Posted on 09/20/2022 9:02:47 AM PDT by SeekAndFind
Ethereum, the world’s second-most valuable digital currency by market capitalization, completed a long-awaited upgrade to its system on September 15.
The move, known in the cryptocurrency community as “The Merge”, is expected to slash energy costs and lay the groundwork for more use of crypto technology in mainstream applications, including finance.
The upgrade was one of the most eagerly anticipated events in crypto’s history. But the process is complicated. Here’s what to know about it.
Ethereum is a blockchain – a publicly-viewable, distributed ledger that verifies and records all transactions on the network. The platform was conceived by Russian-born Canadian programmer, Vitalik Buterin, in 2013. What sets apart Ethereum’s blockchain from Bitcoin’s is that it allows users to run “smart contracts.” These are computer programs stored on the blockchain that automatically perform a chain of actions when certain conditions are met. This functionality has allowed many people to build a large network of financial institutions, such as decentralized exchanges and lenders, and even other digital tokens on the Ethereum blockchain.
The years-long effort has changed how transactions are verified on the Ethereum blockchain. In December 2020, Ethereum began running on two parallel blockchains, one using the legacy system to validate transactions and another blockchain using proof-of-stake for developers to test and improve. This merge combines the two blockchains into a single one using a proof-of-stake system for validations.
Ethereum, like Bitcoin and other lesser-known cryptocurrencies, previously relied on network participants (so-called miners) solving complex mathematical problems to validate transactions, a process known as proof of work. For their effort, miners receive newly minted digital tokens. Ethereum’s new process will rely instead on what’s called proof of stake and it will eliminate the need for miners. Proof-of-work systems have recently come under fire for using tremendous amounts of electricity. By contrast, proof-of-stake systems consume very little electricity.
In a proof-of-stake system, individuals or companies act as validators (instead of miners), staking their own Ethereum tokens (known as ether or ETH) as collateral to validate transactions and secure the network. Validators are incentivized to do so by the chance to earn rewards, namely additional ETH tokens.
The proof-of-stake system makes decisions about updating the Ethereum blockchain by a vote among the holders of the cryptocurrency. Voting power depends on how much ETH has been staked. Large holders, known as validators, must invest 32 ETH, and are required to perform certain duties to maintain the blockchain’s integrity, such as confirming the transactions of other validators. Their “staked” tokens can be destroyed if the validators misbehave, such as putting through invalid transactions.
The promise of financial punishment for validators misbehaving also makes it harder for the Ethereum blockchain to fall under a “51% attack” in which bad actors take control of more than half of the network, allowing them to write parts of the blockchain as they wish.
The switch to proof-of-stake by Ethereum will likely decrease its electricity usage by an astonishing 99.95%.
It is no secret that proof-of-work crypto mining uses a jaw-dropping amount of electricity. Bitcoin and Ethereum were using more electricity than Sweden or Argentina before the merge. In Bitcoin-friendly Texas, for example, crypto mining gobbles up about 3% of local demand for electricity during times of peak usage, and may account for a third of new electricity demand in Texas over the next decade. Since much of that electricity is not generated by renewable sources like wind and solar, crypto is responsible for large amounts of carbon dioxide and other emissions that contribute to climate change.
All that new demand for electricity is difficult to meet. In some states, crypto mining has led to restarting of retired plants that burn fossil fuels for electricity, increasing mining’s climate change impact.
Crypto mining also uses and burns quickly through large amounts of computer hardware, resulting in almost 38 kilotons of electronic waste (or “e-waste”) per year. E-waste is typically contaminated with harmful substances like mercury, lead, or arsenic, which can cause neurological problems or cancer. Ethereum’s proof-of-stake system should reduce its e-waste output dramatically, according to Alex DeVries of Digiconomist.
The merge could help push crypto further into the mainstream not only because of proof-of-stake’s more energy-efficient process but also because of the financial incentives that users will now have to stake their ETH and earn a yield on it.
The transition to a proof-of-stake model should lower inflation and increase staking yields, which should make it more appealing for institutional investors. Needham & Co. estimates that the annual new issuance of ETH will decline from around 4.9 million annually before the merge to roughly 970,000 annually post-merge.
Right now, the yield for staking ETH sits at 4.1% for validators, but it could rise to as much as 7% after the merge. This means more revenue for companies that are allowing investors to pool their ETH holdings (there is a 32 ETH minimum at the moment) for staking, such as crypto exchanges Coinbase and Kraken, as well as institutional and individual validators.
I love tulips !
My sentiments exactly!
I don’t understand the value of crypto currencies.
You use the internet to use the crypto so your actions can be spied on. End of story.
FT Crypto Ping List!
I’ve invested a small amount in Crypto. Waiting to see if my Etherium takes off. If not? Oh well. In another method, I’ve more than doubled my investment in a year. So far, so good.
It’s money I could afford to lose, and I’ve enjoyed seeing a return.
Haters gonna hate. I’ve known 3 people personally that got involved in Bitcoin early and became multi-millionaires. They’re smart, so they still are.
Most worrisome to me is the continued closeness of Etherium to the WEF.
Bitcoin doesn’t have that problem…
Indeed note Biden’s executive order 14067 none of your money is safe.
Investment!?
That is pretty funny.
I deal with fiat currency international TX every week and it is a huge pain in the butt. Reams of information have to be provided, transfers take hours or days, with costs ranging up to dozens of $. Errors in processing are common. By contrast I can send Nano around the world 5 times a second at 0 cost, needing just a single character string to do so. No counterfeiting, no forged checks, no clawbacks, etc. While there is a learning curve and plenty of expensive scams and mistakes for the unwary, overall it's a dramatic step forward into the future.
It means that dirt cheap GPU cards are on the way!
Recent advice I got regarding Ether: With ETH, focus on its future ‘Merge,’ not its current one.
The “merge” may not be what gets it back above $2000 per coin, but a “merge” of sorts down the road (the merger of traditional and blockchain finance) may be what drives ETH to substantially higher prices over the next few years.
Keep this in mind, when today’s uncertainties have you wondering whether now is the time to make an exit from Ether (if you own) or to otherwise avoid it (if you don’t own it yet).
Once rate hike worries clear up, the market will again appreciate the impact that both “The Merge” and “The Shard” (the last stage of the Eth2 upgrades) will have in enabling the Ethereum blockchain, and in turn, the ETH coin, to benefit the most from the integration of blockchain technology into the dollar-based financial system.
Make Ether (ETH-USD) a long-term “buy and hold” position, selling half your position each time it doubles in price.
“Exactly the opposite.”
I see the value in what you’re explaining.
I’m thinking of big brother prying. They’d know I went to a crypto site. They’d ask me what I spent or received. Could I say ‘not telling’ and not end up in jail?
With keystroke logger installed on my computer, could they tell where the money came from or went to?
Wait, let me walk that back a bit. Hardcore crypto security-minded folks advise using an offline (never connected to the internet) machine that they process their crypto transactions on. This should be absolutely secure (short of someone planting a spy camera in the room). They use the offline computer to generate a transaction and then type it into an online computer to publish the TX to the network. In this case a keystroke logger would know you've sent a transaction, but your account (private key) would be totally secure.
With traditional financial accounts the keystroke logger would have your account ID/password, but with a crypto wallet it would never see anything that could compromise your funds with this setup.
Yeah. It’s low, so buy some and hold. See where it goes. Only invest money you can afford to lose. When/if a republican administration ever gets into office again, things will change for the better.
“If they have a keystroke logger, you’re pretty much screwed”
If I’m receiving data using double-key encryption (forgot what it’s called), I generated both public and private keys and sent the public one to the other end. The other end uses the public key to send stuff to me.
Do you create the keys on your offline computer? If so, when you get an encrypted message from the other guy on your online computer, how do you get that message to your offline computer so you can decrypt it.
I’m probably missing something.
Here’s my idea to deal with hacking. Use very simple, primitive, internet software, perhaps like what we ran 20 years ago. Communicate only with text. No software downloading. The software in the computers is burned in ROM and never changes. This would not be your entertainment computer. It would be only for secure communication. The two-factor encrpytion scheme could be used.
This merge has left a void for miners. Eventally the miners will pick a few different Crypto-mining eneties, maybe Raven Coin is one.
I turned off my mining rigs; I was running 32 of my 43 GPUs round the clock. Even though my Electric and water bill was around (plus or minus) 700 USD, I was making more than the electric cost, plus the taxation too. My house is cool now and liveable. I hope anouther crypto coin can at least provide current break even or even some actual profit, but I don’t see any mining crypto worth mining at present.
Eighty percent of the miners in operation were mining Etherum/Eth. Thats billions of dollars not being created every month. Something will have to come along.
Go to Trader University for explanations of these topics.
https://www.youtube.com/c/TraderUniversity
Right, that's the idea. As far as receiving messages, that's not an issue in relation to keeping private keys safe. What I had in mind above was only for posting cryptocurrency transactions to an online blockchain, not for 2-way secure communication.
Personally if I had to communicate online with someone securely, I'd either use Signal, or send innocuously labeled ZIP files with a password shared with the recipient offline, or have us both sign up for an online game and send private messages within it, depending on circumstances. I'm sure there are better techniques than these, but they are probably "good enough" for all but the most intense scenarios.
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