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a blockchain revolution or just more hype? Ethereum’s switch to a greener system is seen by crypto enthusiasts as a long-awaited chance to prove critics wrong

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At the Blockchain Futurist Conference in Toronto in early August, Ethereum co-founder Vitalik Buterin stood before an excitable audience to deliver some big news. “The Merge is coming,” he told the crowd, “this effort that we have been working on for basically the last eight years . . . Ethereum will finally become a proof-of-stake system . . . Yay!” The audience cheered.


If there is one thing the crypto community has in good supply, it’s promises. In the relatively short history of digital assets — starting with bitcoin in 2009 — evangelists have trailed a list of innovations that, they say, could solve inflation, revolutionise business, or provide a financial lifeline to people living under authoritarian regimes around the world.


In response, critics of the largely unregulated industry have highlighted its links to criminal activity and huge carbon footprint, not to mention the financial ruin it has brought to many vulnerable people — the same ones industry representatives often claim they want to help.


The faithful now have an opportunity to prove their critics wrong. On the horizon is arguably crypto’s most ambitious project yet, dubbed “the Merge”. The term describes the moment when the Ethereum blockchain will merge with a system called the Beacon Chain. Ethereum is the most popular platform for parts of the Web3 — or “new internet” —world that have tried to enter the mainstream, such as NFTs and decentralised finance.



Vitalik Buterin co-founded Ethereum. Some see the software platform’s Merge as a historic moment that will take crypto mainstream © Michael Ciaglo/Getty Images

When the Merge happens, probably sometime this week, the stage will be set for innovations intended to address some of the harshest attacks on the industry. These are high stakes for a project that most people outside the crypto world have never heard of — and that many who have only vaguely understand. If the fusion goes off without a hitch, Ethereum will shift from a “proof-of-work” system to one known as “proof of stake”.


Proof-of-work systems such as the bitcoin and Ethereum blockchains are kept secure by powerful computers. These “nodes” race against each other 24/7 to solve complex mathematical calculations in order to validate each new block of transactions added to the chain. The system defends against individual nodes being able to corrupt the blockchain, but it also demands an immense amount of energy to run. That translates to a carbon footprint too big for environmentalists and crypto-sceptics to stomach.


By contrast, in a proof-of-stake system such as the one Ethereum is moving to, the blockchain doesn’t need powerful computers for its security. Instead, individuals or companies act as the validators, staking their own ether tokens (the native currency of the Ethereum blockchain) as collateral against bad behaviour. They are incentivised to do so by rewards, including the chance to earn fresh ether.



Some see the Merge as a historic moment that will take crypto mainstream by drastically reducing the industry’s levels of energy consumption — the Ethereum blockchain’s annual level is currently estimated to be as high as that of Finland. “This is a pretty critical step for the infrastructure to actually scale, in order for Ethereum to become what it can become — a 24/7, global permissionless capital market,” says Avichal Garg, partner at early stage venture firm Electric Capital.


Noam Hurwitz, a software engineer at Web3 development platform Alchemy, describes it as “the biggest milestone to date of proof [the developers] can execute on their road map”.


But to others, the shift represents a betrayal of the blockchain’s fundamental characteristics — to be an open, transparent and decentralised network, self-policing by design and controlled by no group of individuals. The Merge will not revolutionise the whole Web3 world, and it will not directly solve many of the biggest problems facing the Ethereum blockchain, such as high transaction fees and slow transaction speeds.



Still, after years of talk, a successful Merge at least sets the scene for future innovation, particularly by allowing the Ethereum blockchain to scale and handle heavier workloads. This is good news for the applications that build their businesses on the blockchain, such as the NFT marketplace OpenSea, or decentralised crypto exchanges like Uniswap. Charles Storry, head of growth at crypto index platform Phuture, who works in the niche worlds of decentralised finance and Web3 tech, is full of optimism.


It “is massive for Ethereum and the wider crypto community, because it unlocks new applications which wouldn’t be possible in the existing system, increases scalability and radically improves Ethereum energy efficiency,” he says. “We’re just getting started.”


Gas guzzlers

Despite the hype, whether the Merge really heralds the mainstreaming of crypto projects is a matter of serious doubt. This year’s turmoil in crypto markets has tainted the mood: a crash in coin prices wiped about $2tn off the total value of cryptocurrencies and blockchain-based ventures have been caught in its wake.


Some of the biggest companies in the sector have declared bankruptcy this summer, including hedge fund Three Arrows Capital and lending platform Celsius. Tumbling valuations in the tech world have also threatened to reach deeper into the crypto and fintech sectors.


Ethereum is not the only blockchain in town. Others — such as the bitcoin blockchain — will still use proof-of-work systems after the Merge. According to estimates by Cambridge university, the bitcoin blockchain consumes so much energy that if it were a country, it would rank in the world’s top 35 by energy consumption, surpassing Belgium and Finland.



If Ethereum’s Merge goes as planned, it will put pressure on bitcoin, whose blockchain mining activities consume more energy in a year than Belgium © Lars Hagberg/AFP/Getty Images

So why does the Merge matter if other blockchains are still guzzling energy and harming the environment? Alex de Vries, founder of the website Digiconomist, claims the Merge could shed approximately 99 per cent of Ethereum’s current energy consumption.


Even if bitcoin’s dirty climate record is set to continue, de Vries argues any progress towards greening the industry is better than none: “You can’t say we have cleaned up cryptocurrency when the biggest polluter is still out there . . . but I would say this is a massive step forward at the very least . . . the outside world also needs to see that this is possible.”


Many of the “second layer” projects that are built on the Ethereum blockchain (such as NFTs and decentralised finance platforms) will also be affected. “It makes Ethereum greener, which is important because that has actually been a stumbling block to adoption,” says Alkesh Shah, crypto and digital asset strategist at Bank of America. “Many people [who would otherwise] use those digital assets don’t because of the energy use and the negatives for the environment.”


“It’s going to dramatically reduce the carbon footprint for the whole industry,” says Ilan Solot, a partner at venture capital firm Tagus Capital.


 

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