Undermined by Inflation, Bitcoin Plunges on the Eve of the ‘Merger’

Bitcoin was under pressure on Wednesday, the day after the release of stronger-than-expected inflation in the United States and on the eve of the major change in its main competitor Ether’s transaction validation system, dubbed “The Merge”.

Like the stock markets, the queen of cryptos has given up a good chunk of gains made over the past seven days. While surging to around $22,800, bitcoin’s price plunged back below $20,000 on Tuesday following the Consumer Price Index (CPI) release, up 0.1% over a month in August amid the financial world a slowdown expected of the same magnitude.

As of midday Wednesday, bitcoin was trading around $20,350 on the Bitstamp platform, down almost 10% over 24 hours but still up 8.5% weekly. The market cap is $388 billion, up about $28 billion from a week earlier.

The cryptosphere’s attention has also increasingly turned to the world’s number two by volume, Ether, whose Ethereum blockchain is expected to undergo a radical shift overnight from Wednesday to Thursday, from a Proof-of-Work to Proof-of-Stake consensus mechanism.

Notably, “The Merge” should result in a 99.95% reduction in electricity consumption, a strong case for Bitcoin’s first rival at a time when energy prices are skyrocketing. A failed operation, often described as changing the engine of a moving car, is considered unlikely, but cannot be ruled out.

The amounts involved are significant, with Ether’s market cap approaching nearly $200 billion, not counting applications also weighing billions that are based on the same blockchain, including many decentralized finance (DeFi) platforms, cryptocurrencies backed by escrow currencies (stablecoins) or non-fungible tokens are covered (NFT).

danger of centralization

More and more voices are being raised to denounce the “centralization” tendencies of the big “merger,” such as Sergey Vasilchuck, chief executive officer (CEO) of staking service provider Everstake. According to him, the number of validators who are supposed to secure the network by investing at least 32 ethers (around $51,000) is far too high.

“There should be 400,000 validators in the new network,” he explained in an interview. “But I can’t imagine that everyone guarantees the necessary availability almost 100 percent,” the Ukrainian continues. If many of them “burn their fingers” and lose their money, an increasing centralization of the blockchain could not be ruled out.

Sergey Vasilchuck is even harder on crypto exchanges, which are expected to play a major role in the transition. “Binance, Coinbase and Kraken already own over 32% of the Ethereum tokens used for staking,” he says, and the exchanges do not use their own staking resources, but rather those of their customers.

The CEO of Everstake also reminds that around 50% of Ethereum’s network nodes depend on Amazon Web Services (AWS). If the e-commerce giant subsequently regulates or restricts its service, it could become a “huge and dangerous problem,” according to Sergey Vasilchuck, who believes “this addiction will overtake us sooner or later.”

While waiting to molt, Ether followed the same rate as Bitcoin, returning almost 6.6% to nearly $1600 in one day, although the weekly performance still shows a positive balance of 2.9%.

The market value of around 13,000 virtual currencies listed on the specialized website CoinGecko has passed the $1037 billion threshold.



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