Cryptocurrency investors have arguably just had one of the smoothest weeks in several months now.
Overall, prices stabilized.
The market as a whole is back above $1 trillion. Admittedly, we are still very far from the 3000 billion dollars reached in November in full crypto mania, but it is much better than the thresholds of 700 billion dollars and 800 billion dollars on which the market fell in June and the beginning of July. .
All eyes remain on bitcoin (BTC), which concentrates 40% of the value of the digital currency market. The king of cryptocurrencies is now moving around the $24,000 threshold after falling to $18,000 in June.
Over the past seven days, BTC is up 3%, according to data compiled by firm CoinGecko. Its market value is estimated at around $455 billion.
Ether is the real star
But the real star of the market rebound is Ethereum or Ether (ETH), the second digital currency by market value. Over the past seven days, ETH has gained over 7% and is currently trading around $1,700 with a market value of $203.6 billion at the time of writing. ETH accounts for 18% of the cryptocurrency market.
A wind of optimism is currently blowing in the direction of ETH.
The reason is simple: the Ethereum ecosystem, which allows payments to be made using its native cryptocurrency ETH, is on track to complete the biggest update, called the merger, in its planned history. for September 19.
Bitcoin and Ethereum are fundamentally different as the former was designed to enable decentralized finance while the latter was also designed to 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 things is different, with implications for speed, durability, reliability and accessibility. .
Transition from Proof of Work to Proof of Stake
On Ethereum, we have seen various trends emerge such as initial coin offerings (ICO), decentralized finance (DeFi), non-fungible tokens (NFTS) and more recently the metaverse.
However, network performance cannot keep up with the growing demand. Thus, for several months Ethereum has been the victim of significant congestion. One of the main consequences of this congestion has been the drastic increase in charges on the network.
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The developers have imagined several developments aimed at improving the performance of the network and allowing it to process a greater volume of transactions, without negatively impacting the user experience.
These changes have long been lumped together as Ethereum 2.0. The main changes are the switch from proof-of-work to proof-of-stake, and the deployment of sharding, a solution aimed at splitting the network into several subnets, in order to increase processing capacity.
Proof of work versus proof of participation
Proof of work asks participants to perform complex calculations for the chance to become the user who will validate a set of transactions and add them to the blockchain, earning them a certain amount of cryptocurrency.
The “work” is to guess, as accurately as possible, a unique 64-character alphanumeric string. This work used to be done by amateurs, but the processing power needed increases over time, so the “mining” process is now reserved for specialists. businesses and organizations, that is, those who can afford to buy the hardware and power needed to run it.
Proof-of-work consensus mechanisms such as bitcoin have come under a lot of criticism due to the amount of power expended by the computer hardware used.
Proof of Stake requires participants to stake their own money for the ability to validate transactions and add a block to a blockchain, rather than perform complex calculations.
The more cryptocurrencies a person stakes, the more likely they are to be chosen to perform a block of transactions on a blockchain and earn a set amount of coins. Not requiring powerful hardware, proof-of-stake is considered a greener consensus mechanism than proof-of-work.
Ethereum “will use at least ~99.95% less energy after the merger,” the Ethereum Foundation said.
The merger aims to connect the “application” part of Ethereum as we know it, namely the entire application ecosystem (Ethereum 1.0), to the new proof-of-stake consensus mechanism (Ethereum 2.0). As a reminder, this consensus layer was deployed in December 2020, via the launch of the beacon chain.
Basically, Ethereum will become the addition of Ethereum 1.0 (execution layer) + Ethereum 2.0 (consensus layer).
Ethereum developers hope to finalize the merger of the two entities on September 19 after a third test scheduled for August. The first two tests, one in June and another this month, went off without a hitch.
The main benefits of the merger are lower transaction costs and the streamlining and speeding up of operations.