Ethereum sinks 10% on 7-block reorg — Here's what to know

What is a blockchain reorganization and why does it matter?

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This article was originally published on All figures quoted in US dollars unless otherwise stated.

What happened

Ahead of the upcoming "merge" that will combine the Ethereum (CRYPTO: ETH) proof-of-stake Beacon Chain with its existing network, anticipated for August, investors have yet another headwind to grapple with today. As of 9:30 a.m. ET, Ethereum is the worst performer among the top 10 cryptocurrencies by market capitalization, dropping 10% over the past 24 hours.

This move was driven by a seven-block reorganization, or reorg, yesterday. Ethereum's Beacon Chain effectively forked, providing investors with concerns that this form was the result of a malicious actor, network failure, or bug.

Key Ethereum developers took to Twitter to theorize that this reorg was the result of some miners using outdated versions of mining software. However, the reorg has implied to many that the previous August timeline for the Ethereum merge may be delayed, once again.

So what

A reorg 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 key 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.

While it appears this wasn't the case, a seven-block reorg is out of the ordinary. Typically, one or two block reorgs can take place due to network latency. However, longer reorgs are possible if the stars all align in an improper way.

Now what

Putting aside the idea that Ethereum's network was compromised in a serious way, which many are having difficulty doing right now, it's clear the Beacon Chain may need more work before its ultimate merge. If these sorts of issues aren't resolved ahead of time, investors may worry that rushing this massive upgrade could risk the integrity of the network. Today, investors appear to be concerned that this seven-block reorg may be emblematic of more issues under the surface.

Perhaps it's just bad luck. Could be. However, in this bear market, it's clear that investors aren't necessarily willing to buy the dip as they have in the past on such issues. Accordingly, Ethereum will certainly be an interesting token to watch from here.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Chris MacDonald has positions in Ethereum. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Ethereum and Twitter. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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