Coinbase Will Freeze ETH Deposits And Withdrawals Temporarily During Ethereum’s Merge — And Here’s Why

Major U.S. crypto exchange Coinbase has announced it will briefly disable ETH and ERC-20 withdrawals and deposits when the Ethereum blockchain moves to proof-of-stake (PoS) from proof-of-work (PoW).

A Precautionary Step

Ethereum’s Merge is one of the most anticipated events in crypto right now.

Developers have formalized a timeline to transition the network to PoS next month, a move that is intended to make Ethereum more scalable and energy efficient. Post-Merge Ethereum could be considered an environmentally-friendly crypto asset, as its energy expenditure is expected to reduce by 99%.

Other industry pundits also predict the transition will make Ethereum deflationary — in that it might burn more tokens than it creates, therefore boosting the value of ETH.

But fundamentally altering the blockchain of the No. 2 cryptocurrency by market cap from one system to another is a highly complex process. Crypto-focused companies are announcing what investors should expect during the significant technology upgrade.

Coinbase will temporarily halt withdrawals and deposits of ETH and ERC-20 tokens, the San Francisco-based exchange announced Tuesday. Coinbase indicated the pause was a precautionary measure, adding that the downtime would allow it to “ensure that the transition has been successfully reflected by our systems.”

Coinbase noted that should the current proof-of-work Ethereum mainnet successfully merge with the Beacon Chain PoS system, Coinbase Wallet users would not be affected as the wallet is self-custodied.

The exchange further explained that ETH and ERC-20 assets will still be tradeable on the Coinbase platform. This means customers holding these tokens will still be able to swap for other cryptocurrencies during the Merge, which is expected to go live on or around September 15 or 16 if all goes according to plan. 

Coinbase customers will be alerted when ETH deposits and withdrawals are restored via the exchange’s status page and official Twitter account. The exchange also mentioned that users would find their staked ETH balances listed in their Ethereum wallets and not under the ETH2 ticker. Staked ETH won’t be unlocked until the completion of the Merge in early 2023.

Coinbase will likely not be the only exchange to announce precautions or anticipated changes as the Ethereum Merge finally approaches.

ETH Price Action

Ethereum managed to reclaim the $2,000 level last week after the network’s third testnet, Goerli, successfully shifted to PoS. Despite a slight retracement in the previous 24 hours, Ether is still up 10.22% in the past week, making it one of the best performers among the top 10 most valuable cryptocurrencies over that timeframe.

The jury is still out on whether a smooth Merge might bring an end to the current crypto winter.