Ethereum upgrade is finally coming, will it catch up with Bitcoin?

The world’s second most valuable crypto currency, Ethereum (ETH), has reached its all-time high. This happened prior to a major upgrade of the underlying platform, Ethereum. Currently, ETH represents a market cap totaling $500 billion. That is still just under half of the largest crypto currency, Bitcoin.

Ethereum and Bitcoin

Could this upgrade put Ethereum on track to become the most dominant platform on the internet and become the number one crypto? First of all, it is important to understand the difference between Bitcoin and Ethereum. Bitcoin is a system that allows people to transfer value between each other without the need for banks. It is built on a technology known as blockchains, which are online ledgers whose transactions are verified and recorded by a decentralized network of computers known as validators.

These validators are incentivized by receiving newly minted Bitcoin as rewards. This is known as crypto mining. To make this more attractive, Bitcoin is relatively scarce. There are currently approximately 18.8 million coins in circulation. In addition, there is a protocol that there can never be more than 21 million coins.

Ethereum works a little differently. For example, the core of the platform is smart contracts, which are automated agreements that ensure that money and assets change hands when certain conditions are met. All trades on the platform ultimately use ETH. The success of the platform is why Ethereum has been the second largest crypto currency in recent years. The fact that ether feeds the platform gives it a utility and an intrinsic value that Bitcoin does not have.

Why Ethereum 2.0

Ethereum is currently experiencing some major problems. The first is that gas tariffs have become very expensive in recent years because the network has become so popular and therefore very congested. Validators prioritize users who are willing to pay the highest fees for their transactions. The average transaction on the crypto exchange Uniswap now costs about $44 in gas.

Bitcoin has similar congestion issues. The developers are trying to solve this by building applications like Lightning that offer faster transaction speeds.

The second problem for Ethereum is that as it has become more popular, the amount of computing power used by validators has skyrocketed. It is the same problem that has brought a lot of negative publicity to Bitcoin because it uses a lot of electricity.

Bitcoin currently uses as much power as the entire Philippines. However, its supporters argue that much of this use would otherwise be wasted. Examples include oil rigs that burn natural gas because it is not profitable to sell. Proponents also point out that the grid has shifted over time to use much more renewable energy.

Proof-of-Stake protocol

The eventual creation of an Ethereum 2.0 will solve these problems by moving the platform’s validation system from “proof of work” to Proof-of-Stake (PoS). Without going into too much detail, Proof-of-Work is a protocol in which validators all try to solve complex equations to prove that each proposed transaction is valid. With Proof-of-Stake, not all validators have to do this energy-consuming work.

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Many in the Bitcoin community oppose proof of stake because it gives the largest validators the most power, potentially bypassing the validation system if they can take control of more than half of the network. Ethereum supporters claim that the evidence checks and balances could prevent this.

Ethereum 2.0 promises to reduce the power consumption of the platform by 99.9%, making it much more sustainable. It should also solve the gas tariff problem by increasing the platform’s throughput from 30 transactions per second to potentially 100,000. In addition, they make more advanced smart contracts possible.

The Future of Ethereum

The transition to Ethereum 2.0 was slow. There were many technical issues that persisted for more than two years. The new proof-of-stake blockchain has been running in a test format parallel to the existing system for the past few months. This will allow the developers to prepare it for a merger in 2022.

The upcoming upgrade is essentially a warm-up for this merger. Known as Altair, it introduces numerous technical changes designed to make validators fair and make the system more decentralized. Assuming this goes ahead as planned, all eyes will be on the merger and later on another change known as “sharding.” This will significantly increase the processing capacity of the system.

Bitcoin’s recent surge to record highs has helped boost the entire crypto market. But part of the price movement in Ethereum is probably because of the people who think the upgrade will succeed. The rest comes from speculators switching from Bitcoin.

Leading up to the merger of Ethereum’s two blockchains, it will be interesting to see how all of this affects the price of ETH in relation to the so-called ‘ETH killers’. These are rival platforms like Cardano and Solana that have been very popular in recent months. This is partly due to the problems of Ethereum regarding fees.

But ultimately the question is what the upgrade will mean for Bitcoin. Bitcoiners will continue to argue that their protocol is more decentralized than proof of stake. In addition, they have the advantage of being the crypto brand with which investors want to put their money.

The question is whether these benefits outweigh Ethereum 2.0’s greener credentials and the fact that it can handle more transactions. Bitcoin is currently worth about double ETH. However, there is talk of a “flip”. Could it happen in 2022?

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