Why Ether Doubles Despite Crypto Price Fall

NEW DELHI : Despite the drop in cryptocurrency prices worldwide, Ether has been trending higher over the past month. The native token of the Ethereum blockchain is priced at $1889.96 at the time of writing. That’s up from about $1300 in July. What is driving its price up?

Why the sudden interest in Ether?

Ethereum, the second largest blockchain after Bitcoin, will transition to a new transaction validation process on September 15. The move, called ‘Merge’, brings the platform from ‘Proof of Work’ (PoW) to ‘Proof of Stake’ (PoS). Consolidation is one of the most awaited events in blockchain history and is said to have made Ethereum more attractive to developers, resulting in more transactions and therefore higher prices. Ether, the official token of the Ethereum blockchain, has seen its price double since falling below $1,000 in June of this year.

Proof of Work vs Proof of Stake?

PoW and PoS are consensus mechanisms that help miners validate transactions through a process known as mining. This requires a lot of computing power, which in turn requires energy, most of which comes from fossil fuels. In a PoW system, miners compete with each other to solve complex cryptographic puzzles to validate transactions, and the first person to solve the puzzle wins a reward in the form of a new cryptocurrency. PoS limits the number of miners that can compete by adding a set of rules to the system and requiring miners to stake their own ‘stake’. It requires miners to purchase the blockchain’s native tokens, and whether or not they are allowed to mine depends on these stakes. As a result, it reduces the overall impact on the environment, but also creates greater barriers to entry.

What is Consolidation?

Currently, Ethereum mainly works on a PoW system; but the move to PoS started last August. Merge is essentially the ultimate upgrade and will convert Ethereum to a purely PoS-based system. In March, founder Vitalik Buterin said that the system has been running for seven years. The PoS blockchain — called the Beacon Chain — has been in testing for over 18 months now.

Why is Proof of Stake important?

According to the official Ethereum website, the blockchain currently consumes about 112 terawatt-hours (TWh) of electricity per year. This generates about 53 tons of carbon emissions per year. While Ethereum’s electricity consumption is comparable to that of the entire Netherlands, its carbon footprint is comparable to that of Singapore. It claims that the switch to the PoS blockchain will reduce its energy consumption by “0.05% less” than before.

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