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Ethereum developers are putting the final pieces in place as the network prepares to transition to a proof-of-stake consensus mechanism. The second-last major Merge trial, carried out last week on the Sepolia public testnet, was successful, with the focus now shifting to the last trial of the Merge on the Goerli tesnet.
The latter will usher the proof-of-stake (PoS) consensus mechanism on the mainnet, concluding a transition that has been delayed on multiple occasions. While the move has been welcomed by many, some Bitcoin proponents have taken jabs at the development, specifically the PoS consensus. Bitcoin developer Jimmy Song last week criticized PoS, faulting it for what he described as not providing decentralized consensus.
His remarks were met by fierce responses from the Ethereum community, including co-founder Vitalik Buterin who brushed off the claims as nothing but a minor technicality that is neither backed by mathematic nor economic arguments. Notably, Song’s claim piqued the interest of other popular crypto figures, including Cardano founder Charles Hoskinson and Ava Labs founder Emin Gün Sirer who also shared their respective views.
PoS critics back at it
The criticisms of Proof of Stake are back again, this time involving MicroSategy’s Michael Saylor and Bitcoiner Nick Payton.
Nick Payton suggests Proof-of-Stake network tokens are securities
Payton shared on Twitter that cryptocurrency projects that leverage PoS (use validators to verify transactions) qualify as a security. Buterin wasted no time firing back at the Swan Bitcoin’s managing editor shortly after.
“It’s amazing how some PoW proponents just keep repeating the unmitigated bare-faced lie that PoS includes voting on protocol parameters (it doesn’t, just like PoW doesn’t) and this so often just goes unchallenged. Nodes reject invalid blocks, in PoS and in PoW,” the Ethereum co-founder wrote.
Buterin, who’s had enough of PoS criticisms, went even lower with a scoffing comment about Payton’s grammar command.
The tweet by Payton drew many responses from several other crypto enthusiasts, the majority censuring his boldly ignorant and off beam claim. The reactions from the Ethereum community didn’t come as a surprise, though, as the question of whether Ether is a security or not is a hotly-debated subject.
The Securities and Exchange Commission (SEC) has not yet presented its view on the matter as it has for Bitcoin, which chair, Gary Gensler, categorically classified as a commodity in a recent hearing.
MicroStrategy’s Michael Saylor says Ethereum is ‘obviously’ a security
Though Ethereum’s case remains unclear as neither Gensler nor the SEC has offered clear guidance, there is no doubt in the eyes of MicroStrategy CEO Michael Saylor that it is a security. In an interview with Altcoin Daily, the Bitcoin advocate asserted that Ether is a security, citing its issuance via an ICO and fundamental upgrade events on the Ethereum blockchain.
“Ethereum is a security, I think it’s pretty obvious,” Saylor argued. “It was issued by an ICO, there is a management team, there was a pre-mine, there’s a hard fork, there’s continual hard forks, there’s a difficulty bomb that keeps getting pushed back.”
The Bitcoin bull explained that Ethereum’s continuous network upgrades and the existence of an entity heavily involved in the network’s development make Ether a security. In his opinion, for a crypto asset to qualify as a commodity, it should have a decentralized protocol such that an individual or entity can’t make changes whenever they want.
Summing up his view on other altcoins, the MicroStrategy chief pooled native tokens of the proof-of-stake networks as securities. Saylor’s checklist for a cryptocurrency to qualify as a security, however, has some inconsistencies. The Bitcoin network has been upgraded several times, with last November’s Taproot upgrade being the most recent and widely known one.
Ethereum 2.0 inflows cool off amid risk of losses
Ethereum investors looking to become validators on the upcoming PoS network have staked more than 13 million ETH in the Ethereum 2.0 contract since it went live in December 2020. Ethscan data shows that the volume of Ether tokens deposited in Ethereum 2.0 has been increasing at a fairly lower rate since the start of June compared to the March to June period when the increase was steep.
The reluctance to stake in recent days has been chalked up to FUD following reports that the bulk of ETH 2.0 stakers are likely to make more loss than the average ETH spot investor. A report published by Glassnode last week detailed that ETH 2.0 stakers are staring at 36.5% larger losses relative to average Ethereum spot investors. Market data and on-chain metrics justify investor fears as ETH/USD has flashed signals indicating that worse could unfold in Q3/2022.
Ether bounces off $1,040: Expect it to retest the critical $1,000 support level
In the market, Ethereum’s price has remained above $1,000, with sideway action continuing after a slip to $1,050. The premier altcoin has lost roughly $200 total since July 9 and is currently hovering at $1,050 – down 3.40% in the last 24 hours.
It has to be noted that even though ETH/USD price slid below $1,100 earlier this week, Ethereum has done a decent job holding above the $1,000 crucial mark. That said, there is almost zero assurance that Ethereum will continue trading above its current range zone as bearish sentiment slowly seeps in. Brewing market-wide volatility and the lack of new buyers in the market could force Ether prices to sink lower into red territory.
This move would be in line with Bitcoin’s price course – BTC/USD retrace to around $19,520 this week. If Ethereum concedes to the market forces and embraces a downtrend, it will likely find the next stop below the psychological $1,000 mark.
To learn more visit our Investing in Ethereum guide.
Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.