Crypto: split into two blocks ()

Luxembourg, September 19, 2022 – The Ethereum merger marks a turning point for the crypto industry. The shift from the proof-of-work system to proof-of-stake validation is not only a big step towards sustainability. “It also shows that cryptos are starting to split into two big blocks,” says Tim Faltis, director of Fair Alpha. “For investors, this means additional facts for an investment decision – and opportunities for diversification.”

The change of the Ethereum network to the side of the proof-of-stake representatives creates a balance between the energy-hungry crypto projects like Bitcoin and the payment systems like now Ether & Co. “The industry is branching out, which is always a sign of asset classes growing up,” says Faltis. “For investors, this means that topics such as sustainability can now be much better included in investment decisions, including for crypto.”

Own blocks, however, cannot be formed only based on the energy need and thus the question of the crypto’s validation system. “The function that the projects in the cryptoverse fulfill is also an investment function,” says Faltis. Blockchains like Bitcoin thus concentrate on expanding their function as a store of value, as an actual parallel currency.

On the other hand, there are more and more projects being founded to be able to implement digital business models. The Ethereum network, for example, will not only be less energy-demanding with the switch to the new system. “At the same time, changes were introduced that ensure the blockchain is much more efficient,” says Faltis. More transactions per second with lower transaction costs is the extended goal of the Ethereum community. This also leads to a new way of thinking when it comes to investment decisions. “Anyone who buys ether from now on is no longer dependent only on the price development of the world’s second largest cryptocurrency,” says Faltis. “Rather, the investor also relies on the success of a crypto infrastructure that enables many new business models.”

This change in strategy was well received by the markets. “Ether has significantly outperformed Bitcoin in the past few months,” says Faltis. “The already huge network of developers on the Ethereum blockchain, which is now likely to continue to grow, will create a lot of substance.” “On the other hand, such a broad application also protects against large price losses,” says Faltis.

Overall, this should give the now Ethereum-led block of sustainability-focused proof-of-stake projects plenty of momentum. “The entire crypto asset class is becoming increasingly important to many institutional investors,” says Faltis. The switch now ensures that a potential obstacle, such as excessive energy consumption during validation, is eliminated. “For many institutional investors, this could be the final push that allows them to invest in cryptos,” says Faltis. Especially since the market has already matured significantly and is therefore more investable. “Luxembourg securitizations in particular have proven to be ideal for representing this asset class via a custodial security.”

And as for performance: “Even with conventional systems, it’s clear that a focus on sustainability can have positive effects on performance,” says Faltis. “This can now continue to be amplified in the cryptoverse.”

About FAIR ALPHA
Through its subsidiaries, Fair Alpha offers financial market solutions to (semi-) institutional investors and asset managers. Investment ideas and trading strategies are converted into investable and safe custody securities. In addition, innovative approaches are pursued that focus on the creation and issuance of digital assets (tokens) stored in specific wallets. With the help of tailor-made issuance vehicles, structures are created where issuer risk can be excluded. Fair Alpha takes over the entire value-creating process from product setup to administration and ongoing life cycle management.

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The author provides information only here, there is no investment advice, recommendation or invitation to buy or sell investments. Investment transactions involve risk, so it is recommended to consult professional investment advisors. In this context, we would like to point out that an investment in shares (including hot shares or penny shares), certificates, funds or warrants is sometimes associated with significant risk. A total loss of the invested capital cannot be ruled out.

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