The squad must brush under the carpet the logical inference that under its current proof of work system ethereum has pathetically slow transaction times, egregious energy consumption, and high fees.
The new proof of stake mechanism to verify transactions and reward insiders will reportedly slash ethereum’s energy usage by 99 per cent, as computers will no longer compete to verify transactions on the network, rather they will stake ethereum in exchange for the opportunity to be selected to verify transactions.
By contrast, immutable vested interests mean bitcoin is unlikely to ever switch from the energy-intensive proof of work system that sees its network use as much electricity annually as a small country.
Notably, the European Parliament Committee on Economic and Monetary affairs initially considered banning all cryptocurrencies using proof of work mechanisms in its Markets in Crypto Assets Regulation (MICA) legislation on the basis it was environmentally destructive, incompatible with the Paris Agreement’s climate goals, and couldn’t be justified given Europe’s rising energy prices.
However, in July it backed down on the proof of work ban after industry lobbying to leave its position open to criticism given Europe’s scary energy costs crisis.
Other claimed benefits of ethereum’s switch to proof of stake are reduced fees, faster processing times, more smart contracts, and easier access to the world of non-fungible tokens (NFTs).
Of course none of this matters if you don’t own ethereum and don’t see the value in NFTs masquerading as culture.
Over the short term it only impacts stakeholders and speculators hoping to sell their ethereum-denominated assets to somebody else for a higher price in the future.
Ethereum’s $US176 billion market value is vulnerable to further falls if it cannot fight the Fed or spin the flywheel of adoption and rising prices again.
It has challengers in the blockchain space using proof of stake systems in decentralised finance such as solana and cardano, with its unlimited supply a key weakness, versus a digital store of value with limited supply like bitcoin.
The Fed’s dramatic stand on inflation has wiped 70 per cent off bitcoin’s value since prices topped $US64,000 on a mania around the launch of bitcoin exchange-traded funds in October 2021.
The dogecoin price is down 90 per cent from US66¢ to US6.1c since Elon Musk appeared on Saturday Night Live in May 2021.
This shows how positive news flow is powerless versus the Fed, as ethereum’s price remains leveraged to the greater fool theory and the central bank’s monetary settings.