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Ethereum Continues to Fall as its Beacon Chain Suffers a ‘Reorg’ Issue

Ethereum Continues to Fall as its Beacon Chain Suffers a ‘Reorg’ Issue

  • Ethereum traded at $1,830 during the European hours, indicating a 6% loss on a 24-hour basis
  • Major dollar-pegged stablecoins such as USD Coin, Binance and DAI Coin held on to their 1:1 dollar peg, while Tether traded at a slight discount at $0.995
  • Bitcoin also faced selling pressure; yet it held above the critical support of $28,800 and outperformed other coins by a big margin
  • The overall cryptocurrency market is down 4% compared to that yesterday

The Ethereum beacon chain, which will be crucial to the Ethereum Merge scheduled for later this year, today was subject to a potentially high-level security risk known as a blockchain “reorganization.” The cryptocurrency was the worst performer among the top 10 cryptocurrencies by market capitalization, dropping 10% over the past 24 hours. This move was the result of a seven-block reorganization, or reorg, yesterday. Ethereum's Beacon Chain effectively forked and led to concerns among investors that this may have been the result of a malicious actor, network failure, or a bug.

What is a Reorganization or a Reorg?

A reorganization or reorg occurs when a block is removed from the blockchain because a longer chain has been created. It takes place when miners attempt to add blocks of transactions simultaneously on the blockchain. This can duplicate the blockchain, creating a fork, which can result in blocks of transactions being lost or duplicated. For any blockchain, this is a serious event. However, the number of blocks of transactions that are ultimately dropped is a critical determinant of the severity of such a fork. In this case, seven blocks of transactions (each with around 200-300 individual transactions) were dropped, equivalent to approximately 14 ETH (or around $26,000) of duplicated transactions. Malicious actors looking to duplicate assets, also called a "double spend" attack, can do so by forcing a fork in the chain.

Ethereum:

Ethereum is scheduled for a “Merge”, which is intended to shift the Ethereum blockchain from the current proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model, which is intended to be faster, more secure and energy efficient. Besides the idea that Ethereum's network was compromised severely, it is clear that the Beacon Chain may need more work before its ultimate merge. If these sorts of issues are not resolved ahead of time, investors may worry that rushing Ethereum’s massive upgrade could risk the integrity of the network. Today, investors appear to be concerned that this seven-block reorg may be an indication of more issues under the surface. As per Vitalik Buterin, Ethereum cofounder, their team has been scrambling to get a situational report so that they can quickly diagnose and get the situation under control.

Outlook:

Based on its transaction history, Ethereum is unlikely to recover and enter a new uptrend until it forms a market bottom of around $730 or climbs above $2,550. The current conditions suggest that there is a greater possibility for it to go down before the end of the prevailing bearish market sentiment for crypto.



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