JPMorgan Sees Concerns for Ethereum Blockchain After the Merge

By September 22, 2022Ethereum
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park with split path, trees in a city
The split in Ethereum after the Merge is a potential problem, JPMorgan said. (Renuagra/Pixabay)

There are some concerns specific to the Ethereum blockchain following the recent transition to a proof-of-stake (PoS) consensus mechanism, a process known as the Merge, JPMorgan (JPM) said in a research report Wednesday.

The change spurred a hard fork, splitting the blockchain in two and giving rise to an offshoot chain called Ethereum PoW. Some exchanges and platforms have shown support for the forked version, which still uses proof-of-work (PoW) verification, and at least 19 former ether mining pools are active on it, the report said. There is the possibility that the forked chain could divide the Ethereum community, it said.

A second concern is that the blockchain has become less decentralized, the bank said, “as [just a] few entities command the majority share of staked ETH.”

JPMorgan notes that the price of ether (ETH) has declined sharply. This drop was probably caused by a combination of “buy-the-rumor/sell-the-news flows specific to Ethereum’s merge event,” together with widespread weakness in risk assets as a result of more hawkish central banks, the report said.

The move to backwardation in the futures market is a “manifestation of the shift towards more bearish sentiment in crypto markets in recent weeks,” the note said. Backwardation is a situation that occurs when the spot price of an asset is higher than in the futures market.

In terms of mining, Ethereum Classic has been the main beneficiary of the Merge, as its hashrate has doubled, with other graphics-processing-unit (GPU) compatible PoW blockchains such as Ravencoin and Ergo also witnessing big increases, the note added.

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