the transformation that could see it overtake bitcoin

[ad_1]

The world’s second most valuable cryptocurrency, ether, hit record prices ahead of a major upgrade to its underlying platform, ethereum. Ether is currently worth a total of just under US $ 500 billion (£ 363 billion). This is still a little less than half that of the largest cryptocurrency, bitcoin.

But could this upgrade, a vital step towards a much greener and faster version of the current system, put Ethereum on the path to becoming the dominant platform on the internet and make Ether number one?

First of all, it’s important to understand the difference between bitcoin and ethereum. Bitcoin is a system that allows people to send value to each other without the need for banks. It is based on a technology called blockchain, which are online ledgers whose transactions are verified and recorded by a decentralized network of computers called validators.

These validators are incentivized for their work by receiving newly minted bitcoins as a reward, in what is known as “mining”. To make this more appealing, bitcoin is relatively rare: only around 18 million coins exist and the protocol is such that there can never be more than 21 million.

Ether vs bitcoin by total value (market cap)

Key: bitcoin = orange, ether = blue. Trading view

Ether works the same as bitcoin, but ethereum is different. It is a global hostless software platform, on which developers build thousands of blockchain-based applications.

This means that these applications can all operate without being controlled by a company. 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 ultimately use Ether, and the success of the platform is the reason that Ether is the second largest cryptocurrency after bitcoin in recent years. The fact that the ether powers the platform – even known as gas fees – gives it a usefulness and intrinsic value that bitcoin does not have.

Why ethereum 2.0

Ethereum has several major issues, however. The first is that gas tariffs have become very expensive over the past couple of years because the network has become so popular and therefore is very congested.

Validators prioritize users 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 gasoline fees.

Bitcoin has comparable congestion issues, which its developers are trying to address by building apps like Lightning on top, which offer faster transaction speeds.

The second problem for Ethereum is that, as it has grown in popularity, the amount of computing power used by validators has exploded. This is the same problem that has received a lot of negative publicity for bitcoin because it consumes a lot of electricity.

Bitcoin currently uses as much energy as the whole of the Philippines, although its supporters argue that much of that energy would otherwise be wasted – for example, oil rigs burning natural gas because it is not. not profitable to sell it. The promoters also point out that the network is evolving towards a much more use of renewable energy over time.

Either way, the eventual creation of an ethereum 2.0 will address these issues by moving the platform’s validation system from ‘proof of work’ to ‘proof of stake’. Without going into too much detail, proof of work is a protocol in which validators all attempt to solve complex equations to prove that each proposed transaction is valid. With a proof of stake, it is not necessary for all validators to do this power-hungry work, as the system chooses one at random to confirm each transaction.

Many in the bitcoin community are against proof of stake because it gives the most power to the largest validators, potentially allowing them to corrupt the validation system if they can take control of more than half of the network. Ethereum proponents counter that the proof of stake has built-in checks and balances 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 sustainable. It should also solve the gas fee problem by increasing the platform’s processing capacity from 30 transactions per second to potentially 100,000, as well as making possible more sophisticated smart contracts than before.

How are you

The transition to ethereum 2.0 has been slow, fraught with technical issues that have been hanging around for more than two years. For the past few months, the new proof of stake blockchain has been operating in a parallel test format with the existing system, allowing developers to prepare it for a merger in 2022.

The upcoming upgrade is basically a warm-up for this fusion. Known as Altair, it introduces many technical changes designed to maintain validator honesty and make the system more decentralized. Assuming this goes as planned, all eyes will be on the merger and then later another change known as “sharding” which will dramatically increase the processing capacity of the system.

True, the price of ether was high before the Altair upgrade. Bitcoin’s recent surge to record highs has helped lift the entire crypto market. But part of the ether price movement likely reflects people betting the upgrade will be successful, while the rest comes from speculators spending bitcoin and fresh money entering space.

Ether vs “eth killers” in total value

SOL = solana (green), DOT = peas (yellow), ADA = cardano (orange). Trading view

Looking ahead to the merger of the two Ethereum blockchains, it will be interesting to see how all of this affects the price of ether compared to so-called “eth killers”. It is rival platforms like cardano and solana that have been very popular in recent months in part because of ethereum fee issues.

But at the end of the day, the question is what will that mean for bitcoin. Bitcoiners will continue to argue that their protocol is more decentralized than proof of stake, and they have the advantage of being the brand of crypto that investors are most comfortable with risking their money with.

The question is whether these advantages are offset by Ethereum 2.0’s greener credentials and the fact that it can handle more transactions. Bitcoin is currently worth around double aether, but discussions come and go about a “flipping” where the ether overtakes it. Could this happen in 2022? With bitcoin’s hegemony at stake, it will be fascinating to find out.

[ad_2]