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Coinbase pauses ethereum transactions during the cryptocurrency's merge

Yahoo Finance crypto reporter David Hollerith details how Coinbase is halting deposits and withdrawals during ethereum's big merge.

Video transcript

[MUSIC PLAYING]

DAVE BRIGGS: The countdown to the Ethereum merge is on and companies are taking significant steps to prepare for it. David Hollerith is here with the details. David, what do we know?

DAVID HOLLERITH: Yeah, so today, Coinbase announced that it would be pausing withdrawals and deposits for Ethereum and Ethereum-built cryptocurrencies. So that means other coins like Dogecoin-- or sorry, Shiba Inu, for instance. And so why they're doing this is because of Ethereum's big merge transition, the software transition that's happening in the middle of September.

Now since that date's been scheduled, it's natural for Coinbase to sort of come out about this. And what it looks like is a risk mitigation strategy. There's a lot to be said about the merge, and there's a lot that investors aren't totally sure about will come from the process. So it's slated for the week of September 15, but that's honestly-- it pivots on a lot of factors. But essentially, Ethereum, the blockchain, which is responsible for Ether, the cryptocurrency, the second largest cryptocurrency, will be transitioning from proof of work to proof of stake.

Now, this sounds like a simple thing, but we've never actually seen any kind of blockchain do this. And the fact that Ethereum is doing it is projected to cut its energy consumption by about 99%. So that's actually pretty big. And there's a lot of investor momentum that's been built in both the spot and futures markets, sort of hedging around this event.

And so as a result, Coinbase has decided essentially in that they're not going to be the only company to do this, that they want to pause new withdrawals and deposits related to that blockchain's transition. So this has been done for other smaller projects in the past.

But I think given the past couple of months, seeing any sort of pause in trading or withdrawals, which this is not trading-- this is just Ethereum deposits and withdrawals-- it sort of-- it causes some confusion with the cryptocurrency market, given that we've seen some companies do that and then head to bankruptcy. But that's not the case here. This is more of a technological risk mitigation thing that a lot of companies will do.

SEANA SMITH: And that could be a big reason why we're not seeing more of a reaction in Ethereum this afternoon. Ethereum off just about 1%. All right, David Hollerith, thanks so much for breaking that down.