Everyone is Happy About the Ethereum Merge but Experts from JPMorgan Aren’t. Why?
Here’s why JPMorgan is concerned about the Ethereum blockchain following the merger upgrade
JPMorgan expressed some reservations about the Ethereum blockchain following the network’s transition to a proof-of-stake (PoS) consensus mechanism, dubbed the Merge. The change earlier this month triggered a hard fork, severing the blockchain and giving rise to the Ethereum PoW chain. JPMorgan said in a research note that some exchanges and platforms have shown support for the forked version, which still uses proof-of-work (PoW) verification, and that at least 19 former Ether mining pools are active on it. According to the firm, the forked chain could split the Ethereum community. The second source of concern, according to the bank, is that the blockchain has become less decentralized, as a few entities command the majority share of staked ETH.
The price of Ether (ETH) has dropped dramatically. This drop was likely caused by a combination of “buy-the-rumor/sell-the-news flows” specific to the Ethereum Merge event, as well as widespread weakness in risky assets as a result of more hawkish central banks. The Ethereum Merge is the first of five blockchain upgrades planned. Meanwhile, the futures market’s backwardation is a manifestation of the shift toward more bearish sentiment in crypto markets in recent weeks. Backwardation occurs when an asset’s spot price is higher than its futures price.
In terms of mining, the Merge has primarily benefited Ethereum Classic’s ETC token. The network’s hashrate has doubled, and the tokens of other graphics processing unit-compatible PoW blockchains, such as Ravencoin and Ergo, have also seen significant increases, according to the note.
Developers framed the switch from proof-of-work (PoW) to proof-of-stake (PoS) as a way to combat centralization on the second-largest blockchain network by making it more difficult for individual entities to tamper with the Ethereum ledger. However, early signs of network consolidation have raised concerns that those expectations may not be realized.
Ethereum’s long-awaited Merge to PoS was completed successfully. The new system invites so-called validators to stake 32 ETH with the platform, granting them access to the Ethereum ledger and the ability to write and confirm transactions. Because of the high capital requirement (US$50,000 at press time), as well as the technical difficulty of setting up a validator system, only a few people can become validators on their own.
As a result, ETH has flowed to services provided by Coinbase, Lido, and other staking pools that enable users to become validators – and earn rewards for doing so – with little effort. Concerns have been raised as a result of so much money going to so few services: If a single entity owns more than 66% of the network’s staked ether, it can make it more difficult for others to write transactions to Ethereum’s ledger.