soar. Another example is a trader who gets rekt (wrecked) after an ill-advised bet.
This is the web version of The Ledger, Fortune’s weekly newsletter covering financial technology and cryptocurrency. Sign up here to receive future editions.