Cryptocurrency exchanges stop deposits and withdrawals during Ethereum update; what is the reason?
Coinbase and Binance, the world’s largest digital currency exchanges, have announced that during the Ethereum network update in mid-September, they will temporarily stop depositing and withdrawing ether and other tokens based on this blockchain; But what is the reason for this stop and under what conditions may it affect the price of Ethereum?
To Report Decrypt, Coinbase, the largest cryptocurrency exchange in the US, announced on Tuesday, August 25 that it will temporarily stop deposits and withdrawals of Ether and other “ERC-20” tokens during an Ethereum integration update.
Coinbase says the suspension is a precautionary measure taken out of an abundance of caution, giving their exchange a chance to make sure the transfer is reflected in the platform’s systems. The merger is an important update that combines the Ethereum mainnet with the Beacon Chain and completes the process of transitioning this blockchain to a proof-of-stake mechanism.
One of the representatives of the Coinbase exchange said in an email to Decrypt:
It is standard operating procedure to stop deposits and withdrawals during an asset update.
In the past, when the blockchain networks underwent major changes, Coinbase and other digital currency exchanges stopped depositing and withdrawing tokens associated with them. For example, during the hard fork of Bitcoin and Bitcoin Cash that occurred in 2017, Coinbase temporarily ceased operations. The exchange also did this again in 2018 and 2020 when Bitcoin Cash was experiencing its subsequent hard forks.
If you have been a digital currency trader in those years, you are familiar with the procedure of doing this; But if you have just entered the world of digital currencies, notifications from Coinbase and other exchanges about stopping withdrawals in the future can reassure you.
Coinbase exchange has said about the impact of the merger event on its customers:
We do not expect this update to affect any other network or cryptocurrency, or to negatively affect the trading of Ethereum and other ERC-20 tokens on our centralized platforms.
The exchange further added that at the time of the integration update, which will probably happen on September 15 or 16 (24 or 25 September), it will be possible to trade all Ethereum tokens. In fact, customers can still trade their Ethereum and other ERC-20 assets for other cryptocurrencies. Also, they will be able to buy and sell with their account balance.
Coinbase has not provided more details on when exactly deposits and withdrawals will stop. Of course, it is likely to release more details soon on its Twitter account and website. A representative of Coinbase said in response to Decrypt’s question about the duration of the suspension of deposits and withdrawals:
For now, we only expect deposits and withdrawals to stop for a short time; But until the start of the merger, we cannot determine its definitive duration.
Coinbase is the only digital currency exchange that has officially informed its users about the suspension of deposits and withdrawals. Of course, other cryptocurrency exchanges are likely to follow suit.
A representative of Binance has also confirmed in response to Decrypt that the exchange will stop depositing and withdrawing both Ethereum and ERC-20 tokens during the network update, and will soon release more details on how to do so.
However, representatives of exchanges FTX, Gemini and Crypto.com have yet to respond to Decrypt’s request for comment on the suspension of deposits and withdrawals.
Why is it important to stop deposits and withdrawals of Ethereum and ERC-20 tokens in digital currency exchanges?
If this suspension is prolonged, it could affect the price of Ethereum and the ability of traders to enter and exit trading positions. However, Coinbase predicts that the pause will be short-lived. However, as analysts expect, the “buy on the rumor and sell on the news” strategy could make things difficult for retail traders when the merger is implemented.