Mail merge

Ethereum 2.0 ‘shadow fork’ test: what’s next for the merger

Hello and welcome to Protocol Fintech. This Thursday: What you need to know about the merger, the value of an NFT, and PayPal’s CFO heading to Walmart.

out of the chain

What is an NFT worth? It’s easy to play the “worthless pointer to a JPEG” card in conversations, but we humans place a lot of value on other abstractions. If you’re capitalist-leaning, the best way to gauge the value of an NFT is to determine what people will pay for it. The hapless buyer of an NFT based on Jack Dorsey’s first tweet who is now trying to unload it finds to his dismay that figure is a far cry from the $2.9 million he shelled out last year.

—Owen Thomas (E-mail | Twitter)

Get ready for the merge

Ethereum, the blockchain that powers the world’s second most valuable cryptocurrency, is finally taking its next big step to Ethereum 2.0, a major upgrade to a different technology that will have big implications for miners, software developers and climate advocates.

Developers this week began testing the new blockchain transaction verification mechanism, known as proof-of-stake, through a “ghost fork” or test build of the network. The merger, as the switchover is called, will change how the network is run and who makes money from it, and dramatically reduce its power consumption. It could happen as soon as this fall.

Proof of Stake is a major test for the industry. The existing system that performs bitcoin and ether transactions is known as proof-of-work, and that work – performing complex calculations – is what consumes so much electricity.

  • Proof of stake is much less energy intensive. Indeed, the network’s transaction validation process will no longer depend on miners with vast racks of hardware. Instead, it will rely on users staking – essentially, pawning – their Ether tokens.
  • Green is gold, potentially. “There have been a lot of NFT creators and artists who have been hesitant to get started on Ethereum because they fancy partnering with a green chain,” said Anand Iyer, Founder and General Partner at Canonical Crypto.
  • Even non-profit organizations could benefit. The Mozilla Foundation, which has faced an outcry over its acceptance of cryptocurrency donations, said last week that it would soon start accepting crypto again, but only coins using proof of stake. The Wikimedia Foundation is facing a similar outcry over its crypto donation policy, but has yet to make any changes.
  • Other blockchains use proof-of-stake, but Ethereum’s adoption of the system will offer proof that an eco-friendly consensus system can work at scale.

Ethereum’s economy will also change. Ethereum 2.0 could have a deflationary effect, which favors current ether holders.

  • There is a complex formula for determining how ether is allocated to miners, but under the current model there is a fixed amount allocated per block, and therefore per day. However, after the merger, there will be no fixed amount allocated per block.
  • As a result, there is speculation that more Ether will be “burned” or destroyed, reducing the supply. This could already have an impact on the price of ether, Iyer said, as investors speculate on the impact of future changes on prices.
  • It will also be easier for individuals to become validators and thus participate in the profit potential of the network. Where mining requires a large hardware investment, becoming a validator only requires containing 32 ether, or about $100,000. That’s a lot of money, but small holders can pool their ether to earn staking rewards.

Ethereum still has big problems. The most important are transaction costs, also known as gas fees, and overall network speed.

  • The developers focused on proving the stake change rather than fixing the speed and cost issues. A different change known as sharding will help address these issues, but may not roll out until next year.
  • Ethereum has the best tools and the largest community of skilled software developers when it comes to building smart contracts, the automated financial systems that run on the blockchain. Also known as DeFi, smart contracts can be used for everything from NFTs to lending, borrowing, gaming, escrow, payments, and other emerging uses.
  • But Ethereum’s dominance is already being challenged by other Layer 1 networks such as Avalanche, Solana and others. When the merger takes place, it will play an important role in strengthening Ethereum against these rivals, as will the development of Layer 2 networks, which overlap Ethereum.

This will be a big transition period for the Ethereum community. An interesting question is what happens to ethereum miners. The merger is no secret to them. Some skim the ether with the intention of staking it and becoming validators; others mine as long as they can, hoping that their rivals might back off and make their work more valuable as the merger nears. And for proof-of-work deadlocks, there’s always Ethereum Classic, an earlier fork that retains the original consensus mechanism. Some people just don’t like change.

— Tomio Geron (E-mail | Twitter)


The emergence of DeFi is changing the way consumers think about how they store value. For reference, Visa recorded $2.5 billion in crypto transactions in the first quarter of 2022. We see consumers starting to really use it in a way that even a year ago was rather hypothetical.

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on the money

On protocol: New York will start charging crypto companies to ensure they comply with regulations, a regulatory treatment that already exists for banks and insurance companies.

Indian investors are worried after crypto exchanges disabled rupee deposits for buying crypto. While users can still withdraw funds, major Indian crypto exchanges CoinSwitch Kuber and WazirX have deposits stopped without any warning. This follows Coinbase’s recent shutdown of rupee deposits on the country’s UPI payment network.

Also on Protocol: Wikipedia editors are calling on the Wikimedia Foundation to stop accepting crypto donations following a four-month discussion, citing environmental concerns.

Tether plans to reduce its commercial paper holdings. Tether CTO Paolo Ardoino said that the stablecoin issuer continue to reduce its exposure to short-term corporate debt over time. Backing USDT with relatively risky instruments has alarmed many, and the CFTC fined Tether $41 million last year for making misleading claims about its reserves.

JPMorgan Chase shocked investors by setting aside $900 million to prepare for a recession. While CEO Jamie Dimon said recession risk remains remote, the bank is preparing to cushion the blow of continued inflation and declining profits.

Mastercard has partnered with Nexo to launch a crypto credit card. the menuinitially limited to parts of Europe, will allow users to borrow against their bitcoin in order to spend.


Block CEO Jack Dorsey, who has “#bitcoin” in his Twitter bio, left a trail of arguments after a confusing tweet. “I have no interest in making money. I have no interest in fixing it. I also have no interest in cryptocurrencies,” he tweetedwhich sparked a lot of thinking about how bitcoin could not be considered crypto.

More and more crypto-for-kids initiatives, such as Crypto Kids Camp and Zigazoo’s NFT collaboration, are popping up, and some are worried. “I actually find it a bit scary to hear that there’s this industry socializing very young children about very risky products,” Joyce Seridoprofessor of social sciences of the family at University of Minnesota, said to Vox.

Web3 Foundation Head of Operations Bertrand Perez thinks regulation is necessary in crypto, but not to the point of stifling innovation. “We have to be aware that we have to operate in a world where regulations are not necessarily bad. You need [a] some level of regulation for protection, right? » he said in an interview with Cointelegraph.

Weekly functionality

Binance has named Steven McWhirter Global Director of Regulatory Policy. McWhirter was before a senior official of the Financial Conduct Authority of the United Kingdom, where he served for nine years.

Volt has named Matt Komorowski as Chief Revenue Officer. Komorowski is a former executive of PayPal, where he worked as senior director of partnerships for international markets. has added Marissa Brooks to its partnerships team. Brooks, the founder of boutique collective 4WRD, will lead global sports and entertainment partnerships for the crypto company.

Bank of England fintech chief Varun Paul has left to join Fireblocks. Paul was at the central bank for 14 years. It is now ready to join blockchain company business strategy team. has named Duncan Deville EVP of Compliance Americas and Global Head of Financial Crimes Compliance. Deville was more recently a Western Union executive, and led the Office of Compliance and Enforcement at FinCEN before that.

Prime Trust has appointed Jeremy Sheridan as Vice President of Regulatory Affairs. Sheridan was before Deputy Director of Investigations at the Secret Service.

Neon has appointed Koji Pereira as Design Director. Pereira was previously senior product design manager at Twitter, and will lead Neon’s fintech product design.

PayPal CFO John Rainey is leaving. Rainey will join Walmart as chief financial officer, and Gabrielle Rabinovitch, senior vice president of corporate finance and investor relations, will serve as interim chief financial officer.


Businesses – whether web2 or web3 oriented companies that don’t want to hold crypto but want to be able to interact with crypto holders – want to be able to offer this as a payment mechanism to their communities. The other is convenience, where merchants are comfortable accepting crypto.

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Thanks for reading – see you tomorrow!