Representations of the cryptocurrency Bitcoin, Ethereum and Dash are submerged in water in this illustration taken May 23, 2022. REUTERS/Dado Ruvic/Illustration
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Aug. 16 (Reuters) – Ethereum’s mega-upgrade appears to be happening. Finally
After years of delays, the “Merger” looks almost certain to happen in September, with the cryptography underlying the blockchain undergoing a radical shift to a system where the creation of new ether tokens is done much less energy intensive.
“It’s an exciting time for the ethereum ecosystem,” said Omar Syed, co-founder of smart contract platform Shardeum. “I think there will be drama around the merger, but I don’t think there will be any technical issues.”
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Investors seem to agree, with ether outperforming big brother bitcoin.
Ether has seen six consecutive weeks of gains, pushing it from a one-and-a-half-year low of $880 in mid-June to levels closing at $2,000, though it is far from its November 2021 high of $4,868.79.
Bitcoin has paled in comparison, recovering 37% from its June low to $24,116.
Ether is gnawing away at behemoth bitcoin’s market share: it now accounts for nearly a fifth, 19.7%, of the total $1.14 trillion crypto market cap, up from less than 14.9% two months ago, according to CoinMarketCap. Bitcoin’s share has dropped to 40.2% from 44.9% in the same period.
“Crypto is still very much linked, I think when the merger is successfully completed it could also increase the price of bitcoin,” said Alex Miller, CEO of Hiro, which creates developer tools to build applications for bitcoin.
If ethereum’s creators succeed, as they largely expect, it could be a game changer for the blockchain, making it cheaper to mine and easier to adopt for fintech and other applications cryptography
Of course, little is certain about the elusive transition, which has been delayed several times, with developers recently scrapping plans to push the button in June, unnerving investors who began to fear it would never see the light of day .
The merger is also fraught with risk, and the fortune of the roughly 122 million Ether in circulation, worth about $232 billion, could be at stake if it fails.
If the update doesn’t go well, “it would set the entire crypto world back five to 10 years,” said Hiro’s Miller.
Reuters charts
“DIFFICULTY BOMB”
Currently, the ethereum blockchain uses the energy-intensive method of block validation (PoW), in which miners use massive amounts of energy to quickly solve complex computational problems to earn newly minted coins.
On a parallel chain, ethereum has been 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 makes it ready for faster transactions.
Not everyone is happy with the impending merger of the two systems, especially ether 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. According to Arcane Research, Ether miners earned $18 billion in 2021 compared to $17 billion for bitcoin miners.
Some miners have decided to switch to mining the next best option, such as ethereum classic tokens or ravencoin.
At least one miner has declared 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, likely competing with the updated blockchain.
However, this option has dangers.
The creators of Ethereum have designed a “difficulty bomb” to exponentially increase the difficulty of mining in order to discourage parallel chain PoW after the merger.
Additionally, both Tether and USDC, the largest stablecoins, have thrown their weight behind Merge, reducing the likelihood of wider adoption of the parallel PoW chain.
SPARKLING FUTURES
“The likelihood of a long-term Ethereum chain split after the merger remains slim,” said Alex Thorn, head of corporate research at Galaxy Digital.
However, at least some investors are preparing for a hard fork or a parallel PoW chain, the positioning in the derivatives market indicates.
Ether futures were also trading at a premium to $1,905 on the CME exchange, “reflecting expectations for a proof-of-work fork,” said Matthew Sigel, head of digital asset research at the fund manager VanEck.
“But this gap is not so big that you think there is extreme foam,” he added.
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Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru Editing by Vidya Ranganathan and Pravin Char
Our standards: the Thomson Reuters Trust Principles.