Cryptocurrencies: “Ethereum could supplant Bitcoin in the long term”

What is The Merge?

It is a big step in the Ethereum blockchain, whose token is ether. While the Bitcoin protocol is intended to change only marginally, with Ethereum the dynamic is more sustained. In this case, it is a question of changing the engine while the plane is in the air.

Concretely, the blockchain will move from functioning by proof of work (Proof of Work) to proof of stake (Proof of Stake). The protocol will no longer rely on machines working in competition to secure the network – miners. We move on to something much more economical.

Each validator [ordinateur chargé de faire fonctionner de la blockchain, NDLR] will have to block 32 ethers, or more than 55,000 dollars at the current price, to have the right to participate. Then, he will be randomly selected to register a block of transactions and will thus receive compensation. If he ever tries to write a fake and is discovered while committing the next block, he will lose some or all of his escrow tokens. This punishment is called “slashing” and it is meant to be a deterrent.

Isn’t there a risk of concentration of validation power in a few hands?

The question of decentralization arises: it will be necessary to see what the dynamics will be after the update. However, one would need to possess more than two-thirds of the validation power to attempt a coup on the protocol. What would be the point since the value of a cryptocurrency depends on the reliability of its network?

Proof of stake is considered more ecological than proof of work, which Bitcoin uses in particular, is this the case?

It will always take energy, but the ethereum foundation just as specialists estimate that needs will decrease by around 99%. Afterwards, we cannot compare these methods too much because the dynamics are not the same.

The fact is that proof of stake responds well to CSR issues [Responsabilité Sociale et Environnementale] companies that will no longer have any reason to choose blockchains other than Ethereum for their projects tomorrow.

Does this jeopardize Solana, Tezos or Cardano which also work with proof of stake?

The Merge puts a blow to these cryptocurrencies because they claimed to be more virtuous in terms of electricity consumption. With its history and community, Ethereum will appear stronger if the update goes well.

Other proof-of-stake protocols will continue to try to differentiate themselves, surely on scalability [le passage à l’échelle]. Ethereum also differentiates itself with a process for destroying tokens when there are too many transactions, in order to keep transaction costs reasonable. This was the subject of the London update which took place last year. With The Merge, by the way, token issuance will be reduced by a factor of ten compared to today and ether may eventually become deflationary. In my opinion, Ethereum is crushing its competitors and I’m not very confident about Solana or Tezos.

Can Ethereum supplant Bitcoin?

This is called “flipping”: it’s not impossible, but advancing a date would be complicated. Personally, I think it is possible in the medium to long term. The total capitalization of ethers is still only 50% of that of bitcoins, so there is still a long way to go.

It is also known that in 10 years Bitcoin may have moved marginally, but it will still work. Whereas the risk with Ethereum is going too fast.

A few Ethereum miners want to fork in order to keep the network running in parallel as it exists today. This would result in the free distribution of a new token, the EthPoW (IOU) to current ether (ETH) holders, would it have a future?

This will indeed be the case for those who have their private key, for example on Metamask or a cold wallet. The question will however be whether it will be possible to find a buyer for this new token. There will certainly be strong selling pressure when it is distributed, as speculators will see it as a way to grab cash quickly.

In addition, there is a risk of losing its tokens due to confusion during the separation of the networks. Finally, the EthPoW is of no interest since there is already a token of a version of the Ethereum blockchain in proof of work from a previous fork, Ethereum Classic. So it’s not a good investment in my opinion.


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Cryptocurrencies: “Ethereum could supplant Bitcoin in the long term”


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