The recent SEC lawsuit against Paxos over Binance USD (BUSD) has caused confusion and debate among the cryptocurrency community.
The U.S. Securities and Exchange Commission (SEC) issued a wells notice to Paxos. They claim that BUSD is an unregistered security, which resulted in the New York Department of Financial Services (NYDFS) ordering the halt of BUSD issuance.
This has led to a range of reactions from the crypto community, with some members dismissing it as fear, uncertainty, and doubt (FUD), while others view it as an attack on the Binance exchange.
The community is split on their thoughts about the situation, with some saying that those who bought the stablecoin were not expecting it to increase in value.
The crypto community on Twitter started to talk about this controversy, but they seem to agree that nobody would buy a stablecoin and anticipate a profit. Others expressed confusion about the development, questioning how BUSD can be considered a security and asking their followers if they expected its value to reach $2.
Some even took it more personally, attacking SEC chairperson Gary Gensler, suggesting that he is on an “unhinged, unchecked crusade against crypto.”
However, some dismissed the news as FUD and pointed out that BUSD is fully backed and the halt in issuance by Paxos will not affect existing tokens. They encouraged everyone to stay informed but advised against making emotional decisions. A few voices have also pointed out the urgent need for a stablecoin registry framework.
Bitcoin analyst Tedtalksmacro also expressed similar thoughts, suggesting that BUSD may not meet the criteria of a security. The analyst hinted that the situation might just be a way to target Binance.
The SEC claims that BUSD is an unregistered security and is suing it's issuer Paxos 🚩
To be considered a security, the Howey Test is used… I don't think BUSD meets the criteria, it's a damn stablecoin!?
It’s important to understand that despite stablecoins being designed to have a fixed value, their holders can still generate profits through methods such as arbitrage, hedging, and staking.
What is BUSD?
BUSD is a stablecoin co-founded by Paxos and Binance. Paxos leverages blockchain technology to provide its Stablecoin as a Service product to other companies.
The company has also previously developed a stablecoin backed by gold, known as PAX Gold (PAXG). Both BUSD and PAXG tokens fall under the jurisdiction of the New York State Department of Financial Services.
BUSD is a fiat-backed stablecoin, pegged to the U.S. dollar. Paxos holds an equivalent amount of U.S. dollars in FDIC-insured banks or backed by U.S. Treasuries, serving as the reserves for the total supply of BUSD.
The price of BUSD adjusts in equal amounts to the changes in the value of the U.S. dollar.
Binance’s CEO still supports BUSD
Binance CEO Changpeng Zhao, also known as “CZ,” announced that the exchange would continue to support Binance USD (BUSD), despite the announcement made by the SEC that argues that BUSD is an unregistered security.
Changpeng Zhao (CZ), CEO of Binance, has reassured users that their funds are secure despite regulatory enforcement.
However, he stressed the fact that Paxos, regulated by NYDFS, fully owns and manages BUSD.
Paxos will continue to manage BUSD, including redemptions, and its reserves have been audited by multiple parties, according to Zhao. He acknowledged that the enforcement action might cause a decrease in BUSD’s market cap over time. But Binance will consider alternative non-USD-based stablecoins.
Despite this, Binance will remain supportive of BUSD on the exchange, though it acknowledges that some users may switch to other stablecoin tokens due to the enforcement.
CZ also explained that Paxos, the issuer of the Binance USD (BUSD) stablecoin, is regulated by the New York State Department of Financial Services. He has made assurances of its reserves, which have been audited by multiple parties.
Zhao also acknowledged that the actions taken by the SEC and NYDFS could have a significant impact on the future development of the cryptocurrency ecosystem. He warned of the potential implications if BUSD is ruled as a security by the courts.
Given the regulatory uncertainty in certain markets, Binance may also review other projects to ensure the safety of its users. This comes after a number of cryptocurrency service providers, and tokens have faced enforcement actions by American regulators, including Ripple’s ongoing legal battle with the SEC over XRP being an unregistered security. Kraken also ceased its staking services to U.S. clients and paid a $30 million settlement to the SEC for failing to register its crypto asset staking program.
The upgrade from a proof-of-work (PoW) to a proof-of-stake (PoS) blockchain is now completed. What does this mean for the first programmable blockchain?
On September 15, 2022, after years of development, Ethereum’s developers completed the Merge – the upgrade from a proof-of-work (PoW) to a proof-of-stake (PoS) blockchain. The PoS network is expected to power a more energy-efficient blockchain while reducing transaction fees and improving scalability.
Potentially, the payoff could be huge. Ethereum should now use 99.9% less energy. According to one estimate, Ethereum’s energy consumption dropped from 77.77 TWh on September 14 to 0.01 TWh on September 16, 2022.
The developers of Ethereum claim that the upgrade will bring the network, which houses many cryptocurrency tokens, to a more scalable and secure state. Ethereum’s TVL (Total Value Locked) is at about $30 billion, considering all its DeFi apps – DEXs, lending protocols, NFT marketplaces, and other apps.
The Ethereum Merge was completed at 7 a.m. UTC. However, the price of Ether (ETH) started to slowly decrease, dropping by 12% on the first day after the Merge. Ether’s price started a downtrend, and many investors are bearish.
PoS Ethereum = no more ETH miners
In 2008, when Bitcoin was created, it introduced the concept of a decentralized ledger – a single immutable record that computers all over the globe could access and trust without intermediaries.
In 2015, Ethereum was introduced. It expanded on the core concepts of Bitcoin’s blockchain by adding smart contracts. These smart contracts are bits of code that use the blockchain to record data onto its network and trigger automated transactions when certain pre-defined conditions are met. This innovation was key to decentralized financing (DeFi) and NFTs, which were the major catalysts for the recent crypto boom.
On Ethereum’s proof-of-work (PoW) network, crypto miners were responsible for verifying transactions and adding new blocks to the blockchain in exchange for rewards paid in ETH. These blockchain operations required miners to invest in expensive hardware equipment that was capable of solving the required cryptographic puzzles – hence the intensive energy consumption of the network.
Ethereum miners were often organized in farms, which were actually huge buildings filled with mining equipment, similar to data centers, which were a huge strain on any energy network.
PoS Ethereum
The new proof-of-stake system for Ethereum, which is a blockchain-based cryptocurrency, completely eliminates mining.
Miners are now replaced by validators. To become an Ethereum Validator, you must stake 32 ETH on the network. This means that maintaining Ethereum’s network security will not rely anymore on an energy-intensive computer network but the value of ETH stakes. It will require a similar level of electricity as any other computer software.
Proof-of-stake is a system where the staked amount of ETH – and not the energy expended – determines who has control of the network. This makes attacks more costly and self-destructive, according to proof-of-stake boosters. Attackers can have their staked Ethereum slashed or reduced as punishment for trying to harm the network.
However, some are skeptical about the proof-of-stake security. There are no indications that Bitcoin, for example, will ever abandon the proof-of-work (PoW) consensus mechanism, as it is still seen as the more secure system.
Now, Ethereum’s security relies on stakers
The upgrade to a PoS blockchain ends the network’s dependence on energy-intensive cryptocurrency mining.
The idea that Ethereum would eventually switch to proof of stake was clear from the beginning. However, the transition was complicated and risky. Many people doubted that it would ever happen.
The complexity of the update was exacerbated by the fact it was one of the most complex open-source software projects in history. It required coordination among dozens of teams as well as volunteers, researchers, and developers.
Tim Beiko, an Ethereum foundation developer, played a crucial role in the coordination of the update. He believed that more investors would become interested in crypto after this monumental milestone in the crypto universe.
Vitalik Buterin, Ethereum’s creator, suggested that there’s still a long way ahead for the network: “This is the first step in Ethereum’s big journey towards being a very mature system, but there are still steps left to go.”
Despite the 60% price drop from last year, El Salvador is celebrating its first Bitcoin anniversary. The good news is that Bitcoin is still a legal tender in El Salvador – and so the experiment continues.
On September 7, 2021, El Salvador was the first country to adopt Bitcoin as a legal tender. Many have criticized the decision, and others have been waiting to see this experiment fail. But so far, the first country to adopt a cryptocurrency as legal tender has managed to survive.
El Salvador and their pro-Bitcoin president
El Salvador president Nayib Bukele is a true advocate for Bitcoin. In September 2021, when he adopted the Bitcoin Law, he promised that this Bitcoin adoption as legal tender would help 70% of the local population without access to banking services.
Some of the main arguments for the pro-Bitcoin law were:
Foreign investments. The government believed that Bitcoin would attract new investments from crypto companies.
Create new jobs
Reduce reliance on the U.S. Dollar
While the economy is still struggling, some are now questioning the country’s economic future, as Bitcoin has lost over 60% in value since it has become a legal tender in El Salvador.
But let’s take a look at the stats.
On September 7, 2021, the price of 1 Bitcoin was around $46,100.
The first Bitcoin purchase by the Salvadoran government was made on Sept. 6, 2021. They bought 200 BTC for $10.36million. That means that the average price paid for 1 BTC was $51,800. This is a stark contrast to current BTC prices, as Bitcoin fell below $19,000 on September 7, 2022. This represents a 68.78% drop in the last year.
Data from Nayib Bukele’s portfolio tracker shows that El Salvador’s government is now at loss with all its 10 Bitcoin purchases since adopting it as legal tender.
The total purchase by the Salvadoran government adds up to 2,381 BTC. Considering the current price, the crypto holdings are now worth over $60 million less than what they originally paid.
Alejandro Zelaya, El Salvador’s Minister of Finance, previously stated that the country did not experience any losses due to falling prices. This is because they didn’t sell the coins. Unfavorable market conditions, geopolitical issues, and delays by the Salvadoran government have caused it to repeatedly delay its Bitcoin bond project.
Despite plummeting crypto prices and the continued bear market, industry observers began to refer to El Salvador’s Bitcoin adoption in a negative light. Others suggested that it might be a failure because the country appears to have had some positive effect on El Salvador’s financial market and economy, including the cost of transactions.
But El Salvador is still advocating for crypto
The overall struggle has put some strains on individuals, and only a few are willing to trade this volatile asset. But there is a great plus to it. People use Bitcoin transactions to send money from abroad to their families in El Salvador. And that’s because BTC blockchain transactions are cheaper than wire transfer fees offered by traditional banks.
Another great news is that the country is now a holiday spot for Bitcoin supporters from all over the world. The El Salvadorian Bitcoin Law has been a success in terms of tourism and foreign investment. Tourism in El Salvador has increased by 82% in the first half of 2022. Over one million tourists visited the country in 2022.
It seems that the Bitcoin law acted as a marketing campaign on which many countries spend billions of dollars.
Even more, it seems that Bukele, the president of El Salvador, is one of the most popular presidents in power, with an approval rating of 85%. However, this could also be due to his tough-on-crime policies.
Unfortunately, many businesses in El Salvador refused to use Bitcoin, and consumers rarely choose it as a payment method.
The El Salvador Central Reserve Bank reported that Salvadorans living in other countries had sent more than $52 million in remittances between January and May 2022. A 400% increase in Lightning Network transactions in 2022 was also due to the adoption of Bitcoin by the Salvadoran government-backed Chivo wallet. That’s because citizens from abroad use it to make commission-free crypto transfers.
It seems that El Salvador is the ideal place to experiment with Lightning applications, as well as to create a trusted ecosystem of proven and interconnected services.
Ethereum miners will need to switch course as soon as September, when the network will no longer require miners to validate transactions and create new blocks. They might consider mining other cryptocurrencies or even give up completely.
After The Merge, the Ethereum miners will no longer be part of the network participants, and they will have to shift their use of the network. The roles of Ethereum miners will now be obsolete, and they are forced to find alternative income streams.
The sudden change took, in fact, years of research and development, but after The Merge, Ethereum will finally be described as a safer, energy-efficient, and scalable blockchain network.
After the Ethereum network moved to a Proof-of-Stake consensus mechanism (PoS), it is now that Ethereum miners face a sudden change. Their role effectively ends, and they are forced to look for alternative income streams.
This historical moment for the Ethereum community, known as the “The Merge,” is expected to take place on September 15th, 2022, but might take place even sooner.
What’s the Ethereum Merge?
The Ethereum Merge is the switch from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism. In plain English, a PoS blockchain doesn’t require miners (aka energy-intensive computers) to validate transactions and create new blocks but replies on stakers and validators.
This will have many benefits, including the elimination of energy-intensive mining. To secure the network, the network will instead use staking.
Over the years, as more applications have been deployed on Ethereum, users have been hit with high transaction fees, low scalability, and even network congestion. But all of these are expected to change in the near future.
When complete, the Merge will eliminate Ethereum’s high gas fees, improve scalability and security, and provide greater sustainability.
What will happen to Ethereum miners?
Since its creation, Ethereum has relied on GPU (graphics processing unit) rigs to perform the process of Ethereum mining. They are more flexible than the ones used for bitcoin mining, and can be reconfigured to mine other coins more easily. GPUs are used by gamers but can also be used to mine other cryptos such as Ergo, Ravencoin, and Ethereum Classic.
But as Ethereum is being upgraded, all these miners will have to either start mining other coins or give up crypto mining entirely. It’s worth noting that a profitable mining rig costs more than $1,000, and the operation’s success relies on the cost of electricity, which has also gone up dramatically since the beginning of 2022.
In the past, Ethereum mining was very popular due to its profitability. However, miners will have to switch course and employ their GPUs on other blockchains. While a shift to mining other cryptocurrencies could result in a decrease in profits in the short term, it still represents income for owners of these expensive mining rigs.
One of the biggest beneficiaries of the switch could be Ethereum Classic (ETC), as some expect many of the Ethereum miners to turn to Ethereum Classic. It’s worth noting that the ETC hashrate has started to rise since July. Some investors might even view Ethereum Classic as a hedge against potential disruptions in Ethereum’s blockchain during the transition from PoW-to-PoS.
Can Ethereum miners switch to Bitcoin mining? Not really, because the two networks use different mining algorithms. Bitcoin requires ASIC-compatible hardware, which has a higher performance, but it’s also more energy intensive. ETH, on the other hand, uses a mining algorithm called “Ethash,” which was designed to be ASIC-resistant.
After Ethereum moves to PoS, the most likely outcome is that miners will distribute their rigs among different networks that support GPU mining.
Ethereum’s co-founder presented the future of Ethereum at the EthCC Paris 2022 conference.
In July 2022, took place the 5th Paris Community Conference, during which Vitalk Buterin presented the long-term road map for Ethereum.
At the developer-focused conference, Buterin spoke about the “Merge,” in which Ethereum will undergo a complete transition from proof-of-work (PoW) to proof-of-stake (PoS).
What’s next to come for Ethereum?
Buterin spoke about the Merge’s short-term and long-term outcomes. He stated that the network’s roadmap also includes the “Surge”, which will increase the scalability of rollups through sharding.
According to Buterin’s statements, Ethereum would be much more scalable after the completion of the road map. When everything is complete, Ethereum will be capable of processing 100,000 transactions per minute.
Ethereum’s overall network development will be at 55% completion once the Merge is completed. That means that there is still much work ahead for developers.
Buterin stated that the network’s deep changes would include an update to its monetary policies and token issuance, as well as its security model, transaction inclusion, and its security model.
It is hard to pursue these decentralized goals due to the network’s complexity and rapid changes. He said that everyone had been anticipating these network upgrades for a while.
When Vitalik asked the crowd, “Who wants to cancel proof-of-stake?” – he did not raise a hand.
He joked, “Even though you want to, it’s not going to be canceled.”
Ether has been trading at around $1,500 and up 34% in the last month.
Buterin spoke at last year’s EthCC and stated that Ethereum needed to go beyond decentralized finance (DeFi).
The conference was busiest on Thursday (July 21st), according to many conference attendees. Many said that Buterin’s talk would make Thursday the most memorable day.
What is the “Merge” for Ethereum?
It’s a known fact that the Bitcoin and Ethereum blockchains use the proof-of-work (PoW) consensus algorithm to secure their networks. This allows miners to compete to secure it by solving complicated computational puzzles. However, it has been criticized for its high energy consumption.
But there’s an alternative to that, and it’s called proof-of-stake (PoS). This is a version of the protocol that has been adopted by chains such as Solana or Tezos, and it replaces miners with validators. In the case of Ethereum, the PoS Eth will have validators stake 32 ETH on the Ethereum network, and each one can be randomly selected to add blocks to the chain.
In both of these mechanisms, PoW and PoS, adding blocks to a chain usually grant rewards to the block issuer.
The Ethereum roadmap has been hinting on this upgrade from PoW since 2015, but engineering complexities have caused this shift (Ethereum 2.0) to drag out for several years.
Although the Merge will not reduce Ethereum’s high fees or improve the transaction speeds, it will have an immediate impact on Ethereum’s energy consumption.
As of July 2022, Ethereum’s Sepolia testnet switched to PoS. Goerli will be the third and final public testnet to go through the Merge process. It will take place on Aug. 11. The next Ethereum Foundation All-Core Developers conference will determine the parameters that will trigger the test. These testnet mergers were used as a kind of dress rehearsal for the real thing, and each moved developers one step closer to Ethereum’s mainnet PoS update.
When is the Ethereum merge going to happen?
Tim Beiko, from the Ethereum Foundation, predicted that the Merge could take place around September 19th 2022.
The Merge will see Ethereum move from an energy-intensive proof of work (POW), a consensus mechanism that was brought forward by Bitcoin, to a more efficient proof-of-stake system (PoS). Some PoS proponents believe that switching to other mechanisms will bring security and scaling benefits, in addition to cutting down the network’s energy consumption by 99.95%.
Beiko, an Ethereum protocol engineer, gave his September estimate during a PoS implementers call. Beiko provided a timeline and a date for the Merge, as well as a possible date.
Although he did not offer a hard date for the Merge, but Beiko repeatedly pointed out – on Discord and Twitter – that it is very likely that things will change.
The crypto winter has already affected most cryptocurrency investors and holders as the prices of digital assets continue to fall. What’s even worst, many projects have been tumbling, and a few have almost disappeared in a matter of hours.
After the huge collapse of UST and the Terra ecosystem, others have been faced with liquidations. After several weeks of difficulty, Three Arrows Capital, a crypto hedge fund based in Singapore, was ordered to liquidate. BlockFi and Voyager Digital, both crypto exchanges, took out large lines of credit in order to survive the crisis. Voyager Digital had also been involved in funding Three Arrows. Their creditor was Sam Bankman-Fried, founder of FTX, who stated that he believes that many crypto exchanges are “secretly insolvent.”
Recently, Voyager Digital’s shares were temporarily halted from trading on Toronto Stock Exchange after they filed for bankruptcy. The shares were also halted in U.S. over-the-counter exchanges.
These problems were caused by Coinbase’s announcement (COIN) that crypto brokerage investors don’t have the same insurance and liability protections as traditional banks or brokerages.
More investors in the crypto space
More individuals and institutions want to access crypto, and investment funds are slowly incorporating digital asset management and investing into their practices. However, these trends cannot be reversed, regardless of how asset prices fall.
While financial advisors have very different opinions on the topic of digital assets, they all seem to agree that they don’t need to like crypto to be able to offer it to their clients. Crypto is trading more like a technology stock because institutions are increasingly involved in it. They buy and sell according to the volatility. However, investors who wish to reap the benefits of crypto’s growth must be able to endure the swings. They will miss the growth if they wait for crypto to become a safe investment.
Since we are all experiencing the crypto winter and the effects of a highly volatile asset have been shifting financial trends, it might be a good idea to stop and carefully consider every trade. Here’s a list of methods that financial advisors recommend applying when you find yourself in utter panic and fear.
1. Don’t panic
Don’t forget that we’re talking about highly risky digital assets that present much greater volatility than any other financial assets. The global economy was expected to enter a new recession as a decade passed from the last one. For this reason, many analysts were expecting a “crypto winter.”
Investors should be well-diversified and prudently positioned to weather any downturn in crypto asset values. If you have the cash and a healthy appetite for risk, you might consider buying more crypto at lower prices.
2. Be aware of the risks
We are used to hearing financial advisors comfortably talking about risk in equities and real estate. But we must talk about cryptocurrencies and digital assets in the same way. There is a low risk involved whenever you decide to invest in volatile assets, and cryptocurrencies are top of the list. Another risk of crypto that all investors should be aware of is the custody of the assets.
Some platforms allow you to buy it with a simple account, and they also offer custody of it. But in this case, you are not really the owner of the digital assets, as they are not exactly in your wallet. If the platform goes down, your assets go down with it. If you want to invest long-term in crypto, consider learning more about self-custody crypto wallets and transferring your digital assets to such a wallet. There are many options available out there, from browser wallets to hardware wallets.
3. Know your risk tolerance
Some people have a higher risk tolerance than others. That’s why some investors are more interested in crypto in the first palace, while others prefer to stay away from volatile assets.
All financial advisors suggest that you should invest according to what you’re willing to lose. If you find that your risk tolerance is small, then consider diversifying your investments. Yes, the most direct way to invest in a crypto is by buying the assets directly from an exchange and then holding it in your crypto wallet. But there are other ways that might leave you with less exposure to the market.
You might want to consider crypto ETFs (Exchange-Traded Funds), crypto trusts, hedge funds, and even invest indirectly in crypto by choosing mining and blockchain stocks.
4. Wait for the dust to settle (or don’t)
Investors who are more comfortable taking on risks may choose to follow Warren Buffett’s advice to “buy when the blood is in the streets.” However, you will need to conduct further research to learn how to allocate your funds and what assets to choose. However, during a “crypto winter,” nobody can tell you when prices have hit bottom or if they can further drop. That’s a risk you’ll have to accept or wait until the trend changes to start investing.
5. Wait for the “crypto spring”
Again, nobody can tell you when the trend will change. However, there is a lot of innovation happing in the crypto space, even in this “crypto winter.” Following projects that build useful services during a bear market is always a good idea. The future is reserved for those who create utility and value.
The metaverse is still being built. NFTs are still a very valuable idea, and those projects (e.g., FootballCoin) that bring utility will survive the bear market. The rails for institutional participation in crypto and digital assets remain under construction despite the downturn.
Smart money expects a “crypto spring.” Investors who practice patience will reap the benefits of a possible future rebound in the crypto space.
