Sign up now for FREE unlimited access to Reuters.com Register Aug 16 (Reuters) – It looks like the ethereum mega-upgrade is happening. After all. After years of delays, the “Merger” looks almost certain to happen in September, with the cryptography underlying the blockchain undergoing a radical change to a system where creating new ether tokens becomes much less energy-intensive. “This is an exciting time for the ethereum ecosystem,” said Omar Syed, co-founder of smart contract platform Shardeum. “I think there will be drama around Merge, but I don’t think there will be technical problems.” Sign up now for FREE unlimited access to Reuters.com Register Investors seem to agree, with ether outperforming big brother bitcoin. Ether posted six straight weeks of gains, pushing it from a 1-1/2-year low of $880 in mid-June to levels approaching $2,000, although it is a long way from its November 2021 peak of $4,868.79. Bitcoin pales in comparison, recovering 37% from a 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 total $1.14 trillion cryptocurrency market capitalization, up from less than 14.9% two months ago, according to the CoinMarketCap. Bitcoin’s share has fallen to 40.2% from 44.9% over the same period. “Crypto is still very closely related, I think when the merger is successful it could push up the price of bitcoin as well,” said Alex Miller, CEO of Hiro, which makes developer tools for building bitcoin apps. If ethereum’s creators succeed, as widely expected, it could be a game-changer for 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 delayed several times, with developers recently ending plans to push the button in June, unnerving investors who began to fear it might never see the light of day. The merger is also fraught with risk, and the fortune of about 122 million Ether in circulation, worth about $232 billion, could be at stake if it fails. If the upgrade doesn’t go well, it would “set the entire crypto world back five or 10 years,” Hiro’s Miller said. Reuters Graphics
“DIFFICULTY BOMB”
The ethereum blockchain currently uses the energy-intensive proof-of-work (PoW) method to validate blocks, where miners use massive amounts of energy to quickly solve complex computational problems to earn newly minted coins. On a parallel chain, ethereum is testing 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 blockhain’s energy consumption and prepares it for faster transactions. Not everyone is happy about the impending merger of the two systems – especially ethereum miners, whose expensive mining rigs will become obsolete and cannot be used for bitcoin mining either. 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 turn to mining the next best option, such as ethereum classic tokens or ravencoin. At least one miner has stated plans to resist and continue mining ethereum, raising the specter of some people keeping the PoW chain running in its current form even after the merger, possibly competing with the upgraded blockchain. However, this option has risks. The creators of Ethereum designed a “difficulty bomb” to exponentially increase the mining difficulty in order to discourage the parallel PoW chain after the merge. Additionally, both Tether and USDC – the largest stablecoins – have thrown their weight behind the merger, reducing the likelihood of wider PoW adoption.
FOAM FUTURES
“The likelihood of a long-term Ethereum chain split after the merger remains small,” said Alex Thorn, head of research at Galaxy Digital. However, at least some investors are preparing for a hard fork or parallel PoW chain, as shown by the placement in the derivatives market. Ether futures were also trading at a premium to $1,905 on the CME exchange, “reflecting expectations around a proof of work,” said Matthew Sigel, head of digital asset research at fund manager VanEck. “But this gap is not so huge that we think there is too much foam,” he added. Sign up now for FREE unlimited access to Reuters.com Register Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru Editing by Vidya Ranganathan and Pravin Char Our Standards: The Thomson Reuters Trust Principles.
