Pension funds, insurance companies, and other institutional investors are important as they invest long-term and help solve the problem of cryptocurrency volatility.
According to Fidelity Digital, last week’s merger was “the most significant event in the history of the Ethereum network.”
And from a purely technical point of view, the transition of the blockchain network from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism has been a miracle. Compared to the in-flight replacement of a jet engine, the September 15 software update went smoothly.
Also overnight, Ethereum, the world’s second largest blockchain platform, slashed its energy consumption by 99.95% from 94 TWh per year in May, roughly equivalent to the nation-state of Chile, to an almost negligible 0.01 TWh in May. . September 16, according to Digiconomist.
This should carry some weight as regulators threaten to shut down blockchain networks for environmental waste. It could also attract more institutional investors to the crypto space.
Up to that last point: Institutional investors like pension funds, insurance companies, funds, and others are important because they tend to be long-term investors and don’t tend to trade rumors or overreact to 24-hour news cycles. The broad participation of this group can help resolve persistent issues with cryptocurrency liquidity and volatility.
But others believe that although the merger will offer companies and large financial institutions a greener platform and new staking opportunities, it has not addressed one of Ethereum’s biggest weaknesses: its lack of scalability. Anyway, not yet.
“The merger is a milestone for the crypto industry, but its impact on accelerating institutional investors’ adoption will last longer,” Jim Kyung-Soo Lew, assistant professor at Johns Hopkins University’s Carey School of Business, told Cointelegraph.
“Ethereum does not have a better TPS [transactions per second] statement,” John Perifoy, co-founder and CEO of Floating Point Group, a trading platform provider, told Cointelegraph. Consolidation does not increase block size or block speed. – We’re not there yet. We will have to wait for Surge, another Ethereum upgrade planned for 2023. It will implement a sharding solution that can greatly increase network speed.
However, solving the energy consumption problem and reducing carbon emissions are no small feats. Once as large as Finland’s, Ethereum’s carbon footprint is now comparable to the Faroe Islands, according to Digiconomist. Or to put it another way, an Ethereum transaction is now a “carbon footprint equivalent to 44 Visa transactions or 3 hours of YouTube watching”.
CoinShares Ethereum analyst Mark Arjun told Cointelegraph: “Strengthening Ethereum’s environmental, social and corporate governance (ESG) forces should be beneficial for regulators looking to start exploring the Ethereum ecosystem.” The Fidelity Digital report on the merger added that the transition to PoS could have “a positive empowering effect for those who strongly believe in the environmental impact of blockchain use.”
Indeed, two Bank of America analysts recently suggested in a note to clients that some institutional investors who were previously “barred” from investing in PoW-generated tokens can now participate:
“A significant reduction in energy consumption after the merger may allow some institutional investors to purchase tokens that were previously prohibited from purchasing tokens running on blockchains using PoW consensus mechanisms.”
Increased returns for Ethereum holders?
The merger also offers other potential benefits for traditional financial institutions. “The transition of Ethereum to Proof-of-Stake makes Ethereum an asset that can generate interest in the form of shares for its holders,” Fidelity Digital said. This can increase your overall Ether income.
owners and “could make the asset more attractive to potential investors.”
If you’re an institutional investor, “one of the things you should be excited about” is that you can stake your ETH as an Ethereum PoS validator and earn around 5% annual percentage return (APY), Peurifoy said. “It’s a pretty good metric and there’s a relatively low risk associated with it.”
However, betting can cost money. The Wall Street Journal reports in a September 15 article titled “New Ethereum Staking Model Could Grab SEC Attention,” that US Securities and Exchange Commission chief Gary Gensler recently suggested that Ethereum could spark a Howey test with generous new staking opportunities. . – but