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Ethereum 2.0 will upend cryptocurrency. Here’s what you need to know.

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Thursday: what you need to know about the Merge, the worth of an NFT and PayPal’s CFO heads to Walmart.

Off the chain

What’s an NFT worth? It’s easy to play the “worthless pointer to a JPEG” card in conversations, but we humans place a lot of value on other abstractions. If you’re of a capitalist bent, then the best way to assess the value of an NFT is to figure out what people will pay for it. The hapless buyer of an NFT based on Jack Dorsey’s first tweet who is now trying to offload it is discovering to his dismay that that figure is far from the $2.9 million he shelled out last year.

— Owen Thomas (email | twitter)

Get ready for the Merge

Ethereum, the blockchain running the world’s second most valuable cryptocurrency, is finally taking its next big step toward Ethereum 2.0, a major upgrade to a different technology which will have big implications for miners, software developers and climate advocates.

Developers this week started testing the new mechanism for verifying blockchain transactions, known as proof of stake, through a “shadow fork” or test version of the network. The Merge, as the switchover is being called, will change how the network is run and who makes money off of it, and will dramatically reduce its energy use. It could come as soon as this fall.

Proof of stake is a major test for the industry. The existing system that runs bitcoin and ether transactions alike is known as proof of work, and that work — running complex computations — is what uses up so much electricity.

  • Proof of stake is far less energy-intensive. That’s because the process of validating the network’s transactions will no longer depend on miners with vast racks of hardware. Instead, it will rely on users who stake — essentially, pledge — their ether tokens.
  • Green is gold, potentially. “There have been a lot of NFT creators and artists who have shied away from launching on Ethereum because they feel like they want to associate themselves with a green chain,” said Anand Iyer, founder and general partner at Canonical Crypto.
  • Even nonprofits might benefit. The Mozilla Foundation, which faced an outcry over its acceptance of cryptocurrency donations, said last week that it would soon resume accepting crypto, but only coins that used proof of stake. The Wikimedia Foundation is facing a similar outcry over its crypto donation policy, but hasn’t made any changes yet.
  • Other blockchains use proof of stake, but Ethereum’s adoption of the system will offer proof that an environmentally-friendly consensus system can work at massive scale.

Ethereum’s economics will change, too. Ethereum 2.0 could have a deflationary effect, which favors current ether holders.

  • There’s a complex formula for how ether is awarded to miners, but under the current model, there is a fixed amount awarded per block, and thus, per day. However, post-Merge, there won’t be a fixed amount awarded per block.
  • As a result, there is speculation that more ether will get “burned,” or destroyed, which would reduce supply. This could already be having an impact on the price of ether, Iyer said, as investors speculate on the coming changes’ price impact.
  • It will also be easier for individuals to become validators and thus participate in the network’s potential for profit. Where mining requires a big investment in hardware, becoming a validator only requires holding 32 ether, or roughly $100,000. That’s a lot of money, but small holders can pool their ether to earn staking rewards.

Ethereum still has big issues. The biggest are transaction costs, also known as gas fees, and the network’s overall speed.

  • Developers have focused on the proof of stake switchover over addressing speed and cost issues. A different change known as sharding will help solve those, but may not roll out until next year.
  • Ethereum has the best tools and the biggest community of skilled software developers when it comes to building smart contracts, the automated financial systems that run on the blockchain. Also known as DeFi, smart contracts can be used for anything from NFTs to lending, borrowing, gaming, escrow, payments and other emerging uses.
  • But Ethereum’s dominance is already being challenged by other Layer 1 networks such as Avalanche, Solana and others. When the Merge happens, it will play a big role in strengthening Ethereum against those rivals, as will the development of Layer 2 networks, which ride on top of Ethereum.

It will be a big period of transition for the Ethereum community. One interesting question is what happens to Ethereum miners. The Merge is no secret to them. Some are squirreling away ether with plans to stake it and become validators; others are mining as long as they can, hoping that rivals might drop away and make their work more valuable in the run-up to the Merge. And for proof-of-work dead-enders, there’s always Ethereum Classic, an earlier fork that’s keeping the original consensus mechanism. Some people just don’t like change.

— Tomio Geron (email | twitter)


The emergence of DeFi is shaking up the way consumers think about how they store value. For reference, Visa saw $2.5 billion of crypto-backed transactions in the first quarter of 2022. We’re seeing consumers really starting to use this in a way that even a year ago was kind of hypothetical.

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On the money

On Protocol: New York will start making crypto companies pay to make sure they’re complying with regulations, a regulatory treatment that already exists for banks and insurance companies.

Indian investors are worried after crypto exchanges disabled rupee deposits for purchasing crypto. While users can still withdraw funds, major Indian crypto exchanges CoinSwitch Kuber and WazirX have stopped deposits without any warning. It follows Coinbase’s recent cut-off of rupee deposits on the country’s UPI payment network.

Also on Protocol: Wikipedia editors are asking the Wikimedia Foundation to stop accepting crypto donations following a four-month-long discussion, citing environmental concerns.

Tether is planning to reduce its holdings of commercial paper. Tether CTO Paolo Ardoino said the stablecoin issuer will continue reducing its exposure to short-term corporate debt over time. USDT’s backing with comparatively risky instruments alarmed many, and the CFTC fined Tether $41 million last year for making misleading statements about its reserves.

JPMorgan Chase shocked investors by setting aside $900 million to prepare for a recession. While CEO Jamie Dimon said the risk of a recession remains remote, the bank is preparing to cushion the hit from further inflation and declining profit.

Mastercard partnered with Nexo to launch a crypto-backed credit card. The card, initially limited to parts of Europe, will allow users to borrow against their bitcoin for spending power.


Block CEO Jack Dorsey, who has “#bitcoin” in his Twitter bio, left a trail of arguments after a confounding tweet. “I have zero interest in making money. I have every interest in fixing it. I also have zero interest in cryptocurrencies,” he tweeted, which prompted a lot of headscratching over how bitcoin couldn’t be considered crypto.

More crypto-for-kids initiatives, such as Crypto Kids Camp and Zigazoo’s NFT collaboration, are popping up, and some are worried. “I find it actually a little frightening to hear that there’s this industry out there socializing very young children about very risky products,”Joyce Serido, a professor of family social science at University of Minnesota, told Vox.

Web3 Foundation Chief Operations Officer Bertrand Perez thinks regulation is needed in crypto, but not so much that it stifles innovation. “We need to be aware that we need to evolve in a world where regulation is not necessarily bad. You need [a] certain level of regulation for protection, right?” he said in an interview with Cointelegraph.

Moves and hires

Binance named Steven McWhirter global director of regulatory policy. McWhirter was previously a top official at the U.K.’s Financial Conduct Authority, where he served for nine years.

Volt appointed Matt Komorowski as chief revenue officer. Komorowski is a former PayPal executive, where he worked as a senior director of Partnerships for international markets. added Marissa Brooks to its partnerships team. Brooks, the founder of boutique collective 4WRD, will lead global sports and entertainment partnerships for the crypto firm.

The Bank of England’s fintech chief, Varun Paul, left to join Fireblocks. Paul was at the central bank for 14 years. He’s now set to join the blockchain firm’s corporate strategy team. named Duncan Deville EVP of Compliance Americas and global head of Financial Crimes Compliance. Deville was most recently a Western Union executive, and headed the Office of Compliance and Enforcement at FinCEN prior to that.

Prime Trust appointed Jeremy Sheridan as vice president of Regulatory Affairs. Sheridan was previously the assistant director of Investigations at the Secret Service.

Neon named Koji Pereira as chief design officer. Pereira was previously a senior product design manager at Twitter, and will lead Neon’s fintech product design.

PayPal CFO John Rainey is leaving. Rainey will join Walmart as its CFO, and Gabrielle Rabinovitch, senior vice president of Corporate Finance and Investor Relations, will be interim CFO.


Businesses — whether Web2 or Web3-oriented businesses that don’t want to hold crypto but do want to be able to interact with crypto holders — want to be able to offer that as a payment mechanism to their communities. The other is hands-on, where merchants are comfortable accepting crypto.

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Thanks for reading — see you tomorrow!

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