The crypto community is celebrating a milestone for the Ethereum blockchain, which just transitioned from the proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model. The move is aimed at reducing the power needed to secure Ethereum by around 99.95%, easing the concerns of those worried about the environmental impacts of crypto (Ethereum currently emits as much carbon as Singapore and its total energy consumption is similar to the Netherlands). ETH (ETH-USD) issuance will also decrease (a.k.a. Triple Halving), while industry players will further decentralize the network by securing Ethereum at home, taking some control away from the institutions and sophisticated miners.
Backdrop: Ethereum researchers and developers decided to ease the transition into two steps, after the Beacon Chain successfully executed in December 2020. The update formed a separate parallel PoS chain – that could be tested in production without having a direct impact on the existing PoW network. It also grew the amount of staked ETH, so that it would be large enough to secure the network before the “Merge.” The second step happened early Thursday, as the consensus layer of the Beacon chain was combined with the Ethereum PoW chain, and from the look of it, the transition was a success. At the time of writing, (ETH-USD) is trading around $1,600.
“If you’re a big company and you’re planning on investing millions of dollars in Web3 opportunities, whatever those might be, you want to know that the technology you’re building on is going to be consistent over time,” said Alex Tapscott of Ninepoint Partners. “Ethereum is clearly the leader of smart contracting platforms through a community-driven effort. And if all of a sudden there’s a deluge of big companies [that] are building on this new platform, you might think that seems like a pretty good investment opportunity.”
Explainer: In the PoW model, the Ethereum network is secured by miners, who have to buy and run mining hardware. The miners consume a lot of electricity in exchange for block issuance and a portion of the transaction fees. In the PoS model, the network is secured by validators who have to stake their own stash of ETH to validate the network, which is much cheaper and makes Ethereum more energy efficient (think laptops and desktops instead of powerful computer GPUs). It also makes Ethereum more secure, and lays some of the groundwork for enabling scalability and sharding down the line (which are extra chains used to circulate the network’s transactional load). (12 comments)
Railway workers and companies have finally come to a tentative labor agreement that would avert a strike, which was set to go into motion shortly after midnight. The Association of American Railroads said the deal would give rail employees a 24% wage increase during the five-year period from 2020 through 2024, as well as an immediate payout that averages around $11,000. While the contract covers around 60,000 workers, it still needs to be ratified by the holdout unions, and a sick-leave policy needs to be ironed out.
Quote: “The tentative agreement reached tonight is an important win for our economy and the American people,” President Biden wrote in a statement. “It is a win for tens of thousands of rail workers who worked tirelessly through the pandemic to ensure that America’s families and communities got deliveries of what have kept us going during these difficult years.”
The last-minute deal averts a strike that could have halted shipments of key goods, and disrupted the flow of commodities across the country. About 40% of long-haul trade is transported by rail, and a strike could have idled more than 7,000 trains, while costing the U.S. economy an estimated $2B per day.
Premarket: Canadian National Railway (CNI) +2%, CSX Corporation (CSX) +2.5%, Union Pacific (UNP) +4% and Norfolk Southern (NSC) +2.5%. (7 comments)
Big Oil chief executives seldom serve longer than a decade, and Ben van Beurden is no different. The CEO of Shell (SHEL) is stepping down after nine years in the role, which saw him oversee a period of tremendous change within the oil-and-gas industry. Taking the reins is Wael Sawan, director of integrated gas, renewables and energy solutions, and has been a member of Shell’s executive committee for three years.
Backdrop: Van Beurden was a 30-year veteran of Shell when he was promoted to CEO in 2013. His first big move came a year later, when he led the $52B takeover of rival BG Group, which tested Shell’s finances during the oil price slump of 2014-2016, as well as historic energy collapse resulting from the COVID-19 pandemic. Nevertheless, the decisions seemed to pay off in the long run, as natural gas prices skyrocket and Shell rakes in record profits, while keeping investors happy with buybacks and hiking dividends.
Shell has also sought to balance its traditional business with renewable-energy initiatives under van Beurden, facing intensifying investor pressure to achieve net-zero carbon emissions by 2050. Some criticism has ensued, however, as Shell relocated its headquarters from the Netherlands to London (and ditched the “Royal Dutch” name) following a court ruling last year that required Shell to cut emissions faster. In any event, Sawan is expected to oversee Shell’s next phase of transition and growth, pivoting from fossil fuels to cleaner sources of energy.
Timeline: Van Beurden will continue to work as an advisor to Shell’s board through June 30, after which he will leave the company. Sawan will move to London when he takes over as CEO on Jan. 1, 2023. (3 comments)
Trouble is brewing in the investment banking sector as clients stay wary about the current economic environment. An aggressive Fed and the potential for a recession are weighing on corporate dealmaking, while soaring inflation continues to dim the outlook. IPOs have also hit the brakes this year as the market recorded its worst first half to a year since 1970.
Storm clouds: JPMorgan’s (JPM) revenue from underwriting debt and equity and advising on deals could drop 45%-50% in the third quarter from a year earlier, according to President and COO Daniel Pinto. That compares to the $3.3B in revenue the division achieved in Q3 2021, but was eventually followed by a 44% plunge in the first six months of 2022. The estimates are notable as banks are heading into the coming earnings season next month, with JPMorgan announcing its quarterly results on Oct. 14.
Some fear that the forecast could trigger a series of layoffs, similar to the ones recently reported at Goldman Sachs (GS), but Pinto said the bank will take a measured response. “You need to be very careful when you have a bit of a downturn to start cutting bankers here and there because you will hurt the possibility for growth going forward,” he told the Barclays Global Financial Services Conference in New York. “The banking business has a big component of variable compensation, so therefore you can adjust not just letting people go, you can adjust by reducing comp.”
Not all doom and gloom: JPMorgan sees markets revenue (the money it makes from trading) increasing by 5% in the third quarter – from a record of $6.3B notched a year ago – as robust fixed income activity offsets any weakness in equities.
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