Weekly Crypto Roundup: Mergers, Tourist Traps, and Lost Faith

Although the week started with losses for both Bitcoin (BTC) and Ether (ETH), Friday saw Bitcoin approach $24,000 while Ether crossed the $1,700 mark. The last time this happened was June 10.

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A fusion unlike any other

Analysts speculated that one reason for the excitement surrounding Ether’s price may be the upcoming merger.

Blockchains like Bitcoin and Ethereum use what is called “proof-of-work” to solve complex puzzles to confirm new transactions. However, Ethereum’s proof-of-work consensus mechanism means an annual power consumption level and carbon footprint that almost matches Finland and Switzerland, respectively. Switching to a new consensus mechanism called “proof-of-stake” should allow Ethereum to cut energy consumption by around 99.95%.

For Ethereum investors and smart contract developers, it also means cheaper transaction fees and a better user experience overall.

The Merger is the name of Ethereum’s transition to this new model for confirming transactions. In preparation for the same, several “shadow forks” or practice separations involving testnets have taken place over months. The upcoming Goerli testnet merger – the last one before the real merger – starts on August 4th. If all goes as planned, Ethereum’s mainnet merger could take place around September 19. The event is historic for the crypto industry, as Ethereum is only below Bitcoin itself in terms of market capitalization.

But Merge Day is far from set in stone, and delays have disrupted Merge plans before.

“As of the publication of this post, the time for the Ethereum mainnet proof-of-stake transition has not been set,” said a blog post from the Ethereum Foundation on Wednesday.

Still, looking at Ether’s sudden price jump, it is possible that investors are reacting to this timeline and the investment opportunity it could offer.

Tourist traps

International bodies such as the IMF have repeatedly warned El Salvador of the risks of adopting Bitcoin as legal tender, but the country’s administration is unwavering in its support for the leading cryptocurrency.

According to Bloomberg, El Salvador’s Finance Minister Alejandro Zelaya insisted on Wednesday that while many people did not understand Bitcoin, the technology was there and would continue to grow.

President Nayib Bukele has bought around 2,381 BTC for the country since El Salvador legalized the largest cryptocurrency by market capitalization last September. However, according to the Nayib Tracker website, the value of his investments has fallen by 46.86%. Mr. Bukele also advised people to “enjoy life” as Bitcoin’s price fell in the second quarter of 2022.

Despite this, the country plans to build a Bitcoin city, start Bitcoin mining using geothermal energy, and also issue a Bitcoin bond when the asset’s price recovers.

For now, “Bitcoin tourism” is on the rise in the country as crypto devotees come to experience the changed monetary system for themselves. Mr. Zelaya also noted the same during the interview.

However, several journalists and activists have criticized the colonial implications of making El Salvador a crypto hub for foreign investors and settlers.

All said and done, however, the ultimate test of Bitcoin’s success in El Salvador will depend on the asset’s price.

Losing faith, losing value

Solana is one of the top blockchains by market capitalization, and a number of decentralized finance projects have built protocols on it. However, on Thursday, the Nirvana Finance protocol was attacked by hackers, with initial estimates suggesting that the stolen funds amount to over $3.4 million.

The hacker used flash loan attacks, which involve taking huge, ultra-fast crypto loans without collateral and then tricking the market into fleeing with the profits. In this case, the flash loans succeeded and destroyed Nirvana’s liquidity. This meant the protocol’s original token Nirvana ANA [ANA] nosedived from over $8 in value to less than $1 in about a day.

If that wasn’t enough, the algorithmic stablecoin Nirvana NIRV [NIRV] broke away from the stated $1 value – known as a peg – and fell to a price of around $0.09 in the same time frame.

“Please note: ANA has lost its security, and NIRV has lost its bond. Until the thief restores funds, these tokens will have no exchange value. Be very careful when trading NIRV & ANA, as they currently have no guaranteed value,” the a tweet from Nirvana Finance on Thursday.

Nirvana Finance offered a $300,000 bounty to the hacker and promised to end the investigation, acknowledging that they had exposed a system vulnerability.

“Please accept this request in good faith and return our treasury for the benefit of the entire Nirvana community. You have not taken money from VCs or large funds – the treasury you have taken represents the collective hopes of ordinary people,” it said in part of their offer Friday.

Observers may be tempted to link the event to the collapse of TerraUSD [UST] stablecoin, but the two cases are different, as there is currently no evidence that UST has been hacked. However, the fall of another stablecoin is likely to attract the attention of already unimpressed crypto regulators in the following week.