Cryptocurrency investors have arguably had one of the least chaotic weeks in several months.
Overall, prices have stabilized.
The market as a whole is back above $1 trillion. Admittedly, while we’re still a long way from the $3 trillion hit in November amid crypto-mania, it’s a lot better than the $700 billion and $800 billion thresholds, to which the market fell in June and early July.
All eyes remain on Bitcoin (BTC), which accounts for 40% of the value of the digital currency market. The king of cryptocurrencies is now hovering around the $24,000 line after falling to $18,000 in June.
In the past seven days, BTC is up 3%, according to data from CoinGecko. Its market value is estimated at around $455 billion.
Ether is the real star
But the real star of the market rally is Ethereum, or Ether (ETH), the second largest digital currency by market value. Over the past seven days, ETH is up more than 7% and is currently trading around $1,700 for a market value of $203.6 billion at the time of writing. ETH represents 18% of the cryptocurrency market.
A touch of optimism is currently blowing towards ETH.
The reason is simple: the Ethereum ecosystem, which allows payments with its native cryptocurrency ETH, is on track to achieve the biggest update, dubbed Merge, in its history, scheduled for September 19th.
Bitcoin and Ethereum are fundamentally different as the former was designed to enable decentralized finance while the latter should also enable applications and contracts.
Both systems use blockchain technology to validate and record transactions, but an upcoming change in how Ethereum works will mean the way they do it will be different, with implications for speed, durability, reliability, and Accessibility.
Transition from proof-of-work to proof-of-stake
On Ethereum, we have seen the emergence of various trends such as Initial Coin Offerings (ICOs), Decentralized Finance (DeFi), Non-Fungible Tokens (NFTS) and more recently the Metaverse.
However, the network performance cannot keep up with the growing demand. Ethereum has been the victim of a significant overload for several months. One of the main consequences of this congestion was the drastic increase in network charges.
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The developers have come up with several developments aimed at improving the performance of the network and allowing it to process a larger volume of transactions without negatively affecting the user experience.
These changes have long been grouped under the name Ethereum 2.0. The main changes are the move from proof-of-work to proof-of-stake and the use of sharding, a solution that aims to split the network into multiple subnets to increase processing capacity.
Proof of Work vs. Proof of Stake
Proof-of-Work asks participants to perform complex calculations to become the user who validates a set of transactions and adds them to the blockchain, allowing them to earn a certain amount of cryptocurrency.
The “work” is to guess a unique 64-character alphanumeric string as accurately as possible. This work used to be done by amateurs, but the computing power required increases over time, so the “mining” process is now reserved for specialists companies and organizations, i.e. those who can afford to buy the hardware and power to operate them.
Proof-of-work consensus mechanisms like Bitcoin have come under heavy criticism due to the high power consumption of the computer hardware used.
Proof-of-Stake requires participants to use their own funds to validate transactions and add a block to a blockchain, rather than performing complex calculations.
The more cryptocurrencies a person bets, the more likely they are to be selected to complete a block of transactions on a blockchain and earn a set amount of coins. Proof-of-Stake does not require powerful hardware and is considered a greener consensus mechanism than Proof-of-Work.
Ethereum “will consume at least ~99.95% less energy after the merge,” the Ethereum Foundation said.
The Fusion
The merger aims to connect the “application” part of Ethereum as we know it, namely the entire application ecosystem (Ethereum 1.0), with the new consensus mechanism of Proof-of-Stake (Ethereum 2.0). As a reminder, this consensus layer was deployed in December 2020 over the launch of the Beacon chain.
Basically, Ethereum will be the complement of Ethereum 1.0 (execution layer) + Ethereum 2.0 (consensus layer).
Ethereum developers hope to complete the merger of the two companies on September 19 after a third test scheduled for August. The first two tests, one in June and one this month, went smoothly.
The main benefits of the merger are that transaction costs will decrease and operations will be streamlined and accelerated.
