The world’s second most valuable cryptocurrency, Ether, has been hitting all-time price highs ahead of a major update to its underlying platform, Ethereum.
Ether currently has an added value of just US $ 500.00 million. That’s still a little less than half that of the biggest cryptocurrency, bitcoin.
But could this update, a vital step towards a much greener and faster version of the current system, put ethereum on its way to becoming the dominant platform on the internet and making ether number one?
First of all, it is important to understand the difference between bitcoin and ethereum. Bitcoin is a system that allows people to send securities to each other without the need for banks.
It is based 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 to work by receiving newly minted bitcoins as a reward, in what is known as “mining.”
To make this more attractive, bitcoins are relatively scarce – there are only around 18 million coins and the protocol states that there can never be more than 21 million.
Ether works in a similar way to bitcoin, but ethereum is different. It is a global hostless software platform, on which developers are building thousands of blockchain-based applications.
This means that all these applications can run without being controlled by a company. Examples include cryptocurrency markets, insurance systems, and new types of games.
At the heart of the platform is the idea of smart contracts, which are automated agreements that ensure that money and assets change hands when certain conditions are met.
All transactions on the platform ultimately use ether, and the success of the platform is the reason why it has become the second largest cryptocurrency after bitcoin in recent years. The fact that the ether powers the platform – it is even referred to as gas fees – gives it utility and intrinsic value that Bitcoin does not have.
However, Ethereum has several major problems. The first is that “gas rates” have become very expensive in recent years because the network has become very popular and therefore very congested.
Validators prioritize users who are willing to pay the highest fees for their transactions. For example, the average transaction at the time of this writing on the Uniswap crypto exchange costs around $ 44 in gas fees.
Bitcoin has comparable problems with congestion, which its developers are trying to solve by building apps like Lightning on top, which boast faster transaction speeds.
The second problem with ethereum is that as it has become more popular, the amount of computational power used by validators has skyrocketed.
It is the same problem that has brought a lot of negative publicity to bitcoin, because it consumes a lot of electricity.
Bitcoin is currently using as much energy as the entire Philippines, although its supporters argue that much of this is energy that would otherwise be wasted, for example, oil rigs burning natural gas because it is not profitable to sell it.
Advocates also note that the grid is shifting towards using much more renewable energy over time. In any case, the eventual creation of an ethereum 2.0 will solve these problems by moving the validation system of the platform from “proof of work” to “proof of stake”.
Without going into too much detail, proof of work is a protocol in which all validators attempt to solve complex equations to prove that each proposed transaction is valid.
With proof of stake, it is not necessary for all validators to do this energy-consuming work, because the system randomly chooses one to confirm each transaction.
Either way, ethereum 2.0 promises to reduce the platform’s power consumption by 99.9%, making it much more sustainable.
It should also solve the gas tariff problem by raising the platform’s processing capacity from 30 transactions per second to potentially 100,000, in addition to enabling more sophisticated smart contracts than before.