DeFiYield Co-Founder and CEO Michael Rosmer sits down with Yahoo Finance Live to talk about how ethereum's merge could impact crypto markets, bitcoin's pricing, and looks at the latest trends in crypto trading and security.

Video Transcript

- Ethereum is down slightly today, as you can see there, about 0.83%, as the highly anticipated Ethereum merge set to begin. Here to break down more on the merge and what it means for the broader crypto market is Michael Rosmer, DeFiYield Co-Founder and CEO. So tell us about what people are really expecting with this merger and why you think people are getting so excited about it.

MICHAEL ROSMER: Well, I mean, the merge is something that has been worked on for a long period of time. We're talking about multiple years of technical development. And part of the reason is it is the most significant event that has happened technically in the world of crypto or in the world of Web3.

And so essentially, it's pretty likely that it will go very smoothly. The reality is, you have a lot of technical teams who have run a lot of tests. They've done a lot of what are called testnets. And so it's probably going to be fine. But it's going to change fundamentally how the network works. And it's going to have a big impact on the ecosystem. And it's uncertain how that's going to go. But it could be really good if it all goes well.

- And that's a big if because it's going to be happening live, so a lot of people are wondering that proof of stake, proof of work, the differences there. I know that it's going to make a big difference when it comes to miners. What are some of the other key differences that come with the merge.

MICHAEL ROSMER: So there's a few-- probably, I guess we could break it down into three areas. So the first is just from a standpoint of environmental. I mean, we've had a big concern from the whole ESG community around issues of the energy consumption involved in mining. And so that's going to go away. The energy consumption will drop by orders of magnitude. So that's a positive.

There are a lot of security changes that this is bringing about with it. And if you understand the way that blockchain networks work, the key thing that they're doing is keeping your data secure. And there are security trade offs that come with this. In one hand, it is certainly more secure from certain types of attacks and certain types of attack vectors. So that's a positive thing.

But there are, as I said, trade offs. There's other types of attacks that are potentially bigger vulnerabilities. And because of the fact that this hasn't been tested at this scale before, there's uncertainty about how those things will play out. So that's the second thing. The third thing that's really important is the issuance rate of the underlying token because the cost of security is coming down means that there's less inflationary pressure on the price, which could be bullish for the price.

So you've kind of got all of those factors taking place. And then everybody now is going to be able to participate by staking their Ethereum. And that allows them to basically earn money while holding the token, which they haven't been able to do before, for the most part. And so that may encourage a lot more people to want to buy it, which also could be really bullish for the price. So we will see.

- So to that point then, what does this mean for some other tokens, as well as some of the platforms as well?

MICHAEL ROSMER: Well, I mean, the reality is, proof of stake is not a new thing. We've been working on it quite a bit over a lot of years. And so many, many of the projects are already using some form of proof of stake. They're just not nearly as significant as Ethereum is. Now, you can look at it from a couple of different directions.

I think one of the major ones is that a lot of the projects have become popular over the last year and a half because of Ethereum's deficiencies. And those deficiencies really come in related to the amount of transaction volume they can support and the speed.

And with the new changes to proof of stake, you can potentially increase the transaction throughput and the volume of transactions, the speed of transactions, quite a lot without compromising security, which would be a problem in a proof of work environment due to the way that hash rate is computed on what are called blocks.

So with this, it's going to make Ethereum more competitive, in theory, compared to some of the others. And so that's going to force others to either up their game, or possibly you may see a lot of projects decide it's just not worth it to build on some of these secondary chains. So we'll see.

- And we know that obviously data protection and security are a big component of why perhaps some people are hesitant. We've also seen a rise in the number of hacks tied to crypto make a lot of headlines. And obviously that's something that can put the wider adoption of crypto under threat. But I want to ask about your thoughts on where we are with crypto security and hacks and how you think the merge might encourage other platforms to do better in that regard.

MICHAEL ROSMER: It's a good question how the merge will play into it. There's different, as I said, different types of security vulnerabilities. The idea behind the Ethereum design is that you can use Ethereum's underlying security as a very big player and then build on top of it without having to bring your own security, which is costly and difficult to bootstrap for somebody who doesn't have it already.

And I tend to be quite bullish on the changes that we'll see over time. The example I always give people is look at viruses in the Windows 2000, Windows XP days. They were terrible, right? For a lot of years, you had just one piece of malware after another.

And that was a problem that we were able to solve with technology because it turns out that the vulnerabilities become somewhat predictable, somewhat repetitive, and you learn to develop best practices to keep the software safer. You develop tool sets. But you also develop automation. I mean, we live in this big world of AI, where we can data mine all kinds of things and build algorithms that are going to allow us to self-drive, et cetera.

So when you can take that kind of automation, that kind of technology-- it's one of the things we're doing at DeFiYield, my company-- and basically build almost smart contract antiviruses. Then you're going to be in a position where I think you can clean up a lot of that. So we're in the early days. And the fact that we have seen so many hacks and so many scams and so much loss money is a sign of that.

But I think that given time, we're going to address these things. And so probably 10 years from now, just like nowadays, what was the last big virus or piece of malware that you heard about on Windows or OS X? You don't hear about them. Probably the same is going to be true in crypto and Web3 10 years from now.

- And we know that a lot of retail investors are really looking for some of these high yield returns. But we saw sort of the downfall of that, things like Voyager, some of these other platforms that essentially act like CD accounts. So at DiFiYield, how do you differentiate what people should be thinking of when they think of some of these platforms, versus just holding the keys themselves to their wallet?

MICHAEL ROSMER: Well, we're very big believers on noncustodial, so the idea that you can hold your own keys to your wallet. So that's a big part of our platform. We never hold other people's money. And that takes away the institutional risk. The whole idea behind cryptocurrency and behind Web3 is supposed to be that you're building an environment that you do not need to trust any centralized institution. And that's certainly been a problem for all kinds of people.

Now, I think that when everything's exciting, you tend to think, oh, you know, I'll just get a little bit lazy and go accordingly. But I think it's also a function of the amount of education and thought process that people have. As people get used to it, it's a little bit like becoming computer literate. You're going to become cryptoliterate. A lot of people don't understand how their crypto wallet works at this point in time.

And so that's going to address things quite a bit in terms of improving the overall ecosystem and what it is that people have to do. Now, in addition to that, what we're doing specifically is we're using automation technology to the moment you connect your wallet to our platform, it will scan all of the smart contracts that you've ever had related there and will give you security threat warnings to tell you that, oh, this is risky. You should probably revoke access.

And so because people aren't going to have the technical sophistication in order to be able to audit smart contracts themselves, or honestly, even the interest to go and research every individual thing that they're approving-- I mean, you think about how many little pop ups come up on your normal desktop browser, for all kinds of-- whether it's cookies or whatever. You don't know what's in there. So we need to have tools that allow them to identify what is risky and what isn't and stay away from the ones that are risky or revoke access to those. And so that's what we're doing.

- Well, lots of great advice, and we'll be keeping an eye on the merger. Big thank you, Michael Rosmer, for joining us this afternoon.