New Delhi Ether: Ether has been trendier over the past month, despite the fall in crypto prices around the world. The price of the native token of the Ethereum blockchain was $1889.96 at the time of writing. It is above around $1300 in July. What’s driving its price up?
Why such a sudden interest in ether?
Ethereum, the second largest blockchain after bitcoin, is set to migrate to a new process of authenticating transactions on September 15. The move, named ‘Merge’, takes the platform from ‘Proof of Work’ (PoW) to ‘Proof of Stake’ (PoS). The merge is one of the most anticipated events in blockchain history and is said to have made Ethereum more attractive to developers, leading to more transactions and hence higher prices. The price of Ether, the official token of the Ethereum blockchain, has more than doubled since falling below $1,000 in June of this year.
Proof of Work vs Proof of Stake?
PoW and PoS are consensus mechanisms, which help miners to validate transactions through a process called mining. This requires a lot of computing power, which requires energy, much of which comes from fossil fuels. In the PoW system, miners compete against each other to solve complex cryptographic puzzles to validate transactions, and the first person to solve the puzzle receives a reward in the form of new crypto. PoS limits the number of miners who can compete by adding a set of rules to the system, and requires miners to place their ‘bets’. This requires miners to buy the native tokens of the blockchain and whether they are allowed to mine or not depends on these stakes. As a result, this reduces the overall impact on the environment, but also creates greater barriers to entry.
What is Merge?
At the moment, Ethereum mainly operates on the PoW system; But the move towards PoS started in August last year. The merge is basically the final upgrade and will transform Ethereum into a completely PoS-based system. In March, founder Vitalik Buterin stated that the system has been in operation for seven years. The PoS blockchain—called Beacon Chain—has been tested for more than 18 months.
Why is Proof of Stake important?
According to the official Ethereum website, the blockchain currently consumes approximately 112 terawatt-hours (TWh) of electricity per year. This results in approximately 53 metric tons of carbon emissions per year. While Ethereum’s electricity consumption is comparable to that of the entire country of the Netherlands, its carbon emissions are comparable to Singapore’s. It claims that moving to the PoS blockchain will reduce its energy consumption by “0.05%” compared to before.
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