September 15, 2022

The biggest crypto news and ideas of the day

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Hello and welcome to The Node. I'm Daniel Kuhn, here to take you through the latest in crypto news and why it matters. In today's newsletter: Ethereum has "merged," Craig Wright says he "stomped on the hard drive" containing Satoshi's bitcoin keys and FTX is raising money to fund acquisitions.

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– D.K.

Today's must-reads

Top Shelf

The Ethereum Merge Is Done, Opening a New Era for the Second-Biggest Blockchain: Ethereum's transition from proof-of-work to proof-of-stake was successfully completed at 6:42 UTC at block 15537391. The historic upgrade casts aside the miners who had previously secured the world's most-used blockchain, immediately causing a 99.9% decline in Ethereum's energy use.

ETH, the blockchain's native token with a market cap near $200 billion, traded flat after the Merge. Analysts, including trading firm Bernstein, predict the upgrade could lead to "strong" institutional adoption of the token, citing its deflationary effects, improved scalability and Ethereum's existing vibrant digital economy.
Meanwhile, as expected, miners have shifted their computing power to competing chains. Ethereum Classic, a fork of Ethereum, and Ravencoin, a minor PoW chain, have seen their hashpower nearly double.

Craig Wright Told Court He "Stomped on the Hard Drive" Containing Satoshi Wallet Keys: Craig Wright, the Australian computer scientist who claims to be pseudonymous Bitcoin inventor Satoshi Nakamoto, said he "stomped on the hard drive" that contained the "key slices" required to grant him access to Satoshi Nakamoto's earliest mined bitcoin, worth over $1 billion.

This, of course, makes it "incredibly difficult," Wright said, to cryptographically prove he is the creator of Bitcoin. Wright is suing pseudonymous bitcoiner Hodlonaut for libel in Norway, after the outspoken Norwegian resident called Wright a "fraud" in 2019.
Wright, who founded the Bitcoin fork called "Bitcoin Satoshi Vision," has never offered conclusive evidence he created the original chain, a move he now says would give his critics "the easy way out."

Crypto Giant FTX Eyes Raising Money to Fund Acquisitions: Cryptocurrency exchange FTX is raising capital to fund further retail-focused acquisitions during the bear market, according to a CoinDesk scoop. It is seeking the same $32 billion valuation it was assigned the last time it raised money early this year.

FTX CEO Sam Bankman-Fried already has a tie to retail trading after personally buying a 7.6% stake in stock and crypto brokerage Robinhood in May.

Emerging Markets Lead Global Crypto Adoption in Bear Market: Blockchain analytics firm Chainalysis says emerging markets, with Vietnam at the lead, drove global crypto adoption in the last year, according to a new report. The data also shows crypto trading in China remains active despite the country's wide-reaching blockchain ban last year.

Meanwhile, JPMorgan says China's metaverse-related economy could reach $4 trillion, affecting gaming, advertising and e-commerce, according to a new analyst report.

U.S. Treasury Blacklists Several More Bitcoin Addresses Allegedly Tied to Iran Ransomware Attacks: The U.S. Treasury Department added nine individuals and six bitcoin addresses to its sanctioned individual's list, under its "cyber-related designations" bucket, because of their alleged connections to ransomware attacks. Anyone on American soil or any U.S. citizens abroad are barred from transacting with these addresses.

Such sanctions have occured routinely over the years, but are notable now following the federal agency's unprecedented ban on the Tornado Cash smart contract in August, in part due to the crypto mixer's associations with ransomware-related money laundering.

Thailand's SEC Banned Crypto Firms From Offering Staking and Lending Service: The Thai Securities and Exchange Commission (SEC) has banned crypto companies from offering staking and lending services, the latest in a series of attempts by Thai officials to rein in the digital asset industry. This move aims to protect traders from the risks associated with crypto lenders, the regulator said.

Separately, the Thai SEC filed a police complaint against Zipmex, a troubled exchange that halted withdrawals, last week after it failed to provide transactional information before a deadline.

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Putting the news into perspective

The Takeaway

Ethereum PoW Is Not an Ethereum Competitor

Ethereum, the world's most active cryptocurrency network, just fired all of its miners. In a much-anticipated event you may have heard of called the Merge, Ethereum devs "switched out the engine of a moving car" to do away with the energy intensive process of securing blockchains known as proof-of-work (PoW).

That means scores of specially designed graphics chips, called ASICs (or application-specific integrated circuits), need to be pointed elsewhere if their owners – individuals, institutions and mining pools – want to churn a profit. There are only a few blockchains that use a similar-enough hashing function to Ethereum that could benefit from the estimated $5 billion worth of EtHash ASIC hardware in existence.

Already it seems that Ethereum Classic, a version of Ethereum that split from the "canonical chain" in 2016, has been a big winner. Ethereum Classic has seen its network hash power jump about 300% last night to closer to 300 terra hashes per second (TH/s) today, according to data site 2miners. (Hash power is the amount of computational energy used to secure a PoW crypto network.)

Other, smaller, mostly inconsequential, chains like Ravencoin and Ergo have also seen massive spikes in hash power and the price of their native tokens. It remains to be seen whether this is a sustainable rally, considering the limited number of things you can do with – or reasons to build around – RVN and ERG.

Nowhere is the balancing act between the market price for a crypto token and the amount of energy people are willing to expend to earn those tokens clearer than in the alternative proof-of-work Ethereum fork aptly named ETHPOW.

The latest, buzziest Ethereum fork – "designed" by veteran Ethereum miner, initial coin offering (ICO) pitchman and principal architect of Ethereum Classic, Chandler Guo – was set up to benefit from the Ethereum Merge. Through promises of an airdrop (free money for ether holders) and charisma, Guo managed to convince at least 19 former Ethereum mining pools to continue mining his new chain.

(Sandali Handagama/CoinDesk)

Its token, ETHW, rallied from $35 to $60 in the hours following the network's launch shortly after the Merge, before dropping to around $20 currently. This likely isn't surprising to the number of people who predicted ETHPOW would come dead on arrival.

Although there could actually be a post-Merge market fit for a smart contract blockchain that utilizes mining (considering the top fleet of such chains from Solana to Cardano all use a variation of PoS), many have said ETHPoW is more of a cash grab. Despite seemingly large trading interest (or at least interest in the airdrop), few exchanges jumped to list the coin. Tether said it would integrate the chain and many a crypteratto warned it would "fracture" the Ethereum community.

Critics noted ETHPoW failed to build basic blockchain infrastructure like a wallet or a block explorer before launch. Igor Artamonov, a former Ethereum Classic developer, questioned the chain's branding, which seemed to sell itself on the idea of saving those poor, recently chainless miners, rather than something collectively important like proof-of-work's tried and true security guarantees.

But the real reason the network will likely struggle to take off is that much of Ethereum's insanely valuable decentralized finance (DeFi) economy may not follow the fork. That is, seemingly, both by choice and in some cases necessity for many DeFi protocols due to broken oracles.

Although many of Ethereum's loudest boosters seemed to be championing the demise of ETH PoW before it even started – because the alternative chain could suck capital and developer talent from the Ethereum Foundation-approved network – it was probably never accurate to say Ethereum PoW was a competitor of Ethereum.

What it is, instead, is a competitor to Ethereum Classic, which forked in 2016. It's a competitor for hashpower, for hardware. Its token, which is listed on a few exchanges including Poloniex and Gate.io (with futures trading on Binance and FTX), is a competitor for attention and dollars.

Ethereum Classic itself was never much of a contender for Ethereum's throne. The network was hit with 51% attacks multiple times in the previous years, because the network struggled to pay for its own security because its token's price was in the doldrums because few people (besides CoinDesk owner Barry Silbert) supported the network.

Post-Merge Ethereum Classic now has an overabundance of network miners. But it's still unclear whether the token price can rise high enough for all of those ASICs to be profitable. Before the Merge, it was estimated Ethereum's hashing power was 15 times higher than Ethereum Classic. That's a lot of computing power to absorb, even if split between ETH PoW and the other PoW beneficiaries.

Proof-of-work networks need valuable tokens to make it worthwhile to mine, but it also needs developers and users. We might finally learn the answer to crypto's perennial chicken-and-egg-like problem: what comes first, a valuable token or valued users?

– D.K.

Off-Chain Signals

What others are writing

Coinbase Now Lets Users Check Which Politicians Are Crypto-Friendly (Decrypt)
'Green' crypto Ethereum wins applause in Brussels, Washington (Politico)
Guess How Much Crypto's Been Stolen Lately? (Gizmodo)

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