In the early hours of Thursday morning, key players in Ethereum’s shift from proof of work to proof of stake, gathered at a livestream party hosted by the Ethereum Foundation to watch The Merge take place.
In the hour leading up to The Merge, opening events took place from Jonathan Mann who performed a song called “pandas are not known for running,” which explored how it felt to be a developer working on The Merge, to a variety of quick talks.
Even Ethereum’s founder Vitalik Buterin made a few appearances — once he manage to get his microphone working.
Then at 6:43 a.m. Coordinated Universal Time (UTC), a visualization of pandas and the words “PoS Activated” hit the screen, demonstrating that the proof-of-stake process had successfully been activated.
The next 13 minutes brought a “nail biting” period for developers and community members who eagerly watched and waited for The Merge to finalize. As time went on, key players increasingly shared their excitement about the smoothness of the transition.
“This is going as well as it could so far,” said the Ethereum Foundation’s Ryan providing updates on the livestream.
The community reacts
By 6:59 a.m. UTC, The Merge had finalized.
"And we finalized! Happy merge all. This is a big moment for the Ethereum ecosystem. Everyone who helped make the merge happen should feel very proud today," said Buterin on Twitter.
Amongst cheers and chanting, Ethereum beacon chain health consultant Superphiz said, “This is just an incredible feat … home users using the network will have no idea that anything has changed, but everything has changed.”
“This is amazing,” said Pooja Ranjan, herder-in-chief at Ethereum Cat Herders, on the stream. “Ethereum has made history today.”
The sentiment of joy, elation and promise of Ethereum’s future continued throughout the day with the wider crypto community sharing their views on The Merge with The Block.
“I think that The Merge shows us that the horsepower is out there and [can] do a pretty herculean task and get it done on time,” said Mark Connors, head of research at digital assets investment firm 3iQ, in an interview with The Block.
“I think it's a big deal,” he added. “I think the fact that nothing happened is a very big deal.”
Matthew Sigel, head of digital assets research at investment firm VanEck, highlighted there was four times more ether staked in the last six hours since The Merge than in the entire 24 hours prior combined.
“That's really a large part of the thesis here,” Sigel said. “Sell pressure will be alleviated because issuance goes down, minority miners no longer sell coins to pay their electricity prices … 16,000 ether staked in the last six hours is not a bad number. We need to see that accelerate and continue. But the early indication is pretty positive.”
“Now let's see if the demand side comes through,” he added.
The market's reaction
The market reaction to The Merge, however, has remained muted. Ether, the native token of the Ethereum blockchain traded around $1,583 before The Merge. It then surged to $1,640 in the immediate aftermath before quickly surrendering much of those gains.
“That's it. The news is out, this is a 24-hour, seven day a week market,” said Connors, describing today’s market moves. “I don't think anything's gonna happen today.”
In the lead up to The Merge, many traders were hedging their bets expecting market volatility if the transition didn’t go to plan.
“It's not 100% completely done in terms of the trades that exist from this,” said Shiliang Tang, chief investment officer of LedgerPrime. “But, so far, it's extremely uneventful, fortunately and unfortunately.”
With The Merge now finalized, market participants are eagerly awaiting further institutional investor adoption of ether as a result of Ethereum’s transition to proof of stake. The shift makes the asset more environmentally friendly, while also offering a yield through staking.
Deutsche Bank researchers told clients in a note ahead of The Merge that ether’s attractive yields could position the asset as “an alternative to bonds or commodities.”
“Among our private funds, it's our income fund, which has had the most momentum in terms of client activity, and also the largest in terms of assets,” said Van Eck’s Sigel. “So institutional investors are looking at crypto as a source of yield.”
He cautions, however, that it’s not an instant switch. A lot of these institutions still need to do due diligence and the work to understand ether as a asset.
With so much hype and focus on The Merge for so many months, it almost feels anticlimactic — with some in the wider crypto community wondering what’s next.
For the Ethereum Foundation itself, the focus is on the next steps in Ethereum’s transition to a mature blockchain with more upgrades to come, known as The Surge, Verge, Purge and Splurge.
Andy Lee, Of counsel at Foley & Lardner, told The Block he is interested to see what happens with the release of brain power of the hundreds of people contributing to The Merge.
"Those are going to be some of the most knowledgeable people about the Ethereum network and how it works," Lee said. "And all of a sudden, they're gonna have time to do new things ... I think that is really what's most interesting and most exciting."
Medium-term, Sigel will be tracking the momentum of new staked ether.
“I think that that's a critical variable to see how committed the ecosystem is to the coin,” he said. It will play a role in deciding how much ether he stakes given that ether withdrawals still aren’t enabled.
3iQ’s Connors attention is on the yields produced from ether staking. He said that having a stable cash flow will help differentiate ether from all other the “schemes” that failed in the second quarter of this year.
“I think the knowledge base in the broad financial industry is narrow,” Connor said. “People don't understand that the failures in Q2 were from poor, unregulated yielding schemes that, as a former risk manager of 15 years, there's no way that would have passed muster … the way they had that asset-liability mismatch.”
He said there’s also still a lot for the community to digest from The Merge.
“It's constructive,” he added. “I think they did the right thing for their business model. Because in the trilemma of decentralization, security and scale, being the world's settlement layer, they needed to focus on scale without trying to compromise the other two. So, it makes sense what they did, now they just have to execute.”
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