Coinbase has announced that it will stop trading ETH and other ERC-20 tokens during the upcoming Ethereum merger.
Exchange is doing this as a precaution to ensure that their systems properly reflect all changes introduced by the merge. The company will notify 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 move from an energy-intensive proof-of-work consensus mechanism to a proof-of-stake consensus mechanism. The execution layer (the Ethereum Virtual Machine) will be merged with the Beacon chain, a new consensus layer, in a move that should have minimal impact on end users.
The merge is designed to reduce the energy footprint of Ethereum, allow for greater decentralization through the use of validators in proof-of-stake instead of miners in proof-of-work, and a process called “sharding”. It paves the way for better scalability. No new Ethereum tokens will be issued after the merger.
The Ethereum development team recently merged the Beacon chain, the new Ethereum consensus layer, with the Goerly testnet execution layer and is expected to merge the Beacon chain with the Ethereum mainnet in mid-September. 2022. In order to reduce the risk, many exchanges are choosing to stop trading related to ETH. Coinbase is one of them.
Exchange clarifies implications for various users
The exchange says that all funds will be safe during the merge process and that no action is required from users. Post-merger staking ETH will appear in the user’s Ethereum wallet as an ETH (ETH 2) balance, which will be different from the unsettled ETH balance. Coinbase created a ticker ETH 2 to represent the staked ETH, which will be removed after the merger as it does not represent a new ETH token. Similarly, the exchange warned users not to be misled into claiming that ETH can be “upgraded” to ETH2.
To become a validator on the new ETH network, at least 32 ETH must be locked or “staken”. Verifiers are discouraged from approving illegal or dishonest transactions via slashing, where they lose part of their staked ETH if they choose to act dishonestly.
If less than 1 million ETH is at stake, stakeholders can earn an 18% annual percentage return or interest. An annual return of 1.81% or less is possible if more than 100 million ETH are at stake. Withdrawals of staked ETH are only expected in 2023.
Regarding ETH and ERC-20 withdrawals and deposits from institutional investors, Coinbase advises that they be done prior to mergers.
Customers using Coinbase Cloud should expect a regular upgrade process with a downtime of approximately 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 after the merge is complete.
Binance, Tether, Circle Support Merge
Binance said it supports the merger and is watching carefully for new tokens from the proof-of-work Ethereum fork, which has been reported. The exchange noted that the tokens from these forks will be subject to a rigorous review process. It has not made any official announcement regarding the halving of ETH and ERC-20 tokens.
Another exchange, Bybit, has said that it will airdrop, deposit and withdraw hard fork tokens approved by its risk management and security teams.
Stablecoin giants Tether and Circle have voiced their support for the merger. According to Circle, USDC is the largest USD-backed stablecoin on Ethereum.
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