Coinbase has announced that it will pause ETH and other ERC-20 token transactions during the upcoming Ethereum merge.
The exchange is doing this as a precaution to ensure that their systems properly reflect all changes introduced by the merge. The company will inform the public via its social media channels when it will resume ETH and ERC-20 deposits and withdrawals.
The upcoming Ethereum merge will see the Ethereum blockchain migrate from the energy-intensive proof-of-work consensus mechanism to the proof-of-stake consensus mechanism. The execution layer (Ethereum Virtual Machine) will be merged with the beacon chain, a new consensus layer, in a move that should have minimal effect on end users.
The merge is designed to reduce Ethereum’s energy footprint, allow greater decentralization through the use of validators in proof-of-stake instead of miners in proof-of-work, and pave the way for improved scalability through a process called “sharding.” There will be no new Ethereum token issued after the merge.
The Ethereum development team recently conducted a merge of the Beacon chain, the new Ethereum consensus layer, with the Goerli testnet execution layer and is expected to merge the beacon chain with the Ethereum mainnet around mid-Sep. 2022. To minimize risk, many exchanges are choosing to pause ETH-related transactions. Coinbase is one of them.
Exchange clarifies implications for different users
The exchange says that all funds will be safe throughout the merge process and that no action is required by users. Post-merge staked ETH will appear as an ETH(ETH2) balance in a user’s Ethereum wallet, separate from the unstaked ETH balance. Coinbase created a ticker ETH2 to represent staked ETH, which will be removed after the merge since it does not represent a new ETH token. Similarly, the exchange cautions users not to be hoodwinked by anyone claiming that ETH can be “upgraded” to ETH2.
To become a validator on the new ETH network, a minimum of 32 ETH must be locked or “staked.” Validators are disincentivized from approving invalid or dishonest transactions through slashing, where they lose part of their staked ETH if they choose to act dishonestly.
If there is less than 1 million ETH staked, stakers can earn up to 18% Annual Percentage Yield or interest. If there is more than one 100 million ETH staked, annual yields of 1.81% or less are possible. Withdrawals of staked ETH are only expected in 2023.
Regarding institutional investors’ ETH and ERC-20 withdrawals and deposits, Coinbase advises that they are done before the merge.
Customers using Coinbase Cloud should expect a routine upgrade process, with a downtime of about 10 minutes.
Coinbase Wallet users holding non-fungible tokens, ETH, ERC-20 tokens, or DeFi positions are unlikely to experience significant disruptions. They can continue to transact on Ethereum once the merge is complete.
Binance, Tether, Circle Support Merge
Binance said that it supports the merge and is watching carefully for new tokens from proof-of-work Ethereum forks, of which there have been reports. The exchange noted that tokens from these forks will be subjected to a stringent review process. It has not made any official announcements regarding the pause of ETH and ERC-20 tokens.
Bybit, another exchange, has stated that it will deposit the airdrop, deposit, and withdrawal of hard fork tokens approved by its risk management and security teams.
Stablecoin giants Tether and Circle voiced their support for the merge. According to Circle, USDC is the largest U.S. dollar-backed stablecoin on Ethereum.
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