After years of waiting, the Ethereum blockchain appears to be headed for a fundamental upgrade. The technology behind many decentralized finance and crypto-token projects is becoming more environmentally friendly and efficient.
In the blockchain world, the upgrade of Ethereum, which may – definitely not – come on September 19, is being watched with great attention. The upgrade should ultimately allow more transactions to be processed faster at a much lower cost.
A blockchain is a global network of computers where transactions are stored in a long and fundamentally tamper-proof chain of information blocks. It is a decentralized database, without one party alone having control.
- The Ethereum blockchain is likely to be upgraded in September. In doing so, he switches from ‘proof of work’ to ‘proof of stake’, a more environmentally friendly and efficient system.
- After the switch, there is still a lot of work to do to make the system more scalable.
- By the end of the process, 100,000 transactions per second should be possible, compared to about 15 now.
There are different blockchains. The largest is Bitcoin, the second largest is Ethereum. The latter is a leader in the world of decentralized financial services, ranging from insurance and savings to lending. Also, the digital property certificates, non-fungible tokens (NFTs) mostly use Ethereum.
The difference between Bitcoin and Ethereum is that Bitcoiners believe that Bitcoin is 80 percent complete, but Ethereums believe that Ethereum is 40 percent complete.
Proof of effort
In the blockchain, transactions are verified by a consensus mechanism, where many computers must agree independently before something is added to the digital record forever. That mechanism is being changed at Ethereum from ‘proof of work’ to ‘proof of stake’.
‘Proof of Stake’ means that the participants verifying the transactions must own a certain proportion of tokens (the ‘stake’ or interest in preventing someone with malicious intent from getting their hands on the process). Bitcoin and the current version of Ethereum use proof of work, where the computing power available to crypto miners is the crucial scarce good. Proof of work consumes a lot of energy and this is not the case for proof of effort.
Critics fear the shift to proof-of-stake will put too much power in the hands of a small group. Whoever verifies transactions must block about 32 ether, about 52,950 euros at the current price of the crypto coin. They make money from this, but can also be fined if they act fraudulently.
Miners are not happy with the changes. Their expensive computers are at risk of becoming obsolete. Some are therefore investing in the Ethereum Classic blockchain, the ‘original Ethereum’ that will not switch to the new verification system. The price of Classic rose from $14.67 in early July to $37.19 on Wednesday. A major Chinese miner, ChandlerGuo, has proposed a plan to separate it from today’s Ethereum.
At the end of the process, which will continue indefinitely after September, it should be 100,000 transactions per second.
The developers of Ethereum report success in testing the new system. Events are planned for those who wish to participate in the coming weeks. The upgrade has been in the works for years, often delayed. A new postponement is not entirely out of the question.
Even if the integration of the existing network with the new verification system succeeds, Ethereum will only be ’55 percent complete’. “The difference between Bitcoin and Ethereum is that Bitcoiners think Bitcoin is 80 percent complete, but Ethereums think Ethereum is 40 percent complete,” Ethereum co-founder Vitalik Buterin said recently at a conference in Paris.
The new system allows blockchain to process more data and faster. Now the network can only handle about 15 transactions per second. At the end of the process, which will continue indefinitely after September, it should be 100,000 transactions per second, Buterin said.
Ether cryptocurrencies, which are linked to Ethereum, rose 50 percent last month but lost some ground early this week. Since the beginning of this year, 55 percent has been lost in what is shaping up to be another crypto winter.