Ethereum’s upgrade is finally coming — will it overtake Bitcoin?
This upgrade is a vital step towards a much greener and faster version of the current system
Why ethereum 2.0
Ethereum has several major problems, however. The first is that gas fees havebecome very expensivein the last couple of years because the network has become so popular and is therefore very congested.
Validators prioritize users who are willing to pay the highest fees for their transactions. For example, the average transaction at the time of writing on crypto exchange Uniswap costsaround US$44in gas fees.
Bitcoin has comparable issues with congestion, which its developers are trying to solve by building applications likeLightningon top which boast faster transaction speeds.
The second problem for ethereum is that, as it has become more popular, the amount of computational power used by validators has rocketed. It’s the same problem that has brought a lot ofnegative publicityto bitcoin because it uses a lot of electricity.
Bitcoin is currentlyusing as much power as the whole of the Philippines, although its supportersargue thatmuch of this is power that would otherwise be wasted – for example, oil rigs burning off natural gas because it’s not profitable to sell it. Proponents also point out that the network is shifting towards using much more renewable power over time.
At any rate, the eventual creation of an ethereum 2.0 will solve these problems by moving the platform’s system of validation from “proof of work” to “proof of stake”. Without getting intotoo many details, proof of work is a protocol in which validators all attempt to solve complex equations to prove that each proposed transaction is valid. With proof of stake, there’s no need for all validators to do this power-hungry work, because the system chooses one at random to confirm each transaction.
Many in the bitcoin communityare againstproof of stake because it gives the most power to the biggest validators, potentially allowing them to corrupt the system of validation if they can get control of more than half of the network. Ethereum supporters counter that proof of stake has checks and balances built in that would prevent this from happening.
Either way,ethereum 2.0 promisesto reduce the platform’s power consumption by 99.9%, making it far more sustainable. It should also solve the problem with gas fees by raising the platform’sprocessing abilityfrom 30 transactions a second to potentially 100,000, as well as making possiblemore sophisticatedsmart contracts than before.
How it’s going
The transition to ethereum 2.0 has been a slow one, riddled with technical issues that have dragged onfor over two years. For the past few months, the new proof-of-stake blockchain has been running in a test format in parallel with the existing system, allowing the developers to prepare it for a merger in 2022.
The forthcoming upgrade is essentially a warm up for this merger. Known asAltair, it introduces numerous technical changes that are designed to keep validators honest and make the system more decentralized. Assuming this goes ahead as planned, all eyes will be on the merger, and then later another change known as “sharding” which will greatly increase the system’s processing capability.
Certainly, the price of ether has been strong ahead of the Altair upgrade. The recent surge in bitcoin to all-time highs has been helping to lift the entire crypto market. But some of the price movement in ether probably reflects people betting that the upgrade will succeed, while the rest is from speculators switching from bitcoin, and new money moving into the space.
Ether vs the ‘eth killers’ by total value
In the run-up to the merger of ethereum’s two blockchains, it will be interesting to see how all this affects ether’s price in relation to the so-called “eth killers”. These are rival platforms like Cardano and Solana that have been very popular in recent months partly due to ethereum’s problems with fees.
But ultimately the question is what it will mean for bitcoin. Bitcoiners will continue to argue that their protocol is more decentralized than proof of stake, and they have the advantage of being thecrypto brandthat investors are most comfortable risking their money with.
The question is whether these advantages are outweighed by ethereum 2.0’s greener credentials and the fact that it can handle more transactions. Bitcoin is currently worth about double ether, but talk comes and goes about a “flippening” where ether overtakes it. Could it happen in 2022? With bitcoin’s hegemony at stake, it will be fascinating to find out.
Article byDaniel Broby, Director, Centre for Financial Regulation and Innovation,University of Strathclyde
This article is republished fromThe Conversationunder a Creative Commons license. Read theoriginal article.
Story byThe Conversation
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