WEBVTT - The Merge is Over. It's Time for the Surge. 0:00:02.800 --> 0:00:06.160 This is Bloomberg Crypto, a daily Bloomberg I heart podcast 0:00:06.559 --> 0:00:09.719 and I'm Stacy Marie Ishmael, managing editor of Crypto for 0:00:09.760 --> 0:00:27.120 Bloomberg News. It's Thursday September. The merge and merge. How 0:00:27.120 --> 0:00:28.880 are you feeling right now about the merch? I love 0:00:28.880 --> 0:00:31.600 the fact that I'm called the merge. So the merge 0:00:32.200 --> 0:00:37.080 finally happened. After years of anticipation, multiple full starts and delays, 0:00:37.440 --> 0:00:40.640 the biggest ever software upgrades to the ethereum blockchain is 0:00:40.760 --> 0:00:45.159 finally complete. The most headline grabbing consequence of that upgrade, 0:00:45.280 --> 0:00:49.080 of course, relates to energy usage. The switch that upgrade 0:00:49.159 --> 0:00:51.919 enabled from what's called proof of work to what's known 0:00:51.920 --> 0:00:55.920 as proof of steak promises to reduce ethereum's energy consumption 0:00:56.120 --> 0:01:02.040 by a whopping. But there are bigger questions, like what's next? 0:01:02.400 --> 0:01:04.800 What else is going to happen? What are the other 0:01:04.920 --> 0:01:07.840 major milestones for the future of ethereum's ecosystem and the 0:01:07.840 --> 0:01:11.640 ether token itself? In this episode you'll hear from Bloomberg 0:01:11.640 --> 0:01:14.640 reports to Olga Karif, a lot of people are expected 0:01:15.360 --> 0:01:18.920 some kind of issues to arise, perhaps for weeks after 0:01:18.959 --> 0:01:22.560 the merge happened, and from Bloomberg. Senior editor for Crypto, 0:01:22.760 --> 0:01:26.039 Dave Lika. There's a lot of expectations that this would 0:01:26.080 --> 0:01:29.160 be a big deal, which it was, but not from 0:01:29.160 --> 0:01:43.080 a price perspective. Olga, welcome back. Thank you, glad to 0:01:43.120 --> 0:01:48.360 be here. You're a busy week recently. Yes, yes, it's 0:01:48.400 --> 0:01:51.920 been so exciting with the merge. We will say things 0:01:52.000 --> 0:01:54.200 like it's been so exciting with the merge because we're 0:01:54.240 --> 0:01:57.120 fun at parties and says, you know, this is the 0:01:57.160 --> 0:01:59.720 stuff that we like to talk about. But let's just 0:02:00.000 --> 0:02:02.200 pagined for a moment. You're not the kind of person 0:02:02.240 --> 0:02:04.200 who was like staying up all nights to see the 0:02:04.280 --> 0:02:07.200 merge happen. Why don't you give folks a quick rundown 0:02:07.240 --> 0:02:12.040 of exactly what was keeping US busy recently? Sure? So, 0:02:12.200 --> 0:02:16.520 last week this amazing change was happening on the ethereum 0:02:16.520 --> 0:02:21.720 black chain, where it moved from ordering transactions using powerful 0:02:21.720 --> 0:02:26.960 computers called miners to using essentially stacks of coins to 0:02:27.040 --> 0:02:30.760 do the same thing. And as the result of this change, 0:02:31.040 --> 0:02:38.119 basically of ethereum's energy consumption went away. And last week 0:02:38.160 --> 0:02:41.160 a bunch of people interested in all of this stuff 0:02:41.200 --> 0:02:46.560 were on an online party basically following this change. Pretty 0:02:46.639 --> 0:02:48.960 much a lot of people around the world stayed up 0:02:49.000 --> 0:02:52.600 all night just to watch and see whether this goes 0:02:52.639 --> 0:02:56.680 smoothly or not, and it went amazingly, amazingly smoothly and 0:02:56.880 --> 0:03:01.040 ended up not being disruptive in any way. Were is 0:03:01.160 --> 0:03:06.520 unusual for an upgrade that was basically a very, very 0:03:06.680 --> 0:03:11.440 large software upgrade that involved thousands of people, lots of 0:03:11.480 --> 0:03:17.880 moving parts and years of work. Absolutely it's extremely unusual. 0:03:18.160 --> 0:03:21.680 A lot of people expected some kind of issues to arise, 0:03:21.760 --> 0:03:25.600 perhaps for weeks after the merge happened, and none of 0:03:25.639 --> 0:03:28.680 that has taken place, at least so far. No, no 0:03:28.800 --> 0:03:32.440 big issues have emerged. You know, this is a very 0:03:32.440 --> 0:03:35.880 good news because it shows that ethereum developers have the 0:03:36.120 --> 0:03:40.920 wherewithal to pull something like this off, and hopefully this means, 0:03:41.000 --> 0:03:45.600 basically that they have the expertise to conduct further upgrades 0:03:45.680 --> 0:03:50.400 that will, you know, essentially make ethereum even more competitive 0:03:51.000 --> 0:03:55.240 versus other technologies out there. Why is the ether price 0:03:55.320 --> 0:03:58.640 down if everything went super smoothly? Why is ether falling? 0:03:59.440 --> 0:04:03.000 A lot of people, I think, executed the strategy of 0:04:03.520 --> 0:04:06.640 they were expecting ether to go up all the way 0:04:06.720 --> 0:04:09.640 up to the merge and then to drop on the 0:04:09.680 --> 0:04:13.280 news of the merge, and I think that's exactly what happened. Partially, 0:04:13.360 --> 0:04:17.040 the reason why people were buying up ether was so 0:04:17.120 --> 0:04:21.360 that they would get sort of free tokens from additional 0:04:21.720 --> 0:04:26.400 block chains that emerged after the upgrade. So what often 0:04:26.480 --> 0:04:30.160 happens when a block chain goes through a change is 0:04:30.200 --> 0:04:34.000 that some groups who supported this block chain go, well, 0:04:34.240 --> 0:04:37.320 we don't like the software change, we want things to 0:04:37.360 --> 0:04:40.719 stay as they were before, and so in this case 0:04:41.120 --> 0:04:44.400 there were several groups that split off from ethereum because 0:04:44.400 --> 0:04:48.080 they wanted the block chain to continue using this powerful 0:04:48.080 --> 0:04:52.520 computers called miners to order transactions. And so everybody who 0:04:52.600 --> 0:04:56.599 held ether when this additional block chains were split off 0:04:56.640 --> 0:05:01.080 and born ended up with free tokens, additional tokens that 0:05:01.160 --> 0:05:05.080 they got that have some value. And so a lot 0:05:05.160 --> 0:05:08.200 of people who are accumulating ether to get these free 0:05:08.240 --> 0:05:11.480 tokens and now that they got them, they got rid 0:05:11.520 --> 0:05:16.919 of their ether. Let's kind of switch from this is 0:05:16.960 --> 0:05:20.640 what happened, to what folks are expecting, and I'm just 0:05:20.680 --> 0:05:25.480 gonna say some words here, because I'm I'm just gonna 0:05:25.520 --> 0:05:32.240 say these words. The surge, the verge, the purge, the splurge. 0:05:32.279 --> 0:05:36.640 It somehow got worse with every with every word. But 0:05:37.400 --> 0:05:42.160 these are like the next merges, as it were. One 0:05:42.240 --> 0:05:43.600 I don't know if you know, but why are they 0:05:43.680 --> 0:05:47.840 named this? But, more importantly, what exactly do these stand for? 0:05:48.279 --> 0:05:52.040 So basically, the merge itself, the software upgrade, doesn't do 0:05:52.080 --> 0:05:56.520 anything to ethereum block chain's performance. It doesn't make the 0:05:56.560 --> 0:06:01.359 block chain faster, doesn't make it cheaper to use. And really, 0:06:01.480 --> 0:06:04.520 if we want to see the number of transactions on 0:06:04.560 --> 0:06:08.719 the block chain ramping up, some additional upgrades are needed 0:06:08.800 --> 0:06:12.160 to get us there, to scale the network, essentially, and 0:06:12.200 --> 0:06:17.680 so the surge is word that you can think of 0:06:17.880 --> 0:06:21.520 as like scaling. So how do you scale the blockchain? 0:06:21.680 --> 0:06:25.960 And what the ethereum developers are working on? Our technologists 0:06:26.000 --> 0:06:31.680 like charting, which essentially would lower the cost off running 0:06:31.720 --> 0:06:36.760 transactions through the ethereum blockchain by sort of distributing a 0:06:36.800 --> 0:06:41.200 lot of the computational weight, if you will, onto kind 0:06:41.200 --> 0:06:46.840 of little chains attached to ethereum. And then the verge 0:06:47.360 --> 0:06:51.520 is basically a way to increase decentralization where, you know, 0:06:51.600 --> 0:06:55.200 somebody with a cell phone would be able to start 0:06:55.360 --> 0:07:00.200 ordering transactions on the blockchain and then you know, the 0:07:00.279 --> 0:07:04.520 purge is kind of trying to essentially get rid of 0:07:04.560 --> 0:07:09.240 all data that might be currently on the blockchain. Essentially, 0:07:09.279 --> 0:07:12.440 all of this, all of this additional upgrades, are designed 0:07:12.480 --> 0:07:18.000 to make ethereum kind of competitive with leading payment networks 0:07:18.040 --> 0:07:23.960 like visa and mastercard in terms of throughput and, you know, 0:07:24.000 --> 0:07:29.080 of course, more competitive, hopefully, in terms of cost. Why 0:07:29.120 --> 0:07:32.800 would a blockchain want to compete with these enormous financial 0:07:32.840 --> 0:07:39.400 services companies? Basically, the idea is to make finance more 0:07:39.480 --> 0:07:45.000 decentralized and more, you know, accessible around the world. So 0:07:45.640 --> 0:07:50.080 with financial instruments today, you have companies or associations of 0:07:50.160 --> 0:07:56.040 companies controlling essentially financial infrastructure out there. What ethereum hopes 0:07:56.080 --> 0:08:00.200 to do is to essentially give people control. People all 0:08:00.200 --> 0:08:04.160 over the world would maintain and support and use this 0:08:04.320 --> 0:08:08.880 financial network, not just for payments but for all kinds 0:08:08.920 --> 0:08:13.600 of transactions such as loans and, you know, games and 0:08:13.680 --> 0:08:18.520 all kinds of other stuff. It took US years to 0:08:18.640 --> 0:08:22.400 get to the merge. Is it like three years before 0:08:22.400 --> 0:08:24.160 we get to the splurge or the verge of the 0:08:24.160 --> 0:08:26.280 purge or like what? Like? What sort of the timelines 0:08:26.320 --> 0:08:30.160 that we're looking at here? It's interesting I think because 0:08:30.200 --> 0:08:33.680 the merge was such a such an enormous undertaking, such 0:08:33.720 --> 0:08:38.280 a huge one, that's it was tested to death to 0:08:38.360 --> 0:08:42.160 make it as smooth as as it was Um. That's 0:08:42.160 --> 0:08:45.320 why it's taken so long. I think some of the 0:08:45.360 --> 0:08:51.560 other upgrades that will really improve ethereums performance they could 0:08:51.559 --> 0:08:55.559 start next year. In other words, the merge, it was 0:08:55.600 --> 0:08:56.800 like the shift. This is going to be a very 0:08:56.800 --> 0:08:58.800 old school reference. I apologize to people who aren't the 0:08:58.960 --> 0:09:03.080 elder millennials, from like DOS to Windows three point one, or, 0:09:03.840 --> 0:09:06.800 you know, kind of from like a text based command 0:09:06.840 --> 0:09:11.360 line situation to a gooeyographical user interface, those sorts of 0:09:11.360 --> 0:09:14.440 fundamental computing shifts. This is sort of the argument of 0:09:14.480 --> 0:09:17.360 what ethereum needed to go through, and now everything else 0:09:17.440 --> 0:09:21.360 is sort of more incremental in comparison. Right. Absolutely it 0:09:21.520 --> 0:09:24.520 just you know, if the developers of ethereum were able 0:09:24.559 --> 0:09:28.280 to pull this off, then you know pretty much people 0:09:28.360 --> 0:09:31.800 can be a lot more comfortable and confident that they 0:09:31.840 --> 0:09:34.320 will be able to pull off this other upgrades and 0:09:34.400 --> 0:09:39.720 probably much faster. Got It. Are we expecting anything to 0:09:39.760 --> 0:09:42.600 go wrong? Like, you know, we've gotten to this point where, 0:09:42.640 --> 0:09:44.640 other than the ether price falling, which you know we 0:09:44.679 --> 0:09:48.000 don't have a sort of a moral position on Um, 0:09:48.040 --> 0:09:50.320 but you know, you had talked on previous episodes about 0:09:50.320 --> 0:09:52.440 concerns over n F T S or other types of 0:09:52.440 --> 0:09:55.680 scams and frauds. Are we at a point where folks 0:09:55.720 --> 0:09:58.280 think if something was going to go wrong, it would 0:09:58.280 --> 0:10:01.040 have gone wrong already, or are people still kind of 0:10:01.080 --> 0:10:04.160 waiting to see what might shake out? You know, there 0:10:04.200 --> 0:10:08.000 could still be instances of free play attacks we which 0:10:08.000 --> 0:10:12.920 are basically where. So now we have different versions of ethereum. 0:10:12.960 --> 0:10:16.080 After all, this forks and so a replay attack is 0:10:16.120 --> 0:10:21.480 where somebody takes a legitimate transaction that happened on one 0:10:21.760 --> 0:10:26.240 of this ethereum offshoots and and place it on on 0:10:26.280 --> 0:10:28.800 a different one. So we could see more of this 0:10:29.040 --> 0:10:34.120 replay attacks if some of the APPS UM that run 0:10:34.200 --> 0:10:40.160 on this change haven't properly prepared. But uh, you know, 0:10:40.600 --> 0:10:43.960 overall it doesn't look like we'll see anything major, but 0:10:44.160 --> 0:10:48.160 you know, never say never, say never. And on that note, 0:10:48.440 --> 0:10:51.360 thank you. Thank you very much. Always a pleasure to 0:10:51.360 --> 0:10:54.960 have you on. Thank you freely enjoyed it. Next up, 0:10:55.040 --> 0:10:57.800 Bloomberg crypto senior editor Dave Letco will join me to 0:10:57.880 --> 0:11:00.319 talk more about what's been happening to ether p SIS 0:11:14.320 --> 0:11:17.640 ethereum just got refound. According to its CO founder of Italic, Buderan, 0:11:17.760 --> 0:11:21.559 the blockchain network has now completed the CRYPTO's most ambitious 0:11:22.000 --> 0:11:25.640 change to date. Dave, what a pleasure to have you 0:11:25.640 --> 0:11:27.640 back in the studio. Thanks to days for having me. 0:11:28.040 --> 0:11:29.760 I feel like you're only here when all hell is 0:11:29.800 --> 0:11:32.760 breaking loose, but this week, maybe this is famous last words. 0:11:33.040 --> 0:11:38.240 This week post merge has been mostly calm, except for 0:11:38.280 --> 0:11:41.760 what's happening to the ether price. So, in this crypto focus, 0:11:42.120 --> 0:11:44.000 what's been happening to the markets? There's been a lot 0:11:44.080 --> 0:11:47.680 of talk about selling the news on it. The after 0:11:47.720 --> 0:11:51.760 the merge went through. I was at least sleeping rated 0:11:51.800 --> 0:11:56.080 smoothly and our colleagues handled it overseas. You had to 0:11:56.160 --> 0:12:00.240 sell off the next day in Ethereum, but yeah, she 0:12:00.400 --> 0:12:02.319 was selling off into the news about three or four 0:12:02.360 --> 0:12:05.880 days ahead of time. So there's a lot of expectations 0:12:05.880 --> 0:12:08.920 that this would be a big deal, which it was, 0:12:09.520 --> 0:12:13.079 but not from a price perspective. So when we talk about, 0:12:13.200 --> 0:12:16.280 you know, the most market see of phrases sell the news. 0:12:16.800 --> 0:12:21.000 That phrases often preceded by by the rumor sell the news. 0:12:21.480 --> 0:12:23.520 In this case, the rumor was like the merge is 0:12:23.520 --> 0:12:25.839 actually going to happen. Right, people have been hearing that 0:12:25.920 --> 0:12:29.600 for literal years. For the most I heard was seven, 0:12:29.679 --> 0:12:32.319 eight years. I guess. It's been talked about basically since 0:12:32.400 --> 0:12:36.120 the birth of ethereum. And if you look back, this 0:12:36.200 --> 0:12:39.440 year has been a tough year for all cryptocurrencies. Both 0:12:39.880 --> 0:12:45.000 ethereum and Bitcoin are down proxim this year as a 0:12:45.120 --> 0:12:48.920 risk aversion has taken over the market. And if you 0:12:48.960 --> 0:12:52.160 really wanted to buy the rumor, it was last year 0:12:52.280 --> 0:12:59.079 when ethereum was up, I believe, about on it and Bitcoin. 0:12:59.360 --> 0:13:01.439 How did these in year? He had a little with 0:13:01.520 --> 0:13:03.319 the end, but it was up around sixties. So you 0:13:03.360 --> 0:13:05.400 can see the comparison. There was the rush into what 0:13:05.480 --> 0:13:11.480 was the going to be the hot coin. And you know, 0:13:11.640 --> 0:13:14.679 when we talk about the risk aversion of the change 0:13:14.679 --> 0:13:17.199 in sentiment in the markets, like what's the main thing 0:13:17.280 --> 0:13:20.160 that's driving that for Crypto? But broadly well, it's a 0:13:20.200 --> 0:13:23.720 fed Um. As an old bond and currency reporter Um. 0:13:23.720 --> 0:13:26.600 We're taught a long time ago can't fight the Fed, 0:13:26.760 --> 0:13:30.040 and the crypto folks finding that out this year. Right, 0:13:30.160 --> 0:13:31.920 you heard it from Dave don't try to fight the Fed. 0:13:31.960 --> 0:13:35.280 It ends in pain and losses until this is over. 0:13:35.440 --> 0:13:38.800 That's usually the prognosis thought that you're until there's a 0:13:38.800 --> 0:13:41.959 clear sense that the Fed has done raising rates, you're 0:13:41.960 --> 0:13:45.280 gonna be what they called the pain trade and this 0:13:45.400 --> 0:13:50.840 idea of you know, Crypto, bitcoin ether really acting like 0:13:50.960 --> 0:13:54.520 risk assets. We've reported on the fact that this seems 0:13:54.559 --> 0:13:57.839 to be another example of how correlated it is to 0:13:58.120 --> 0:14:00.960 broader markets. Right, because it's it's not just the bitcoins 0:14:01.000 --> 0:14:02.840 having a bad day, it's the you know, the mega 0:14:02.880 --> 0:14:05.920 cap text docs, or it's, you know, retailers. Is this 0:14:05.960 --> 0:14:08.199 is sort of a widespread thing across the market that 0:14:08.320 --> 0:14:11.640 we're seeing. It is and it's they we've talked about 0:14:11.720 --> 0:14:13.839 and written quite a few stories about it. Is that 0:14:13.840 --> 0:14:15.480 a little bit of the irony of all this says. 0:14:16.000 --> 0:14:20.560 CRYPTO was billed as the alternative financial universe. We're not 0:14:20.600 --> 0:14:23.320 going to trade like stocks and Mons Do. This is 0:14:23.360 --> 0:14:25.840 your financial future. This is a new asset class, a 0:14:25.880 --> 0:14:28.320 word different, and they're proven to be not. And just 0:14:28.360 --> 0:14:31.360 as a kind of a closing thing, you know our 0:14:31.400 --> 0:14:33.640 listeners just heard from Olga giving us all of the 0:14:35.200 --> 0:14:38.920 perhaps unfortunately named next steps for for the ethereum blockchain, 0:14:38.960 --> 0:14:42.240 including my least favorite, the splurge, which is, let's be clear, 0:14:42.320 --> 0:14:44.560 a terrible word. Well, what are some of the next 0:14:44.560 --> 0:14:47.000 milestones you think folks were looking for from that pricing 0:14:47.080 --> 0:14:50.000 or trading perspective? Are The indicators in the way that 0:14:50.080 --> 0:14:51.920 people are positioned in the market that you know the 0:14:51.960 --> 0:14:54.720 ethereum price is going to continue to sort of hover 0:14:54.840 --> 0:14:57.160 where it is, or are you expecting more, or at 0:14:57.200 --> 0:14:59.440 least our analysts expecting more declines? Like, what is that 0:14:59.480 --> 0:15:02.200 looking like? Well, we're kind of trying to get our 0:15:02.280 --> 0:15:04.760 head around what the market is telling us right now. 0:15:04.800 --> 0:15:06.360 We have a lot of debate right now on our 0:15:06.400 --> 0:15:09.520 actually on our news desk on what we could tell 0:15:09.560 --> 0:15:13.480 by the futures market now that the there's been a 0:15:13.480 --> 0:15:16.760 four concluded in the merge where you receive this extra 0:15:16.840 --> 0:15:20.960 coin for ethereum proof of work. People looked at that 0:15:21.080 --> 0:15:23.960 almost as a dividend and people were trading as a dividend. 0:15:24.000 --> 0:15:25.640 So that made the sort of a little bit of 0:15:25.640 --> 0:15:30.080 what's going on in the futures market and everybody's still 0:15:30.080 --> 0:15:32.120 looking for that answer right now. But I think in 0:15:32.160 --> 0:15:36.080 the end it really circles back to the Fed. What 0:15:36.240 --> 0:15:39.360 happens there, whether people are willing to embrace risk. And 0:15:39.440 --> 0:15:42.200 probably more important for Crisp Crypto is how can you 0:15:42.200 --> 0:15:46.000 get people more interested again in this sector and to 0:15:46.160 --> 0:15:49.880 commit money right b this is the you know, retail 0:15:49.960 --> 0:15:51.920 investors are really sitting this one out, or at least 0:15:51.920 --> 0:15:54.720 are mostly on the sidelines, in a way that folks 0:15:54.720 --> 0:15:57.560 perhaps have not been expecting to last this loan. And 0:15:57.600 --> 0:16:00.880 the unique thing about Crypto is that was a retail 0:16:00.960 --> 0:16:04.200 first market and without retail there it becomes a big 0:16:04.360 --> 0:16:07.120 question mark. That is an excellent note to end on. 0:16:07.200 --> 0:16:11.960 Thank you so much, Dave. Thank you to Olga and 0:16:12.000 --> 0:16:14.160 today for joining us today. You can find more of 0:16:14.200 --> 0:16:16.960 their work on the Bloomberg terminal, on Bloomberg Dot Com 0:16:17.000 --> 0:16:20.680 and on twitter. Olga is at Olga Karif. That's O 0:16:21.000 --> 0:16:24.240 L G A K H A R I F, and 0:16:24.360 --> 0:16:27.760 Dave is at D Liqua. That's D L I E 0:16:27.880 --> 0:16:33.920 D T K A. on the next episode of Bloomberg 0:16:33.920 --> 0:16:37.120 Crypto we will be reflecting on the twelve months between 0:16:37.280 --> 0:16:41.920 China's most recent crackdown on crypto and crypto mining in 0:16:41.920 --> 0:16:45.080 the country and what's been happening since. One of the 0:16:45.120 --> 0:16:48.800 biggest effects of that ban was dozens and dozens of 0:16:48.880 --> 0:16:53.080 major Chinese mining companies leaving China and moving to the US. 0:16:57.280 --> 0:17:00.280 This is Bloomberg Crypto, a daily podcast from Blue Burg 0:17:00.360 --> 0:17:03.440 and I heart radio. For more shows from I heart radio, 0:17:03.680 --> 0:17:06.800 visit the I heart radio APP, apple podcasts or wherever 0:17:06.840 --> 0:17:10.399 you get your podcasts. Send US your comments, questions or 0:17:10.400 --> 0:17:13.440 suggestions for the show to Crypto at Bloomberg Dot net 0:17:14.000 --> 0:17:18.600 or find us on twitter. We're at CRYPTO. The supervising 0:17:18.600 --> 0:17:21.919 producer of Bloomberg Crypto is Vicky Very Galina. Our senior 0:17:21.960 --> 0:17:26.359 producer is Janet Babin. Our producer is Sharon Barriro. Associate 0:17:26.400 --> 0:17:30.080 producer is ty Butler. Desta wonder at is our engineer. 0:17:30.600 --> 0:17:35.120 Original Music by Leo Sidrin. I'm Stacy Marie Schmal. We'll 0:17:35.119 --> 0:17:35.840 be back tomorrow.