Ethereum update is finally coming - will it bypass Bitcoin?
The world’s second most valuable digital currency, ether, has been touching ever on price increases ahead of a major upgrade to its platform, ethereum. The ether is currently worth just a shy of US $ 500 billion (£ 363 billion). That’s still a little less than half that of the largest digital currency, bitcoin.
But could this update, a crucial step towards a much greener and faster version of the current system, put ethereum on the way to becoming the leading platform on the internet and ether do as number one?
First, it's important to understand the difference between bitcoin and ethereum. Bitcoin is a system for allowing people to exchange value without the need for banks. It is based on a technology called blockchains, which are online ledgers whose transactions are analyzed and recorded by a decentralized network of computers called authenticators.
These verifiers are motivated for their work by receiving new bitcoin as rewards, in what is known as “mining”. To make this more attractive, bitcoin is relatively scarce: there are only about 18 million coins and the protocol is so large that it can never be more than 21 million.
Ether vs bitcoin by total value (market cap)
Ether works in a similar way to bitcoin, but ethereum is different. It is a worldwide guestless software platform, on which developers build thousands of blockchain-based applications.
This means that all of these applications can run without company control. Examples include cryptocurrency exchanges, insurance systems, and new types of games.
At the heart of the platform is the idea of smart contracts, which are automated agreements that ensure that money and assets change hands when certain conditions are met. All transactions on the platform will ultimately use ether, and the success of the platform is the reason why ether is the second largest cryptocurrency after bitcoin for the past few years. . The fact that ether fuels the platform - even referred to as gas taxes - gives it a convenience and intrinsic value that bitcoin does not.
Why ethereum 2.0
Ethereum has a number of major problems, however. The first is that gas taxes have become very expensive in the last two years because the network has become so popular that there is a lot of congestion.
Authenticators give priority to customers who are willing to pay the highest fees for their transactions. For example, the average transaction at the time of writing on the Uniswap crypto exchange costs around US $ 44 in gas taxes.
Bitcoin has comparative problems with density, which the developers are trying to solve by building applications like Lightning on the top that have faster trading speeds.
The second problem for ethereum, as it has become more popular, is that the level of computing power used by testers has gone up. The only problem is that bitcoin has brought a lot of negative publicity because it uses a lot of electricity.
Bitcoin currently uses the same amount of power as the entire Philippines, although supporters argue that much of this would be power that would otherwise be expended - such as for example, oil lanes burning natural gas because it is not profitable to sell it. Proponents also argue that the network is moving toward much greater use of renewable energy over time.
Anyway, if ethereum 2.0 finally creates a solution to these problems by moving the platform authentication system from “proof of work” to “proof of interest”. Without going into too much detail, work verification is a protocol in which all testers try to solve complex equations to prove that each proposed transaction is valid. With confirmation of interest, not all testers are required to perform this power-hungry job, as the system randomly selects one to test each transaction.
Many in the bitcoin community are against it interest verification because it gives the most power to the largest testers, which can allow them to corrupt the authentication system if they gain control of more than half of the network. Supporters of Ethereum argue that confirmation of interest in checks and balances has been put in place that would prevent this from happening.
Either way, ethereum 2.0 promises to reduce the platform's power consumption by 99.9%, making it much more stable. It should also solve the problem of gas taxes by increasing the processing capacity of the platform from 30 transactions per second to a potential 100,000, as well as enable smarter more sophisticated contracts than before.
How's it going?
The transition to ethereum 2.0 has been slow, fraught with technical issues that have been going on for over two years. For the past few months, the new test blockchain has been running in the form of a parallel test with the existing system, allowing the developers to prepare for integration in 2022.
The upcoming update is largely a warm-up for this merger. Named Altar, it includes a number of technical modifications designed to keep testers honest and make the system more decentralized. Assuming this goes ahead as planned, all eyes will be on the merger, followed by another change called "sharding" which will greatly enhance the processing capacity of the company. systems.
Certainly, the price of ether has been strong ahead of the Altair upgrade. The recent rise in bitcoin to full-time highs has helped build the entire crypto market. But some of the price movement in ether seems to indicate that people are promising that the update will be a success, while the rest of the metrics are moving away from bitcoin, and new money is moving to -into the place.
Ether vs the ‘eth killers’ by absolute value
Before combining two blocks of ethereum, it will be interesting to see how all of this affects the price of ether in relation to the so - called "eth killers". These are competing platforms like Cardano and Solana that have become popular in recent months partly due to ethereum's problems with fees.
But ultimately the question is what does it mean for bitcoin. Bitcoiners will continue to argue that their protocol is more decentralized than proof of interest, and it benefits them to be the crypto brand that investors are more comfortable risking their money on. .
The question is whether these benefits outweigh the greener ethereum 2.0 credentials and the fact that it is capable of handling more transactions. Bitcoin is worth about double ether right now, but there is talk of "flippening" where ether is passing. Could it happen in 2022? With bitcoin hegemony in place, it will be interesting to find out.
Article by Daniel Broby, Director, Center for Financial Management and Innovation, University of Strathclyde
This article is republished from The Conversation under a Creative Commons license. Read the original article.