Ethereum completed its “Merge” on Thursday, introducing a new way of validating its network that it says will make the cryptoasset more secure and less energy intensive.
Nick Kuriya, vice-president and head of crypto at Purpose Unlimited, said a “technical upgrade of this nature has never occurred in the history of crypto.”
Purpose Investments offers the Purpose Ether ETF, which has $229.4 million in assets under management.
The upgrade saw Ethereum’s main network (Ethereum Mainnet) merge with the Beacon Chain system for block production. The outgoing Mainnet used a “proof of work” system that required crypto miners to add digital currency to the blockchain. The Beacon Chain uses a “proof of stake” system of validators who authenticate transactions and add new blocks to the blockchain.
In a commentary earlier this week, Purpose crypto specialist Haan Palcu-Chang wrote that the merge will lead to faster transactions, lower network fees, and better security through decentralization, as the network will use more validators.
“The more validators spread out over a larger part of the globe, the less likely the blockchain can be abused by bad actors or suffer from power shortages or natural disasters,” Palcu-Chang wrote.
The merge will also reduce energy consumption by more than 99%.
“That’s significant because I think we all recognize the impacts of climate change and the potential impacts going forward,” Kuriya said.
Lower emissions could make the asset more appealing to ESG investors.
The change could also offer a more tangible opportunity for investors. To become a validator, “stakers” put down down deposits of their own Ether as collateral against dishonest behaviour, and they can earn more Ether by validating transactions.
Kuriya compared the “staking yield” — which he said is currently 4.5% but subject to change — to a dividend-paying equity.
The upgrade also introduces a “burning mechanism” that reduces the supply of Ether, which could make the cryptoasset more attractive.