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Bitcoin mining company Compass Mining saw two of its third-party hosting facilities in Georgia shut down this week due to a 50% spike in power prices from local utility providers.

The company was informed Wednesday that the owner would close the sites, a company spokesperson said. Meanwhile, it has decided to relocate those miners to Texas in an effort “to minimize downtime.” CoinDesk covered the news earlier Thursday.

Compass Mining hosts machines from individual clients in facilities across the US and Canada. It had 15 megawatts of power capacity at the Georgia locations.

“Client units are tentatively scheduled to be back online by September 30,” said an email to clients on Wednesday shared by the company. “Compass Mining will issue facility credits to compensate for hosting costs and associated downtime.”

Customers can also choose to take back their units, instead of having them redeployed.

The Texas site was recently re-energized, according to an update on August 20 stating that the first customer miners should be deployed by August 23. The facility will have 100 megawatts and Compass’ “allocation of 25 megawatt (MW) is expected to be online by the end of September,” the email also said.

Meanwhile, Compass is relocating 100 miners from British Columbia to its Labrador facility, also in Canada, due to its hosting partner “not maintaining performance standards at their facilities up to what Compass requires,” the company said. “We made the decision to relocate these miners and they will be re-installed starting next week.”

In the past three months, the company has tackled a lawsuit, layoffs, and the resignation of its CEO and CFO. It sued one of its other hosting providers, located in Maine, in an effort to recover its miners after claims of missed payments. A judge eventually granted Compass access to the machines, which the miner claimed had been held “hostage.”

Compass Mining’s former CEO Whit Gibbs and CFO Jodie Fisher stepped down from their positions in late June, with the company referring to “multiple setbacks and disappointments” getting in the way of its ultimate mission to “make mining easy and accessible.”

A few days after the announcement, the company also cut staff by 15% and reduced salaries by up to 50% in senior positions.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

After years of planning, Ethereum is approaching its highly anticipated blockchain upgrade called The Merge. 

Assuming everything goes as planned, The Merge will be Ethereum’s biggest moment to date as it permanently changes its underlying consensus mechanism, which is used to secure the blockchain network. 

The main purpose of The Merge is to change Ethereum’s current proof-of-work consensus mechanism to proof of stake to help the network be more energy efficient.

Technically the proof-of-stake chain, called the Beacon Chain, is already live but it’s not yet integrated with the main blockchain. When The Merge takes place it will take the current blockchain and merge it (hence the name) with the proof-of-stake chain. Afterwards, Ethereum will be running on proof of stake.

Why is The Merge happening?

The reason why Ethereum’s development team wants to transition to proof of stake is primarily to make it energy-efficient. 

Ethereum’s present consensus mechanism relies on mining in which computer chips are used to solve cryptographic puzzles. While proof of work is effective, it’s considered to be highly energy intensive and mining resulting in high amounts of carbon emissions. It is estimated that the Ethereum network consumes ~75 terawatt-hours per year (TWh/yr), which is about the same as Austria’s annual power consumption.

This is different in a proof-of-stake system, where the blockchain is secured by validators who are selected by staking tokens. Validators on Ethereum must stake 32 ether ($48,000) to be eligible. Anyone can be a validator node as long as they meet the stake requirement. Users can also pool their assets together by delegating their tokens to a validator and sharing in the rewards.

By putting up their own assets as collateral, users accept the risk that if they act maliciously, their stake could be slashed and they could lose their own funds. This is the incentive to be a positive actor on the network. It’s similar to miners who have to invest in mining equipment and pay for electricity to mine blocks. The idea is that it makes it more beneficial for network operators to behave positively than try to attack the network.

But by removing the mining process and replacing it with staking, this eliminates the steep costs related to acquiring expensive hardware and lots of electricity. As such, it has the potential to make the Ethereum project much more energy-efficient and reduce its carbon footprint.

The Ethereum team has predicted that switching off Ethereum’s proof of work mechanism in favor of proof of stake will drastically cut down on this power expenditure by about 99.95%, resulting in an annual energy expenditure of 0.01 TWh/yr.

When will The Merge happen?

The Ethereum Foundation confirmed that The Merge will be finalized between 10 and 20 September 2022. According to the organization, the event will take place in two stages: Bellatrix and Paris. 

The first part of The Merge called Bellatrix will happen at 11:34 am UTC on September 6 and will upgrade the Beacon Chain to make it ready for The Merge.

After this, in the second stage called Paris, the proof-of-work chain will hit the switch to proof of stake. The exact transition time isn’t known but The Merge will execute when the network reaches a pre-set “terminal total difficulty.” Based on on-chain estimates, this is currently estimated to take place on September 15 — but it could fluctuate by a few days either side.

What was done to prepare for The Merge?

Ethereum developers have taken years of planning and iteration to shift to proof of stake.

The gradual development towards The Merge came in two milestones. The first was the creation of The Beacon Chain in December 2020, which kicked off the initial phase of the proof-of-stake transition. 

The Beacon Chain has functioned as a proof-of-stake network running parallel to Ethereum and where users can stake ether (ETH). The objective of launching the Beacon Chain ahead of time was to ensure there was enough ether staked on the network at the time of Ethereum switching over. Currently, the Beacon Chain has about 13.2 million of ether staked across 418,000 validator nodes.

Another purpose of the Beacon Chain was to test the proof-of-stake consensus in production for a substantial period of time without affecting Ethereum’s proof-of-work mainnet, which hosts billions of dollars worth of assets.

Throughout 2022, in preparation for The Merge, Ethereum developers carried out several dress rehearsals on test networks — dedicated clones of the Ethereum blockchain used for experimental purposes. The developers perform tests called shadow forks on the mainnet as well.

Multiple testnets, including Kiln, Ropsten, Sepolia and Goerli, have already undergone The Merge and are running the full proof-of-stake code. These dress rehearsals helped the core developers to discover issues and improve the client software used to run Ethereum nodes, like Nethermind, Geth, and Erigon. This is to make The Merge transition go smoothly.

Will The Merge make Ethereum more scalable?

A common misconception among users is that The Merge will increase Ethereum’s overall network capacity, which is that it will make the blockchain faster and cheaper to use. In reality, that’s not the case.

As the upgrade only changes Ethereum’s consensus mechanism — how the network agrees on who gets to create blocks in the chain — it won’t particularly affect the rules governing transactions and fees. Similarly the time to process new blocks will change only slightly, reducing from 13 seconds to 12 seconds.

So even after The Merge, Ethereum may still be prone to congestion and transaction fee spikes during times of high demand. There are other plans for scaling via a system of multiple layers — including rollups of multiple varieties — and the network will have some time to go to reach there.

At the same time, The Merge lays the groundwork for future scaling upgrades at the base layer like sharding, which allows splitting up the blockchain into shards and allowing parallel processing of transactions across them.

How will The Merge change Ethereum’s tokenomics?

The coming Merge has economic ramifications too. The Ethereum blockchain will face a huge reduction in issuance as soon as it upgrades to the new consensus mechanism. As such, there is potential for ether’s token supply to become deflationary. 

Per current estimates, the rate of new ether creation will drop nearly 90% after The Merge due to the fact validator rewards will be significantly smaller than the miner rewards issued on proof of work. 

A recent blog post on Ethereum’s main community website stated its proof-of-work chain pays 13,000 ETH each day to miners. After The Merge, the site estimated roughly 1,600 ETH will be paid in validator rewards, thus a reduction of 88%.

This fall in issuance comes not long after Ethereum introduced a burn fee. This is a fee on every blockchain transaction that doesn’t go to the miner (or the validator) but is burned and made inaccessible. The idea here is to slowly reduce the supply of ether over time. 

Since the burn fee was introduced, more than 2.6 million ETH has been burned, worth about $3.76 billion at the current price of ether. 

As a result, the Ethereum network will be issuing much less ETH each year and it will also continue to burn a large amount of ETH each year. If it burns more than it issues, then the network will be deflationary — with its supply decreasing every year instead of increasing. 

This will likely happen if the average gas price — a core part of transaction fees — is above 16 gwei.

What comes after The Merge?

Assuming The Merge goes successfully, it will remove one of Ethereum’s biggest issues — that of the environmental impact — and allow it to focus on its other core problems, mainly scaling to allow for more transactions at low costs.

With the environmental issue out of the way, this could have a big impact on the future of NFTs (most of which are on Ethereum). NFTs have many critics, which point both to technological issues and environmental ones. Without the latter issue, they may be more appealing to critics but it’s not necessarily a clean cut issue.

After The Merge, there could be security issues. The Merge will have no impact on contracts deployed on Ethereum and therefore apps should continue to run normally. But that won’t stop people from looking for potential issues to try to fix them or exploit them.

After The Merge, the staked ether on Ethereum will remain locked. Withdrawals will be enabled after the Shanghai upgrade, estimated to arrive at least 6-12 months after The Merge. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Decentralized exchange aggregator 1inch has announced it will give out a retrospective airdrop of 300,000 OP tokens to 1inch wallet users on the Optimism network — an Ethereum Layer 2 scaling solution. 

The tokens will be distributed equally between all wallets that have made swaps via the 1inch wallet on the Optimism network, except for wallets used in a Sybil attack — a security threat whereby an attacker uses multiple addresses for malicious reasons. The airdrop should take place on September 1.

1inch co-founder Sergej Kunz said, in a statement, “Optimism is one of the most efficient and popular L2 solutions. Since 1inch expanded to Optimism, we have seen substantial activity on that network, and this reward will come as an extra incentive for them to use 1inch on Optimism.” 

1inch expanded to Optimism in August 2021, intending to reduce transaction fees and boost throughput for its users. It has the potential to reach 2,000 transactions per second (TPS) over time compared to approximately 15 TPS on Ethereum, 1inch co-founder Anton Bukov told The Block last year. 

According to 1inch, over 45,000 wallets have used 1inch on Optimism. Of these, 28,600 had it set as their priority — meaning most of their transactions were on the Optimism network. 

Optimism’s Layer 2 Optimistic Rollup scaling solution aims to utilize the security of Ethereum while reducing costs and latency by bundling transaction verifications off-chain. Currently locking over $900 million in value on the network, it has also seen a steadily rising transaction count since the start of the year. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Executive Summary

Unlike centrally controlled databases that dominate the internet today, blockchain technologies represent a path towards trustless databases with credible neutrality, immutability, censorship-resistance, and permission-less access. These fundamental properties of a decentralized blockchain stem not only from its cryptographic design, but also from the incentive structure for operating the distributed computer hardware carrying out the instructions within its algorithm.

• The specific compute requirements for nodes in each blockchain is based on the implementation of its consensus mechanism. Proof-of-work (PoW) & proof-of-stake (PoS) are the two most dominant consensus mechanisms in use today. Both require significant “real-world” investments from block producers to earn block rewards and collect transaction fees.
• Mining nodes for the PoW blockchains (e.g. Bitcoin) compete for the right to propose a new block based on the computational power available to each mining entity. The PoW mining landscape is intensely competitive – leading PoW mining operations have significant differences in profitability. Other niche services in the PoW mining sector include specialized hardware manufacturers, mining pools and turn-key miner hosting.
• PoS block producers (validators) usually risk (stake) capital that can be confiscated (slashed) by the protocol for breaking the consensus rules. The PoS validator selection process is independent of computational power thus, requisite hardware components for PoS chains are usually available off-the-shelf, compared to application-specific (ASIC) hardware necessary for Bitcoin block production.
• Given the scalability guarantees of some contemporary PoS chains however, PoS validator requirements may include 24/7 uptime, high internet bandwidth & professionalized operations and maintenance (O&M) – or risk slashing penalties.
• Professional staking operators and liquid staking derivatives aiming to simplify & derisk the staking process for end-users has thus seen significant adoption.
• This report discusses the most prominent blockchain scaling solutions: sidechains, optimistic rollups & state/payment channels. This report identified the various entities involved in each, where hardware requirements are generally similar to their corresponding Layer-1 nodes.
• A notable exception to the above are rollups based on zero-knowledge (ZK) proofs, where the provers may require ASICs (or FPGAs) depending on type of validity proof (STARK vs. SNARK) and rollup architecture (e.g. validium, volition, etc.)
• The ZK-rollup space is nascent, but there is significant excitement around ZK-based technologies as a means of scaling blockchains, while preserving users’ privacy – one factor brought into the spotlight recently given OFAC’s rulings about the Tornado Cash protocol.
• This report discusses the most prominent challenges towards hardware decentralization for both PoW/PoS chains. Primary concerns included centralization of ASIC hardware supply chain and prevalence of a few, large, corporate mining operators that dominate PoW mining.
• For PoS chains centralization of node infrastructure by professional hosting services, the emerging dominance of liquid staking derivatives & the centralization of PoS validators plus their staked capital within regulated entities that may compromise censorship-resistance.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Decentralized asset management protocol Babylon Finance announced the project is shutting down in November, citing its failure to recover from a $3.4 million exploit on a lending service it launched on Rari Capital.

“Despite our efforts, we haven’t been able to revert the negative momentum caused by the Rari hack. Market hasn’t helped,” Babylon founder Ramon Recuero said on Twitter on Wednesday.

Babylon’s founder added the team had run out of funds needed for expenses, forcing it to shutter the project altogether.

“For the last few months, the team has been working without a salary trying to find ways to get back on track with our previous TVL [total value locked] growth,” Recuero said. “Our biggest mistake was not raising enough money,” he added.

The Rari connection

Babylon Finance is described as a decentralized asset management protocol in which a community of users can make collective investment decisions. However, Babylon’s operations were dependent on another decentralized finance (DeFi) platform called Rari Capital. Babylon used Rari Capital’s infrastructure to create lending markets called Fuse.

In February, the Babylon team launched lending markets on Rari Capital’s Fuse platform, where it had asked users to deposit BABL tokens as collateral and borrow assets from it. Babylon managed $10 million of assets across these pools.

In April, Rari Capital was hacked for more than $80 million in crypto assets held within the Fuse lending pools. These assets belonged to various DeFi projects that relied on Rari’s infrastructure, Babylon being one of them.

During the incident, the Babylon team lost $3.41 million of assets. A double blow came when the incident prompted users to withdraw additional collateral, resulting in Babylon’s assets under management dropping from $30 million to $4 million in the following days.

Rari had initially promised to reimburse the funds lost in the hack but later canceled the plan. This cancellation, the Babylon team says, further hampered its chance to recover from its financial troubles.  Soon after the hack, the native governance token BABL also took a nosedive of 75%, going from $20 to $5 amid a broader market downturn. The falling token price affected the value of its treasury, the team says. 

Jack Longarzo, a core contributor of Rari Capital, did not immediately respond to The Block’s request for comment on Babylon’s allegations.

In the last 24 hours, the BABL token has dropped another 92%, crashing from $5 to $0.40 on the news, per CoinGecko data. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

PrimeBlock CEO Gaurav Budhrani has left the crypto mining and infrastructure company, according to CoinDesk and his LinkedIn profile.

Budhrani’s departure comes on the heels of PrimeBlock’s $1.25 billion special purpose acquisition company (SPAC) deal being canceled. The company was expected to be listed on Nasdaq.

Budhrani was CEO of PrimeBlock for almost a year, starting in September 2021 and ending in August 2022, according to his LinkedIn profile. Before that, he was at Goldman Sachs for over 10 years, first as an analyst and then as vice president

PrimeBlock’s deal with 10X Capital Venture Acquisition Corp II fell through after both parties agreed to terminate it, according to a Securities and Exchange Commission filing published on August 12. 

The filing didn’t clarify the reason for canceling the deal, which had been announced in early April. Budhrani was expected to be the CEO of the combined company. Budhrani’s departure was first reported by CoinDesk, which cited two unnamed sources. 

“We believe the transaction will provide tremendous momentum for our next phase of growth,” he said of the deal in April. “In addition, our partnerships with key suppliers are expected to enhance our ability to rapidly scale the business.”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Quick Take

• Total adjusted on-chain volume decreased by 4.2%, to $398 billion.
• A total of 38,386 Ethereum, equivalent to $65.6 million, was burned.
• Monthly volume of NFT marketplaces on Ethereum decreased, by 9.9%, to $612 million.
• Centralized exchange spot trading volumes decreased by 0.4% to $630.3 billion.
• The open interest and trading volume of both Ethereum futures and options increased as the market is positioning for the imminent ETH Merge.

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Swiss crypto bank and asset manager Sygnum will open a hub in metaverse platform Decentraland at the end of September, the company announced on Thursday.

The hub will feature a CryptoPunk receptionist, NFT gallery and event space. It will also showcase the bank’s web3 product innovations and provide an entry point for investors into the metaverse economy.

“Our new metaverse hub is the natural place to showcase Sygnum’s Web3 innovations and provide a trusted entry point for investors into the fast-growing Future Finance economy,” said Martin Burgherr, Sygnum chief clients officer, in a statement.

This isn’t Sygnum’s first foray into web3. It has previously tokenized a blue-chip NFT — Cryptopunk #6808 — the very same CryptoPunk which will now be its receptionist in Decentraland, and developed products such as regulated Ethereum staking on open blockchains.

It is also a member of the governing council of the South Korean metaverse blockchain Klaytn, which was recently revealed as the new blockchain partner for DeFi Kingdom’s Serendale.

The space will officially launch to the public with a livestream event on Sept. 27.

Sygnum follows investment banking giant JPMorgan into Decentraland, which opened the Onyx Lounge in January. Named after its crypto-focused unit, when it opened it featured an image of bank CEO Jamie Dimon, which transforms into a jpeg image of Onyx’s former leader Christine Moy.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Prosecutors in the US requested communication records of Binance CEO Changpeng Zhao, or CZ, in late 2020, according to Reuters. 

Per the report, the US Justice Department’s money laundering division asked the exchange to voluntarily hand over messages relating to its detection of illegal transactions and recruitment of US customers.

Prosecutors’ requests extended to any messages instructing employees that, “documents be destroyed, altered, or removed from Binance’s files” or “transferred from the United States.” The request included CZ as well as 12 other executives and partners. 

According to Reuters, the request was made in December 2020, in relation to the department’s investigations into the exchange’s compliance with US financial crime laws. The investigation is ongoing.

Sources went on to say US authorities are investigating whether Binance may have violated the Bank Secrecy Act, according to Reuters.

Under the act, crypto exchanges that conduct substantial business in the US must register with the Treasury and comply with anti-money laundering guidelines. Violations of the act can result in perpetrators facing jail sentences.

A Binance spokesperson told The Block regulators around the globe are reaching out to crypto exchanges as they look to understand the industry. 

“This is a standard process for any regulated organization and we work with agencies regularly to address any outstanding questions,” they said.

The spokesperson went on to add the exchange prides itself on its “industry leading global security and compliance team which boasts more than 500 employees across the globe.”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin futures trading volume, in dollar terms, clocked its lowest levels since November 2020 in August. 

According to The Block Research data dashboard bitcoin futures trading volume for August came in at $941.5 billion across exchanges. That’s the first month it was under $1 trillion since December 2020 — when volumes were $970.1 billion — and the lowest since November 2020, when volumes were $779 billion. 

The drop in bitcoin futures volume came as trading in ether futures boomed ahead of The Merge: a September date for Ethereum’s big move to proof of stake were confirmed last month.

BlockFi’s trading commentary on Monday noted the forward curve for ether futures continues to be impacted by The Merge. “We see September futures at -16% basis on Deribit as market continues to maintain a long spot vs. short forwards position into The Merge,” it read. 

Ether futures crossed $1 trillion for the first time since May 2021, when they reached $1.64 trillion. Trading volumes for the second-largest cryptocurrency by market cap were $1.05 trillion in August, up from $934.9 billion in July.

Meanwhile, a significant number of cryptocurrencies closed the month down. Bitcoin shed 14%, while ether fell 4.7% since August 1.

The 21Shares research team noted in its monthly review that there were $950 million worth of liquidations from the crypto futures market over the last two consecutive weekends in August, which may have escalated the downward trend of bitcoin and the broader market.

“Over $600m of long and short positions were liquidated on August 19 following the meeting minutes of the Federal Reserve and over $350m was liquidated following Jerome Powell’s speech announcing hawkish measures to tame inflation,” the team wrote.

Finally, the global crypto market cap fell below $1 trillion during the month, having started out at around $1.1 trillion. It currently sits at $1.02 trillion per CoinGecko data.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.