Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I heart podcast
Speaker 1: and I'm Stacy Marie Ishmael, managing editor of Crypto for
Speaker 1: Bloomberg News. It's Thursday September. The merge and merge. How
Speaker 1: are you feeling right now about the merch? I love
Speaker 1: the fact that I'm called the merge. So the merge
Speaker 1: finally happened. After years of anticipation, multiple full starts and delays,
Speaker 1: the biggest ever software upgrades to the ethereum blockchain is
Speaker 1: finally complete. The most headline grabbing consequence of that upgrade,
Speaker 1: of course, relates to energy usage. The switch that upgrade
Speaker 1: enabled from what's called proof of work to what's known
Speaker 1: as proof of steak promises to reduce ethereum's energy consumption
Speaker 1: by a whopping. But there are bigger questions, like what's next?
Speaker 1: What else is going to happen? What are the other
Speaker 1: major milestones for the future of ethereum's ecosystem and the
Speaker 1: ether token itself? In this episode you'll hear from Bloomberg
Speaker 1: reports to Olga Karif, a lot of people are expected
Speaker 1: some kind of issues to arise, perhaps for weeks after
Speaker 1: the merge happened, and from Bloomberg. Senior editor for Crypto,
Speaker 1: Dave Lika. There's a lot of expectations that this would
Speaker 1: be a big deal, which it was, but not from
Speaker 1: a price perspective. Olga, welcome back. Thank you, glad to
Speaker 1: be here. You're a busy week recently. Yes, yes, it's
Speaker 1: been so exciting with the merge. We will say things
Speaker 1: like it's been so exciting with the merge because we're
Speaker 1: fun at parties and says, you know, this is the
Speaker 1: stuff that we like to talk about. But let's just
Speaker 1: pagined for a moment. You're not the kind of person
Speaker 1: who was like staying up all nights to see the
Speaker 1: merge happen. Why don't you give folks a quick rundown
Speaker 1: of exactly what was keeping US busy recently? Sure? So,
Speaker 1: last week this amazing change was happening on the ethereum
Speaker 1: black chain, where it moved from ordering transactions using powerful
Speaker 1: computers called miners to using essentially stacks of coins to
Speaker 1: do the same thing. And as the result of this change,
Speaker 1: basically of ethereum's energy consumption went away. And last week
Speaker 1: a bunch of people interested in all of this stuff
Speaker 1: were on an online party basically following this change. Pretty
Speaker 1: much a lot of people around the world stayed up
Speaker 1: all night just to watch and see whether this goes
Speaker 1: smoothly or not, and it went amazingly, amazingly smoothly and
Speaker 1: ended up not being disruptive in any way. Were is
Speaker 1: unusual for an upgrade that was basically a very, very
Speaker 1: large software upgrade that involved thousands of people, lots of
Speaker 1: moving parts and years of work. Absolutely it's extremely unusual.
Speaker 1: A lot of people expected some kind of issues to arise,
Speaker 1: perhaps for weeks after the merge happened, and none of
Speaker 1: that has taken place, at least so far. No, no
Speaker 1: big issues have emerged. You know, this is a very
Speaker 1: good news because it shows that ethereum developers have the
Speaker 1: wherewithal to pull something like this off, and hopefully this means,
Speaker 1: basically that they have the expertise to conduct further upgrades
Speaker 1: that will, you know, essentially make ethereum even more competitive
Speaker 1: versus other technologies out there. Why is the ether price
Speaker 1: down if everything went super smoothly? Why is ether falling?
Speaker 1: A lot of people, I think, executed the strategy of
Speaker 1: they were expecting ether to go up all the way
Speaker 1: up to the merge and then to drop on the
Speaker 1: news of the merge, and I think that's exactly what happened. Partially,
Speaker 1: the reason why people were buying up ether was so
Speaker 1: that they would get sort of free tokens from additional
Speaker 1: block chains that emerged after the upgrade. So what often
Speaker 1: happens when a block chain goes through a change is
Speaker 1: that some groups who supported this block chain go, well,
Speaker 1: we don't like the software change, we want things to
Speaker 1: stay as they were before, and so in this case
Speaker 1: there were several groups that split off from ethereum because
Speaker 1: they wanted the block chain to continue using this powerful
Speaker 1: computers called miners to order transactions. And so everybody who
Speaker 1: held ether when this additional block chains were split off
Speaker 1: and born ended up with free tokens, additional tokens that
Speaker 1: they got that have some value. And so a lot
Speaker 1: of people who are accumulating ether to get these free
Speaker 1: tokens and now that they got them, they got rid
Speaker 1: of their ether. Let's kind of switch from this is
Speaker 1: what happened, to what folks are expecting, and I'm just
Speaker 1: gonna say some words here, because I'm I'm just gonna
Speaker 1: say these words. The surge, the verge, the purge, the splurge.
Speaker 1: It somehow got worse with every with every word. But
Speaker 1: these are like the next merges, as it were. One
Speaker 1: I don't know if you know, but why are they
Speaker 1: named this? But, more importantly, what exactly do these stand for?
Speaker 1: So basically, the merge itself, the software upgrade, doesn't do
Speaker 1: anything to ethereum block chain's performance. It doesn't make the
Speaker 1: block chain faster, doesn't make it cheaper to use. And really,
Speaker 1: if we want to see the number of transactions on
Speaker 1: the block chain ramping up, some additional upgrades are needed
Speaker 1: to get us there, to scale the network, essentially, and
Speaker 1: so the surge is word that you can think of
Speaker 1: as like scaling. So how do you scale the blockchain?
Speaker 1: And what the ethereum developers are working on? Our technologists
Speaker 1: like charting, which essentially would lower the cost off running
Speaker 1: transactions through the ethereum blockchain by sort of distributing a
Speaker 1: lot of the computational weight, if you will, onto kind
Speaker 1: of little chains attached to ethereum. And then the verge
Speaker 1: is basically a way to increase decentralization where, you know,
Speaker 1: somebody with a cell phone would be able to start
Speaker 1: ordering transactions on the blockchain and then you know, the
Speaker 1: purge is kind of trying to essentially get rid of
Speaker 1: all data that might be currently on the blockchain. Essentially,
Speaker 1: all of this, all of this additional upgrades, are designed
Speaker 1: to make ethereum kind of competitive with leading payment networks
Speaker 1: like visa and mastercard in terms of throughput and, you know,
Speaker 1: of course, more competitive, hopefully, in terms of cost. Why
Speaker 1: would a blockchain want to compete with these enormous financial
Speaker 1: services companies? Basically, the idea is to make finance more
Speaker 1: decentralized and more, you know, accessible around the world. So
Speaker 1: with financial instruments today, you have companies or associations of
Speaker 1: companies controlling essentially financial infrastructure out there. What ethereum hopes
Speaker 1: to do is to essentially give people control. People all
Speaker 1: over the world would maintain and support and use this
Speaker 1: financial network, not just for payments but for all kinds
Speaker 1: of transactions such as loans and, you know, games and
Speaker 1: all kinds of other stuff. It took US years to
Speaker 1: get to the merge. Is it like three years before
Speaker 1: we get to the splurge or the verge of the
Speaker 1: purge or like what? Like? What sort of the timelines
Speaker 1: that we're looking at here? It's interesting I think because
Speaker 1: the merge was such a such an enormous undertaking, such
Speaker 1: a huge one, that's it was tested to death to
Speaker 1: make it as smooth as as it was Um. That's
Speaker 1: why it's taken so long. I think some of the
Speaker 1: other upgrades that will really improve ethereums performance they could
Speaker 1: start next year. In other words, the merge, it was
Speaker 1: like the shift. This is going to be a very
Speaker 1: old school reference. I apologize to people who aren't the
Speaker 1: elder millennials, from like DOS to Windows three point one, or,
Speaker 1: you know, kind of from like a text based command
Speaker 1: line situation to a gooeyographical user interface, those sorts of
Speaker 1: fundamental computing shifts. This is sort of the argument of
Speaker 1: what ethereum needed to go through, and now everything else
Speaker 1: is sort of more incremental in comparison. Right. Absolutely it
Speaker 1: just you know, if the developers of ethereum were able
Speaker 1: to pull this off, then you know pretty much people
Speaker 1: can be a lot more comfortable and confident that they
Speaker 1: will be able to pull off this other upgrades and
Speaker 1: probably much faster. Got It. Are we expecting anything to
Speaker 1: go wrong? Like, you know, we've gotten to this point where,
Speaker 1: other than the ether price falling, which you know we
Speaker 1: don't have a sort of a moral position on Um,
Speaker 1: but you know, you had talked on previous episodes about
Speaker 1: concerns over n F T S or other types of
Speaker 1: scams and frauds. Are we at a point where folks
Speaker 1: think if something was going to go wrong, it would
Speaker 1: have gone wrong already, or are people still kind of
Speaker 1: waiting to see what might shake out? You know, there
Speaker 1: could still be instances of free play attacks we which
Speaker 1: are basically where. So now we have different versions of ethereum.
Speaker 1: After all, this forks and so a replay attack is
Speaker 1: where somebody takes a legitimate transaction that happened on one
Speaker 1: of this ethereum offshoots and and place it on on
Speaker 1: a different one. So we could see more of this
Speaker 1: replay attacks if some of the APPS UM that run
Speaker 1: on this change haven't properly prepared. But uh, you know,
Speaker 1: overall it doesn't look like we'll see anything major, but
Speaker 1: you know, never say never, say never. And on that note,
Speaker 1: thank you. Thank you very much. Always a pleasure to
Speaker 1: have you on. Thank you freely enjoyed it. Next up,
Speaker 1: Bloomberg crypto senior editor Dave Letco will join me to
Speaker 1: talk more about what's been happening to ether p SIS
Speaker 1: ethereum just got refound. According to its CO founder of Italic, Buderan,
Speaker 1: the blockchain network has now completed the CRYPTO's most ambitious
Speaker 1: change to date. Dave, what a pleasure to have you
Speaker 1: back in the studio. Thanks to days for having me.
Speaker 1: I feel like you're only here when all hell is
Speaker 1: breaking loose, but this week, maybe this is famous last words.
Speaker 1: This week post merge has been mostly calm, except for
Speaker 1: what's happening to the ether price. So, in this crypto focus,
Speaker 1: what's been happening to the markets? There's been a lot
Speaker 1: of talk about selling the news on it. The after
Speaker 1: the merge went through. I was at least sleeping rated
Speaker 1: smoothly and our colleagues handled it overseas. You had to
Speaker 1: sell off the next day in Ethereum, but yeah, she
Speaker 1: was selling off into the news about three or four
Speaker 1: days ahead of time. So there's a lot of expectations
Speaker 1: that this would be a big deal, which it was,
Speaker 1: but not from a price perspective. So when we talk about,
Speaker 1: you know, the most market see of phrases sell the news.
Speaker 1: That phrases often preceded by by the rumor sell the news.
Speaker 1: In this case, the rumor was like the merge is
Speaker 1: actually going to happen. Right, people have been hearing that
Speaker 1: for literal years. For the most I heard was seven,
Speaker 1: eight years. I guess. It's been talked about basically since
Speaker 1: the birth of ethereum. And if you look back, this
Speaker 1: year has been a tough year for all cryptocurrencies. Both
Speaker 1: ethereum and Bitcoin are down proxim this year as a
Speaker 1: risk aversion has taken over the market. And if you
Speaker 1: really wanted to buy the rumor, it was last year
Speaker 1: when ethereum was up, I believe, about on it and Bitcoin.
Speaker 1: How did these in year? He had a little with
Speaker 1: the end, but it was up around sixties. So you
Speaker 1: can see the comparison. There was the rush into what
Speaker 1: was the going to be the hot coin. And you know,
Speaker 1: when we talk about the risk aversion of the change
Speaker 1: in sentiment in the markets, like what's the main thing
Speaker 1: that's driving that for Crypto? But broadly well, it's a
Speaker 1: fed Um. As an old bond and currency reporter Um.
Speaker 1: We're taught a long time ago can't fight the Fed,
Speaker 1: and the crypto folks finding that out this year. Right,
Speaker 1: you heard it from Dave don't try to fight the Fed.
Speaker 1: It ends in pain and losses until this is over.
Speaker 1: That's usually the prognosis thought that you're until there's a
Speaker 1: clear sense that the Fed has done raising rates, you're
Speaker 1: gonna be what they called the pain trade and this
Speaker 1: idea of you know, Crypto, bitcoin ether really acting like
Speaker 1: risk assets. We've reported on the fact that this seems
Speaker 1: to be another example of how correlated it is to
Speaker 1: broader markets. Right, because it's it's not just the bitcoins
Speaker 1: having a bad day, it's the you know, the mega
Speaker 1: cap text docs, or it's, you know, retailers. Is this
Speaker 1: is sort of a widespread thing across the market that
Speaker 1: we're seeing. It is and it's they we've talked about
Speaker 1: and written quite a few stories about it. Is that
Speaker 1: a little bit of the irony of all this says.
Speaker 1: CRYPTO was billed as the alternative financial universe. We're not
Speaker 1: going to trade like stocks and Mons Do. This is
Speaker 1: your financial future. This is a new asset class, a
Speaker 1: word different, and they're proven to be not. And just
Speaker 1: as a kind of a closing thing, you know our
Speaker 1: listeners just heard from Olga giving us all of the
Speaker 1: perhaps unfortunately named next steps for for the ethereum blockchain,
Speaker 1: including my least favorite, the splurge, which is, let's be clear,
Speaker 1: a terrible word. Well, what are some of the next
Speaker 1: milestones you think folks were looking for from that pricing
Speaker 1: or trading perspective? Are The indicators in the way that
Speaker 1: people are positioned in the market that you know the
Speaker 1: ethereum price is going to continue to sort of hover
Speaker 1: where it is, or are you expecting more, or at
Speaker 1: least our analysts expecting more declines? Like, what is that
Speaker 1: looking like? Well, we're kind of trying to get our
Speaker 1: head around what the market is telling us right now.
Speaker 1: We have a lot of debate right now on our
Speaker 1: actually on our news desk on what we could tell
Speaker 1: by the futures market now that the there's been a
Speaker 1: four concluded in the merge where you receive this extra
Speaker 1: coin for ethereum proof of work. People looked at that
Speaker 1: almost as a dividend and people were trading as a dividend.
Speaker 1: So that made the sort of a little bit of
Speaker 1: what's going on in the futures market and everybody's still
Speaker 1: looking for that answer right now. But I think in
Speaker 1: the end it really circles back to the Fed. What
Speaker 1: happens there, whether people are willing to embrace risk. And
Speaker 1: probably more important for Crisp Crypto is how can you
Speaker 1: get people more interested again in this sector and to
Speaker 1: commit money right b this is the you know, retail
Speaker 1: investors are really sitting this one out, or at least
Speaker 1: are mostly on the sidelines, in a way that folks
Speaker 1: perhaps have not been expecting to last this loan. And
Speaker 1: the unique thing about Crypto is that was a retail
Speaker 1: first market and without retail there it becomes a big
Speaker 1: question mark. That is an excellent note to end on.
Speaker 1: Thank you so much, Dave. Thank you to Olga and
Speaker 1: today for joining us today. You can find more of
Speaker 1: their work on the Bloomberg terminal, on Bloomberg Dot Com
Speaker 1: and on twitter. Olga is at Olga Karif. That's O
Speaker 1: L G A K H A R I F, and
Speaker 1: Dave is at D Liqua. That's D L I E
Speaker 1: D T K A. on the next episode of Bloomberg
Speaker 1: Crypto we will be reflecting on the twelve months between
Speaker 1: China's most recent crackdown on crypto and crypto mining in
Speaker 1: the country and what's been happening since. One of the
Speaker 1: biggest effects of that ban was dozens and dozens of
Speaker 1: major Chinese mining companies leaving China and moving to the US.
Speaker 1: This is Bloomberg Crypto, a daily podcast from Blue Burg
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Speaker 1: producer is Janet Babin. Our producer is Sharon Barriro. Associate
Speaker 1: producer is ty Butler. Desta wonder at is our engineer.
Speaker 1: Original Music by Leo Sidrin. I'm Stacy Marie Schmal. We'll
Speaker 1: be back tomorrow.