Ethereum is making big changes. Perhaps the most important is the jettisoning of the “miners” who track and validate transactions on the world’s most-used blockchain network. Miners are the heart of a system known as proof of work that was pioneered by Bitcoin and adopted by Ethereum, the platform that supports Ether, the runner-up to Bitcoin as the world’s most valuable cryptocurrency. Proof of work has come under increasing criticism for its environmental impact: Bitcoin miners now use as much electricity as Chile. Proof of stake, which Ethereum plans to phase in during 2022, will be greener and faster. Proponents say the switch will illustrate another difference between Ethereum and Bitcoin — a willingness to change.
1. What are the ‘proof of’ systems for?
Cryptocurrencies wouldn’t work without blockchain, a new technology that performs the old-fashioned function of maintaining a ledger of time-ordered transactions. What’s different from pen and paper records is that the ledger is shared on computers all around the world. Blockchain has to take on another task not needed in a world of physical money — making sure that no one is able to spend a cryptocurrency token more than once by manipulating the digital ledger. Blockchains operate without a central guardian, such as a bank, in charge of the ledger: Both proof of work and proof of stake systems rely on group action to create, validate and safeguard a blockchain’s sequential record.
2. How does that happen?
In Bitcoin and Ethereum’s main network today, transactions are grouped into “blocks” that are published to a public “chain,” but only after “proof of work” verification is performed. With Bitcoin’s software, that happens when the system compresses the data in the block into a puzzle that can only be solved through potentially millions of trial-and-error computations. This work is done by miners who compete to be the first to come up with a solution and are rewarded with free cryptocurrency if other miners agree it works.
3. What are proof of work’s drawbacks?
When Bitcoin was worth pennies, mining was also cheap. But as the currency’s value rose, an arms race of a sort set in, as miners poured in resources in the quest to win new coins. Bitcoin’s software responds to increased competition by revving up the computational difficulty. The resulting sky-high electricity usage led to calls from the environmentally conscious to shun Bitcoin. It’s also led to a growing dominance by huge, centralized mining farms, a development that’s created a new vulnerability for a system designed to be decentralized. In theory, a blockchain could be rewritten by a party that controlled a majority of mining power.
4. What is proof of stake?
The idea behind the proof of stake system being adopted by Ethereum is that its blockchain can be secured more simply if you give a group of people a set of carrot-and-stick incentives to collaborate. People who put up, or stake, 32 Ether (1 Ether traded at almost $4,300 in late November) will be able to become “validators,” while those with less Ether can become validators jointly. Validators are chosen to order transactions into a new block on the Ethereum blockchain. If a block is accepted by a committee whose members are called attestors, its validator is awarded Ether. But someone who tried to game the system could lose the coins that were staked. Ethereum’s proof of stake system is already being tested on a blockchain, called the Beacon Chain, that’s separate from the proof of work system; so far $38 billion worth of Ether has been staked there. The two blockchains are expected to merge in 2022.
5. What are the system’s advantages?
It’s thought that switching to proof of stake would cut Ethereum’s energy use, estimated at 45,000 gigawatt-hours per year, or a bit more than New Zealand’s, by 99.9%. In terms of its carbon footprint, it would essentially be like any other internet operation whose energy use involves nothing more than running a network of computers, rather than a venture resembling a collection of gigantic digital factories. The switch to proof of stake is also expected to increase the network’s speed. That’s important for Ethereum, which is already a platform for a vast range of financial and commercial transactions.
6. What are its vulnerabilities?
Proof of stake is less battle-tested than proof of work, whose security has been scrutinized for more than a decade. So new vulnerabilities could be found. Its proponents think the risk is worth what would be gained in terms of environmental benefits and transaction speed, as well as from bringing a broader group of users into the process.
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NFTs and DeFi overturn a banker's generational curse of poverty in 2 years – Cointelegraph
Here's Why I Still Won't Buy Bitcoin, and You Shouldn't, Either – The Motley Fool
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In less than a week, investors can pop the champagne corks and celebrate another successful year. Through Dec. 22, the widely followed S&P 500 was higher by 25%, which more than doubles up its average annual total return of around 11%, including dividends, since the beginning of 1980.
But it’s the cryptocurrency space that’s delivered the juiciest gains of all. Since the year began, the aggregate value of all digital currencies came close to tripling. Not surprisingly, Bitcoin (CRYPTO:BTC) has been one of the biggest contributors to this nominal value increase, with a year-to-date gain of 67%. It accounts for 40.5% of the entire $2.27 trillion cryptocurrency market.
Image source: Getty Images.
Bitcoin’s gains, which recently reached as high as 8,000,000,000% from where it began trading in early July 2010, have come on the heels of numerous catalysts.
To begin with, Bitcoin’s first-mover advantage has made it the most-popular cryptocurrency with retailers. As of late 2020, small-business financing platform Fundera estimated that 15,174 businesses worldwide accepted Bitcoin as payment — and this figure has assuredly grown since.
To build on the above point, Bitcoin was also recognized by El Salvador as legal tender in September. It’s the first country to allow Bitcoin to be used as accepted currency, and could pave a path for other nations to follow.
The world’s most valuable digital currency has benefited from rapidly rising inflation in the U.S. and abroad as well. Since Bitcoin has a perceived cap of 21 million tokens, it’s viewed as an inflationary hedge against a rapidly growing U.S. money supply and price hikes. In November, the Consumer Price Index for All Urban Consumers jumped 6.8% in the U.S., marking the biggest year-over-year jump in 39 years.
Investors look to be clearly excited about the upgrade potential for Bitcoin, too. In November, the long-awaited Taproot upgrade took effect. Taproot allows for smart-contract transactions to occur on the network, which opens the door for a broader use of the Bitcoin blockchain. Smart contracts are protocols that help to verify, enforce, and facilitate a contract between two parties.
Lastly, even the fear of missing out (or FOMO) has played a role. After watching Bitcoin gain 8 billion percent, crypto investors appear to be more than willing to overlook any threat of a reversion.
Image source: Getty Images.
Although Bitcoin has proved me wrong over the past year, I still wouldn’t buy the most-popular digital currency on the planet with free money — and I’d suggest others avoid it, too. Below are some of the reasons I simply can’t buy into the hype surrounding Bitcoin.
For starters, it isn’t the scarce token it’s made out to be. Take gold as a comparison. Since we can’t use alchemy to make any additional gold, what remains in the ground and what’s been already mined is all there will ever be. In terms of physical scarcity, that’s a true line in the sand. As for Bitcoin, lines of code are what limit its “cap” of 21 million coins. Even though consensus is unlikely to increase the number of outstanding tokens above 21 million, it’s not impossible that it happens. Thus, Bitcoin only offers the perception of scarcity and not true scarcity.
Another big issue for Bitcoin is dilution. But I’m not talking about the modest coin inflation that comes with cryptocurrency mining. Rather, I’m alluding to Bitcoin being a first-generation blockchain network that’s being left in the dust by third-generation blockchain innovation. There’s absolutely no reason for Bitcoin to be worth $913 billion when blockchain projects at a fraction of its value can scale better, process faster, and handle far more complex transactions. Bitcoin may be benefiting from a first-mover advantage, but the first to the foray is rarely the victor.
Image source: Getty Images.
History provides yet another reason I want nothing to do with Bitcoin. Major price swings are somewhat commonplace in the crypto space, and reversions following huge gains happen often. Bitcoin was up 8 billion percent at one point since July 2010 and has yet to demonstrate that it truly has staying power. Since it’s been unable to decouple from the stock market, I would be betting on a significant reversion following its pandemic-low bounce.
To build on this previous point, there now are considerably more avenues to bet against Bitcoin than there have ever been. The rise of Bitcoin-focused exchange-traded funds and Bitcoin futures offers a safer way for big-money players to bet on downside in the world’s most-popular crypto. In other words, Bitcoin becoming more mainstream as an investment will hurt more than help.
And finally, history also tells us that investors have a really poor track record of estimating the adoption of next-big-thing technologies. Looking back on the internet, business-to-business commerce, genomics, 3D printing, and so many next-big-thing advancements reveals that their adoption took far longer than expected. This isn’t to say that blockchain can’t become a mainstream technology in payment and nonfinancial applications at some point in the future. But it’s important to recognize that businesses aren’t willing to jump at the chance to use blockchain until it’s been thoroughly vetted in the real world. We’re just not anywhere close to that yet.
There are plenty of cryptocurrency projects that are really intriguing and could change the course of payment processing or supply chain management. Bitcoin just isn’t one of them.
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Media in the Metaverse: NYT's Kevin Roose on the Future of Crypto – Coindesk
Entering the metaverse as our new “online selves.”
Michael J. Casey
This episode is sponsored by Quantstamp and Nexo.io.
“I don’t think we should feel like this is going to be entirely a good thing … if Web 3 is becoming more like the offline world, in the sense of being exclusive and gate-kept in the ways that our physical world has been for so long.”
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Web 3, the metaverse and non-fungible tokens (NFTs) have potential to be a force for good in the world, to improve decentralization, raise underrepresented voices and empower creators. But with a digital land grab for virtual real estate growing fast, will people soon find themselves locked out of the metaverse?
Joining “Money Reimagined” hosts Michael Casey and Sheila Warren is Kevin Roose, New York Times tech columnist and author of “Futureproof,” a cautiously optimistic look into an automated, AI-filled and algorithmically driven future. Roose has also delved into the world of crypto: In March of 2021, he wrote a column explaining NFTs, and then sold that column as an NFT for 350 ETH ($1.14 million at current prices).
The future is rapidly approaching, and the crypto industry is determined to establish its place in it. Web 3 is shaping up in opposition to the current Web 2, moving away from the centralized, data-driven approach of today’s internet. Alongside Web 3 is the metaverse, where individuals can fragment themselves into two parts: their physical self and their digital persona.
Before Web 3 and the metaverse take hold, important discussions should be had now about the opportunities and obstacles abound in a crypto future. What is the role of media in Web 3? What responsibilities do journalists in the crypto sector have today? Is it possible to remain hopeful and yet cautious of crypto’s role in shaping the coming years?
See also: Who Writes the Story of the Metaverse
This episode was produced and edited by Michele Musso with announcements by Adam B. Levine and additional production support by Eleanor Pahl. Our theme song is “Shepard.”
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
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