 |
| Ethereum token in a composite image in Danbury, UK, on October 17, 2017. The Ethereum 'merge' upgrade may pave or block the path of encryption |
Later this year, Ethereum is set to make the biggest change in its nearly decade-old history, in an event that is sure to spread across all platforms dealing with cryptocurrency and digital assets. Think of it this way: The most important commercial highway in crypto is about to be completely repaved.
Ethereum, which was originally a computer program that used so-called blockchain technology to provide a digital record of transactions, has become the most popular basis for a growing range of commercial crypto assets and applications, including lending products and non-fungible tokens (NFTs), as well as Its original symbol, "Ether".
Ethereum is not owned by anyone, it was created and refined by a community of developers, and it operates through a network of data centers around the world. These data centers act as "miners" on the network, ordering transactions that are relayed to a digital ledger. In return, these centers charge their fees in Ether. This system was called "proof of work".
The developers working to improve Ethereum roll out upgrades periodically, but none have been as large as the one this year, called Merge, which will replace miners with so-called “depositors.” (stackers). Miners order transactions by solving complex calculations using millions of powerful servers - a system that has been criticized for its heavy use of electricity.
Beacon Chain
In contrast; Depositors will request transactions by putting their Ether on a new system, which has been on testing since December 2020. People can already use their digital wallets to deposit Ether into this testing system, called the Beacon Chain. ); after merging; They will start at random, then become what are known as "validators", ordering transactions on the Ethereum digital ledger into blocks, and charging them with new Ether. This is called "proof of stake".
The market value of Ethereum of $415.3 billion depends on the smooth running of the integration process, as well as the thousands of companies working on the Blockchain, as well as the millions of users. About $121.5 billion of capital has been locked into Ethereum decentralized finance (DeFi) applications, according to the tracker.
(DappRadar). Most of the non-fungible tokens - also totaling billions - use Ethereum.
“Never, in the history of blockchain networks, has there been a change in the scale of Ethereum’s transition from Proof of Work to Proof of Deposit,” says Chase Defense, an analyst with research firm Messari.
Expected errors
The merger would be confusing, because a lot of things could go wrong. There could be bugs or hacks, or miners could create an alternate Ethereum network. During the 2020 network upgrade; Ethereum's blunder split into two, causing havoc in emerging decentralized finance systems and applications that allow individuals to trade, borrow and lend without intermediaries like banks.
It is expected that most centralized cryptocurrency exchanges and Ether withdrawals and deposits will be halted during the merger as a precaution. Decentralized finance applications may also be paused if something goes wrong.
“One has to be careful when all the technical upgrades happen to all these big chains,” says Katie Talati, director of research at digital asset manager Arca. “Ultimately we are dealing with unknown technology.”
source of concern
_1.jpeg)
Miners are the source of most concerns. Many may leave the network right before the merge thinking they can make more money by selling their equipment rather than waiting for the latest rewards. A sharp drop in the network's mining power, or "hash rate," could weaken the security of Ethereum, causing an audit disaster for its token and the various applications that use the network. The developers of "Ethereum" planned for this scenario. “If we see the hash rate drop, we can push the integration forward,” says Tim Peko, a computer scientist who coordinates the work of the Ethereum developers. “All the software is designed with a contingency option.”
Miners may also choose to fork Ethereum, by taking the existing Proof of Work program and continuing to support it. This will create two different versions of Ethereum running in parallel: Proof of Work and Proof of Deposit.
“We think [Proof of Work] and [Proof of Deposit] will coexist for a while after the switch,” says Danny Jung, vice president of BIT Mining, a mining provider that is also expanding its services to include deposit services.
Confusion and bewilderment
In this scenario, cryptocurrency exchanges and users can get confused as to which Ether they own or trade in. Having two networks will mean there is more work for app developers, says Dieter Shirley, chief technology officer of Dapper Labs, the maker of the Ethereum-based cat game CryptoKitties.
“A controversial fork will likely accelerate our exit from Ethereum systems,” Shirley says.
Dapper Labs might consider moving the "crypto cats" to their own blockchain, and of their own path, Shirley says.
It is very likely that branching will occur, or at least that much public criticism will be issued; Because many Ethereum miners don't seem to know that a consolidation is coming. Ethereum developers are communicating about the integration on Discord, Telegram, and messaging apps that many miners don't use, says Pico
He adds that the mining pools, which provide the most transaction requests on Ethereum today, take a percentage of the miners' profits, and it is in their interest not to notify their members of the merger, as mining continues at least until the network is upgraded.
“I'm more concerned about people who don't know this is happening either, and they buy $3,000 worth of metal and after three months it will stop working,” Beko says. “It's a bad idea to start mining today.”
Is postponement possible?
Some miners don't think consolidation is really coming, because it has been delayed in the past.
“There is a lot of skepticism, because [Ethereum] promised to put out [Proof of Deposit] for five years...it's hard to convince people this time that it's real,” Beko explains.
Shutting down the Ethereum legacy chain will send shock waves through the cryptocurrency industry. By looking for other uses for their equipment, miners will transfer their hardware to other similar chains such as Dogecoin, Litecoin and Monero. Sam Doctor, chief strategist at Bitooda, a digital asset fintech company, says that the hash rate on those other chains will increase by 5-10 times overnight, and overall revenue for this type of mining could drop by up to to 90%, which will cause many miners to leave the business.
Doctor says US miners will be turning to customers outside the crypto industry, in areas such as artificial intelligence and genome sequencing, but none of them have any experience with customer acquisition.
Investors may benefit from the merger. Beko says that the number of new cryptocurrencies issued on Ethereum as rewards for ordering transactions will drop 50% to 90%, as the (Proof of Deposit) chain will offer lower rewards.
According to staking service provider; In the next two years, it is likely that the amount of Ether used for storage will increase from 8% to 80%, and this will lead to a decrease in the circulation of Ether, which may lead to an increase in its value.
The use of "Ether"
Depositors will be able to use the Ether they receive as rewards for completing order transactions, but it is not the Ether they are currently depositing, at least until a new software upgrade is issued, which is expected six months or so after the merger. So; Depositors will likely hold their Ethereum longer than miners, who will likely need to sell some to cover electricity costs, says Kyle Samani, co-founder of Multicoin Capital.
After merging, the power consumption of the Ethereum network should drop by more than 99%. To request transactions on the Proof of Deposit network, the validator can use a high-end laptop computer instead of a web server. The entire Ethereum proofing process is expected to consume about 2.62 megawatts — the equivalent of a small town with 2,100 American homes. In contrast, The current Proof of Work network setup consumes the power of a medium-sized country.
“Even my daughter, I noticed the hysteria of the difficulty of using non-fungible tokens... (Proof of Work) will certainly help make applications such as decentralized finance and non-fungible tokens more socially acceptable, leading to rapid and broader adoption.”
Much will, of course, depend on whether or not the integration process will go smoothly. “If we do our job well, nobody will notice the moment [Ethereum] goes from [Proof of Work] to [Proof of Deposit],” says Eddington.