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The impending Ethereum testnet merger, El Salvador’s staunch belief in Bitcoin, and another falling stablecoin made for a busy week.
Although the week started with losses for both Bitcoin (BTC) and Ether (ETH), on Friday Bitcoin approached $24,000, while Ether breached the $1,700 mark. The last time this happened was on June 10.
A fusion like no other
Analysts have speculated that one of the reasons for the excitement around Ether’s price could be the upcoming merger.
Blockchains like Bitcoin and Ethereum use what’s called “proof-of-work” to solve complex puzzles to confirm new transactions. However, Ethereum’s proof-of-work consensus mechanism means an annual energy consumption level and carbon footprint almost equivalent to Finland and Switzerland. The transition to a new consensus mechanism called “proof-of-stake” should allow Ethereum to reduce energy consumption by approximately 99.95%.
It also means cheaper transaction fees and an overall better user experience for Ethereum investors and smart contract developers.
Merger is the name for Ethereum’s transition to this new transaction confirmation model. In preparation for the same, several “shadow forks” or practical forks involving testnets have taken place over the months. The upcoming Goerli testnet merger – the last before the actual merger – will start on August 4th. If all goes according to plan, the Ethereum mainnet merger could happen around September 19th. This event is historic for the crypto industry, as Ethereum is only below Bitcoin itself in terms of market capitalization.
However, the merger date is far from set in stone, and delays have previously disrupted merger plans.
“As of this posting, the time for the Ethereum mainnet proof-of-stake transition has not been determined,” the Ethereum Foundation responded in a blog post on Wednesday.
Still, looking at Ether’s sudden price jump, it’s possible that investors are reacting to this timeline and the investment opportunity it can offer.
International bodies such as the IMF have repeatedly warned El Salvador about the risks of adopting Bitcoin as legal tender, but the country’s administration is not relenting in its support for the leading cryptocurrency.
According to Bloomberg, Salvadoran Finance Minister Alejandro Zelaya insisted on Wednesday that while many did not understand bitcoin, the technology was there and would continue to grow.
President Nayib Bukele has bought approximately 2,381 BTC for the country since El Salvador legalized the largest cryptocurrency by market capitalization in September of last year. However, according to Nayib Tracker, the value of his investments fell by 46.86%. Mr. Bukele also advised people to “enjoy life” as the price of Bitcoin plummeted in the second quarter of 2022.
Despite this, the country plans to build a bitcoin city, start mining bitcoins using geothermal energy, and also issue a bitcoin bond once the price of the asset recovers.
So far, “bitcoin tourism” is growing in the country as cryptocurrency advocates come to experience the changing monetary system for themselves. Mr. Zelaya also noted the same during his interview.
However, several journalists and activists have criticized the colonial implications of turning El Salvador into a crypto hub for foreign investors and settlers.
All said and done, however, the ultimate test of Bitcoin’s success in El Salvador will depend on the asset’s price.
Loss of faith, loss of value
Solana is one of the top blockchains by market cap and a number of decentralized finance projects have built protocols on it. However, on Thursday, Nirvana Finance’s protocol was compromised by hacker(s), with initial estimates suggesting that the stolen funds totaled more than $3.4 million.
The hacker used credit blitz attacks, which involve taking huge, ultra-fast crypto loans without collateral and then tricking the market to make off with the profits. In this case, the flash loans succeeded and devastated Nirvana’s liquidity. This meant that Nirvana’s native protocol token ANA [ANA] dropped from over $8 to less than $1 in about a day.
If that wasn’t enough, Nirvana’s algorithmic stablecoin NIRV [NIRV] broke free from its set value of $1 — known as a peg — and fell to a price of around $0.09 in the same time frame.
“Please note: ANA has lost its collateral and NIRV has lost its curtain. Until the thief recovers the funds, these tokens will have no exchange value. Be very careful when trading NIRV & ANA as they currently have no guaranteed value,” Nirvana Finance tweeted on Thursday.
Nirvana Finance offered a $300,000 reward to the hacker and promised to stop the investigation, acknowledging that it had uncovered a vulnerability in the system.
“Please accept this request in good faith and return our coffers for the benefit of the entire Nirvana community. You didn’t take money from VCs or big funds – the treasury you took represents the collective hopes of the worldly people,” part of their pitch on Friday said.
Observers might be tempted to link the incident to the collapse of the stablecoin TerraUSD [UST], but the two cases are different, as there is currently no evidence of UST being hacked. However, the fall of another stablecoin is likely to attract the attention of already disinterested crypto-regulators in the week ahead.