Ethereum’s update took years to complete. The blockchain platform has successfully transitioned from authorizing transactions via math problems to crypto ownership, known as the Merge. The new “proof of stake” model is expected to cut energy use by more than 99 cent.
The Merge, hailed as a make-or-break event for cryptocurrency, has helped increase ether tokens about 50% from their June low point. However, prices remain far lower than last year’s peak. The crypto winter continues.
So, what comes next? If there is one thing the crypto world is abundant in, it is promises. Starting with bitcoin in 2009, advocates have followed a litany of breakthroughs that they claim might fix inflation, revolutionize business, or give a financial lifeline to individuals living under authoritarian regimes throughout the globe.
In response, opponents of the highly unregulated business have emphasized its ties to criminal activity and massive carbon footprint, not to mention the financial misery it has caused for many poor people – the same individuals industry officials often say they want to aid.
The devout now have a chance to prove their detractors incorrect. Following the Merge, the scene is set for advances aimed at combating some of the industry’s sharpest blows.
After bitcoin, Ethereum’s Ether is the most well-known digital token. Merging the main network with an ethereum network that already employs proof-of-stake transactions might help to change crypto’s image as a catastrophe for the environment.
However, although the Merge was technically tough, it had little impact on most ether holders. The blockchain’s energy needs have been reduced, but fees have not. Transaction times have remained unchanged. The move to proof of stake may enable more decentralized financial apps to operate on the Ethereum blockchain. They might, however, wait for future upgrades meant to increase capacity. Investors are still focused on inflation and reducing risk in their holdings.
The shift may also provide validators with a significant amount of ether to operate with, earning a return for “staking” their tokens additional influence. Proof of stake will reward those with an existing haul of tokens, much as proof of work mining benefitted parties with access to large amounts of computer power. The minimum necessary stake is 32 ether, which is little less than $48,000. There are dangers. If transactions are invalid, tokens may be seized, and stakes cannot be withdrawn until the next software update, which may be a year away.
The really significant news this week came from Fidelity, Citadel Securities, Schwab, and others, who are launching EDX Markets, a crypto exchange. Wall Street’s continued interest in crypto may have a greater short-term impact on pricing than the Merge.
Despite the excitement, whether the Merge really marks the mainstreaming of crypto ventures is debatable. The upheaval in crypto markets this year has poisoned the mood: a drop in coin prices has wiped off around $2 trillion from the entire worth of cryptocurrencies, and blockchain-based enterprises have been trapped in its path.
This summer, several of the industry’s biggest names, including hedge fund Three Arrows Capital and lending platform Celsius, filed bankruptcy. Tumbling IT values have also threatened to spread farther into the crypto and finance industries.
The Ethereum blockchain is not the only one in town. Others, like as the bitcoin blockchain, will continue to employ proof-of-work methods after the Merge. According to Cambridge University estimations, the bitcoin blockchain uses so much energy that if it were a nation, it would rank in the top 35 in the world in terms of energy consumption, surpassing Belgium and Finland.
If the Merge successfully immunizes Ethereum from ecological criticism, pressure will mount on its biggest competitor, bitcoin. If one of the two most renowned blockchains can shake its bad brand, why can’t the other?
The most pressing issue for many Ethereum supporters is the existential threat that proof of stake poses to “decentralisation,” a cherished concept among blockchain enthusiasts. The Ethereum blockchain accounts for more than half of the entire value of the decentralized finance sector, which promotes direct peer-to-peer transactions and aims to eliminate the need for third-party middlemen like banks or brokers. Ethereum, like other blockchains, is designed to be censorship-resistant. Its architecture is intended to withstand attempts by strong persons or entities to impose influence over other members.
However, under its new shape, Ethereum loses its autonomy since it is protected by a group of people or businesses. You have a blazing light of decentralisation, but a new model will be more centralised than people believe. This issue has been more apparent when the US Treasury’s Office of Foreign Assets Control (Ofac) issued sanctions last month on Tornado Cash, an Ethereum-based platform suspected by the authorities of enabling billions of dollars in laundered crypto. The most ardent supporters of cryptocurrency’s libertarian movement have previously said that the strong hand of government would be useless against the kind of “smart contracts” — computer software meant to automate transactions — that operate on decentralized platforms. Nonetheless, sanctions have shown to be effective. Transactions on the Tornado Cash platform have plummeted in the weeks after it was attacked.
This is certain to alarm Ethereum’s future guardians, including exchanges Binance and Coinbase, as well as staking platform Lido Finance. According to Nansen statistics, these firms are already among the largest Ethereum staking players, and will therefore be trusted to safeguard the network after the Merge. Coinbase CEO Brian Armstrong said last month that his exchange will likely exit the staking business before censoring the network. As guardians of the Ethereum network, these organizations must determine whether or not to validate and execute blocks of transactions including transactions from sanctioned businesses such as Tornado Cash. That hardly sounds like the idealists’ notion of a censorship-resistant nirvana. If the Merge ushers in a new period of centralisation, those idealists may be forced to pack their belongings and go.