Cryptoverse: Electric Aether Jumps About to Merge

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Representations of the cryptocurrencies Bitcoin, Ethereum and Dash dip in water in this illustration taken May 23, 2022. REUTERS/Dado Ruvic/Illustration

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Aug 16 (Reuters) – It looks like Ethereum’s mega-upgrade is underway. To finish.

After years of delays, the “merger” seems all but certain to take place in September, with the cryptography underlying the blockchain undergoing a sea change to a system where the creation of new ether tokens becomes much less energy intensive.

“These are exciting times for the Ethereum ecosystem,” said Omar Syed, co-founder of smart contract platform Shardeum. “I think there will be drama around the merger, but I don’t think there will be any technical issues.”

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Investors seem to agree, with ether ahead of its big brother bitcoin.

Ether has seen six straight weeks of gains, taking it from a year-and-a-half low of $880 in mid-June to levels approaching $2,000, although it is nowhere near its peak of November 2021 of $4,868.79.

Bitcoin paled in comparison, rebounding 37% from its June low of $24,116.

Ether is eating away at the bitcoin giant’s market share: it now accounts for nearly a fifth – 19.7% – of the crypto’s total market capitalization of $1.14 trillion, up from less than 14.9% a year ago. two months, according to CoinMarketCap. Bitcoin’s share fell to 40.2% from 44.9% during the same period.

“Crypto is still very tightly coupled, I think when the merger completes successfully it could push up the price of bitcoin as well,” said Alex Miller, CEO of Hiro, which builds developer tools to build apps for. bitcoin.

If the creators of Ethereum succeed, as is largely expected, it could be a game-changer for the blockchain, making it cheaper to mine and easy to adopt for fintech and other crypto applications.

Of course, little is certain about the elusive transition, which has been repeatedly delayed as developers recently scrapped plans to hit the button in June, unnerving investors who were beginning to fear it might see. never day.

The merger is also fraught with risk, and the fortunes of the roughly 122 million ethers in circulation, worth around $232 billion, could be at stake if it fails.

If the upgrade doesn’t go well, it would “set the whole crypto world back five or 10 years,” Hiro’s Miller said.

‘DIFFICULTY BOMB’

The Ethereum blockchain currently uses the energy-intensive proof-of-work (PoW) method to validate blocks, in which miners use massive amounts of energy to quickly solve complex computational problems to earn newly minted coins.

On a parallel chain, Ethereum tested a proof-of-stake (PoS) system that only requires miners to “stake” their coins to validate transactions and create new blocks. It promises a 99.95% reduction in blockchain energy consumption and prepares it for faster transactions.

Not everyone is happy with the impending merger of the two systems – especially ether miners, whose expensive mining rigs will be rendered obsolete and also cannot be used to mine bitcoin.

Ether mining has so far been more profitable than bitcoin mining. Ether miners earned $18 billion in 2021 compared to $17 billion for bitcoin miners, according to Arcane Research.

Some miners have decided to move on to mining the next best option, such as Ethereum Classic or Ravencoin tokens.

At least one miner has declared their intention to resist and continue mining Ethereum, raising concerns that some people will maintain the PoW chain in its current form even after the merger, likely in competition with the upgraded blockchain.

However, this option has its perils.

The creators of Ethereum designed a “difficulty bomb” to exponentially increase the mining difficulty to discourage parallel chain PoW after the merger.

Additionally, Tether and USDC – the largest stablecoins – have thrown their weight behind the merger, reducing the likelihood of wider adoption of the parallel PoW chain.

SPARKLING FUTURES

“The likelihood of a lasting spin-off from Ethereum’s chain post-merger remains slim,” said Alex Thorn, head of enterprise-scale research at Galaxy Digital.

Still, at least some investors are bracing for a hard fork, or parallel PoW chain, derivatives market positioning indicates.

Ether futures were also trading at a premium at $1,905 on the CME exchange, “reflecting expectations around a proof-of-work range,” said Matthew Sigel, head of digital asset research at the manager. of VanEck funds.

“But that gap is not so huge to think there is extreme foam,” he added.

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Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru Editing by Vidya Ranganathan and Pravin Char

Our standards: The Thomson Reuters Trust Principles.

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