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News Item: Ethereum blockchain completes ‘monumental’ overhaul

Leading cryptocurrency figures hailed on Thursday the completion of one of the biggest software upgrades the sector has ever attempted, an overhaul of the Ethereum blockchain aimed at reducing its massive energy consumption.

Developers had spent years working on an energy-efficient version of Ethereum, a digital ledger that underpins tens of billions of dollars worth of cryptocurrencies, digital tokens (NFTs), games and apps.

Ethereum is the second most important blockchain after bitcoin, but it has faced criticism for burning through more power each year than New Zealand.

“And we finalized!” tweeted Ethereum’s co-creator Vitalik Buterin, calling it a “big moment for the Ethereum ecosystem”.

Buterin quoted research claiming that the “merge”, as developers have called the software upgrade, would reduce global electricity consumption by 0.2 percent.

Enthusiasts hope a more energy efficient Ethereum will spur wider adoption of blockchain technology, particularly for banks and financial firms to automate backend processes.

But so far the technology has been used largely to create speculative financial products.

And critics remain sceptical of the energy saving claims, pointing out that it is unclear how much energy the new system will need.

– Trading resumes –

Blockchain company Consensys called it a “monumental technological milestone” but the scale of the work and potential for glitches led several companies and major exchanges to halt trading during the merge process.

The biggest exchange, Binance, said on Thursday it had resumed trading in ether, the native currency of Ethereum, tweeting: “The Ethereum Merge is complete.”

Ether was down slightly in early trading and has lost more than half of its value since the start of the year, suffering a rout along with the rest of the crypto world as investors shied away from risky assets.

But ether has recovered better than most crypto assets and Edouard Hindi of Geneva-based crypto hedge fund Tyr Capital told AFP the currency was now likely to rise against the dollar and bitcoin as cautious investors begin to buy.

Ether accounts for almost 20 percent of a cryptocurrency market valued at around $1 trillion, according to the site CoinGecko.

The upgrade changes the way transactions are logged on the Ethereum blockchain.

From the start of Ethereum in 2015, so-called crypto miners competed for the prize of adding entries to the blockchain.

They used vast computer power to solve complex equations with only the winners getting the reward, a mechanism known as “proof of work”.

The new system scraps the competition element and eliminates the miners and their energy-guzzling computer stacks.

Instead, potential “validators” need to put up 32 ether (worth $55,000) with the winner chosen in a lottery-style system to update the chain and receive the reward, a system known as “proof of stake”.

“It makes Ethereum much easier to understand conceptually and far less controversial,” Charlie Erith of ByteTree Asset Management told AFP.

He said it would make it harder for investors and regulators to take a tough line on the technology.

However, the upgraded blockchain could face a rocky start.

Some crypto mining companies have already promised to keep running the old mechanism on a smaller blockchain, “forked” from the main Ethereum chain.

And even if the “merge” is successful, Ethereum will remain expensive and slow compared with non-blockchain alternatives.


14/9/22 - Ethereum blockchain set for 'monumental' overhaul

An army of computer programmers scattered across the globe is set to attempt one of the biggest software upgrades the crypto sector has ever seen this week to reduce its environmentally unfriendly energy consumption.

Developers have spent years working on a more energy-efficient version of the ethereum blockchain, a digital ledger that underpins a multibillion dollar ecosystem of cryptocurrencies, digital tokens (NFTs), games and apps.

Ethereum — the second most important blockchain after bitcoin — burns through more power each year than New Zealand.

Experts say the changeover, expected to take place between Tuesday and Thursday, would slash energy consumption by more than 99 percent.

Enthusiasts hope a greener ethereum will spur wider adoption, particularly as a way of enabling banks to automate transactions and other processes.

But so far the technology has been used largely to create speculative financial products.

The ING bank said in a recent note that the switchover might help ethereum gain acceptability among policymakers and regulators.

“This in turn may provide a boost to traditional financial institutions’ willingness to develop ethereum-based services,” the bank said.

– ‘Technological milestone’ –

The switchover, dubbed “the merge”, will change the way transactions are logged.

At the moment, so-called crypto miners use energy-guzzling rigs of computers to solve puzzles that reward them with new coins — a system known as “proof of work”.

The new system will get rid of those miners and their computer stacks overnight.

Instead, “validators” will have to put up 32 ether (worth $55,000) — ethereum’s cryptocurrency — to participate in the new “proof of stake” system where they earn rewards for their work.

But the merge process will be risky.

Blockchain company Consensys called it a “monumental technological milestone” and the biggest update to ethereum since it was launched in 2015.

Critics have questioned whether such an upgrade will pass off without incident, given the sector’s history of instability.

Ethereum went offline in May for three hours when a new NFT project sparked a surge in buyers that overwhelmed the network.

Several exchanges and crypto companies said they would halt transactions during the merge process.

– ‘Decentralised and complicated’ –

The upgrade also faces a possible rebellion from crypto mining companies whose business will be severely damaged.

They can try to hijack the process or create a “fork”, basically a smaller blockchain that would continue with the old mechanism.

And even if the “merge” is successful, ethereum will still face major hurdles before it can be more widely adopted.

For example, it is expensive to use and the update will not reduce fees.

And the wider crypto sector is beset by wildly fluctuating prices, security flaws and an array of scams.

Crypto lawyer Charles Kerrigan from the firm CMS told AFP that ethereum was “decentralised and complicated” and had not yet been tested enough for governments and banks to get onboard.

“There have been questions about how easily it could deal with upgrades of the type that traditional software vendors provide to customers,” he said.

“A successful merge will answer those questions.”