Ethereum merger update malfunction leads to $157 million ETH liquidations in 24 hours

Like other crypto and traditional financial markets, Ethereum is facing heavy selling pressure. Our data show that Ethereum has lost 3.4 percent in the past 24 hours and is trading at $1,770. The negative week for the second-largest digital asset has been compounded by this new downward trend.

The price of ETH has fallen more than 16 percent in the last week. The price of $1,731 at the time of publication represents a sharp drop from the price of $2,077 on May 22.

According to Coinglass, ETH’s decline in value has led to liquidations of more than $157 million. Bullish cryptocurrency traders were responsible for more than 75 percent of these liquidations.

The reasons for the recent drop in the value of ETH

The reasons for the drop in the value of Ether are many. The most important was the recent suspension of the network merger event. The event had already been scheduled for August. This event involves Ethereum’s switch from a PoW network to a PoS network.

The parallel version of the switch, technically known as the Beacon Chain, has been in operation since December 2020. The completion of this switch will mark the end of the PoW version.

However, a block reorganization of the Beacon Chain occurred on May 25. These events indicate that there has been a temporal bifurcation in the Beacon chain. Such bifurcations mean that multiple blocks of transactions are processed on a different, similar version of that chain.

BeaconScan (one of the best blockchain explorers) claims that the blockchain has since generated unbroken blocks. However, Preston Van Loon (a leading Ethereum developer) says the Ethereum team will soon publish a detailed analysis of this event.

A possible high-level security risk

The Ethereum Beacon blockchain blockchain reorganization event indicates a possible high-level security risk. A malicious attack or network failure are the two most common causes of reorganization (also known as reorg). But in both cases the blockchain is duplicated.

The impact of a reorg is even more severe if a solution is not found quickly enough. Gnosis CEO and an insider to the issue, Martin Koppelmann, says the reorganization of the Beacon chain has affected seven blocks.

This reorganization is the longest in recent history. The beacon chain will enable native staking on the Ethereum network. Staking allows validators to begin adding blocks to the Ethereum chain.

Stacking allows holders to commit their assets to a blockchain. This is also one of the most common benefits of the PoS mechanism. Thus, if there are problems with the beacon chain, it delays the transition of the Ethereum network from a PoW to a PoS consensus mechanism.

According to Koppelmann, the reorganization is proof that the merger cannot happen yet. He added that “developers need to rethink the current node attestation mechanism. Then we can hope that the chain will become more stable.”

A reorganization occurs when two miners simultaneously add blocks of transactions of equal difficulty to the network. When a reorganization occurs, a duplicate version of the blockchain exists. The technical term is “fork.” The miner who wants to add the next block must select one section of the fork as the correct one.

The other section is then automatically discarded. A reorganization of 7 blocks indicates that seven blocks of transactions were added to the network before the developers discarded that section of the fork. Data from Etherscan.io estimates that each block in the Ethereum chain contains an average of 250 transactions.

It further adds that these transactions have a value of 2 ETH. If similar versions exist on a blockchain, someone can spend the same asset twice. This case can occur even if similar versions exist for only a short period of time.

When this occurs maliciously, it is called a double-spend attack. The double-spend attack was carried out on ZenGo Wallet two years ago. In a double-spend attack, hackers send a transaction with the lowest rate. They then immediately increase the rate to motivate miners to quickly verify the transaction.

However, they would redirect the funds to a new wallet address. However, the reason for this reorganization and the possibility of a double-spending attack are not malicious. The miners use specific software to determine which section of the fork they will choose.

This is the attestation strategy that Koppelmann pointed out in his Twitter thread. Some of the network’s lead developers and Vitalik Buterin provided insights in Koppelmann’s Twitter thread.

What to know about reorganizations

Buterin also clarified whether miners were using outdated mining software, which could be the cause of the reorganizations. Last year, Ethereum CEO and Paradigm CTO Georgios Konstantopoulos had a lengthy discussion about the reorganizations.

Part of the summary of their discussion was that a reorganization with more than five blocks could indicate a malicious attack. They agreed that network latency can lead to reorganizations with up to 2 blocks and that this is fine.

They added that a reorganization of 5 blocks may occur occasionally due to a combination of network latency and bad luck. However, reorganizations that go beyond that are likely indicative of a malicious attack, network error, or client bug.”

In his statement, Terrence Tsao (one of Prysm’s developers) concluded that this reorganization could be a possible cause of bad luck. He added that it is still a case of bad luck, although the period it lasted could be a real cause for concern.

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