- Bitcoin’s Top Rival Is Up 90% and Ready to Ditch Mining
Marco Streng’s computer servers are what make Ethereum tick.
Thousands strong, they whir day and night, solving the complex math riddles that are essential to verifying transactions on the hottest new platform in the world of cryptocurrencies and blockchains. Without these machines, or those deployed by Streng’s biggest rivals, there would be no Ethereum.
But mining, as the practice is called, is costly and inefficient and, frankly, a bit weird. And Ethereum’s developers have always envisioned a time in which the cumbersome process of brute-force computing would be replaced by a system that relies simply on collateral. That time, some four years after the network was first proposed, is now. The developers want to put this “proof-of-stake” model, called Casper, into place by year-end.
The stakes are high. If Ethereum is going to take advantage of the potential that companies like JPMorgan, Microsoft and IBM see in its underlying transaction technology, the blockchain, as the potential backbone that could reshape modern business and finance, it needs to gain wide adoption to become something of a de facto standard.
Without mining, Ethereum “will be more usable, more secure and more scalable too,” said Vlad Zamfir, who’s been working on Casper since 2014.
The main draw of the blockchain is that it’s a cryptographically secured list of transactions that can be shared, which backers say could dramatically improve how financial services, supply-chain and health-care industries are run. (Think immediate settlement of bank transfers and securities trades, as well as near-real-time tracking of food products or research samples.) Ethereum also allows for the use of “smart contracts,” or pieces of computer code that make the terms of such agreements operate automatically.
Miners have been critical to the growth of Ethereum. The market for ether, the digital currency used to pay miners who support the network, has soared 90 percent this year alone. It’s the second-most popular cryptocurrency behind bitcoin, which has gained 24 percent in the same span, setting records almost every day as investors look to hedge against potential global uncertainty and hope for a bitcoin-based exchange-traded fund to get regulatory approval.
Even before Ethereum was first released in 2015, developers had envisioned moving away from the mining-based model, known among tech geeks as “proof-of-work.”
As the network gets more popular, the computations the miners need to complete to validate transactions get harder and harder. Not only has this created the potential for bottlenecks (which already plague bitcoin), it’s also set off an environmentally taxing arms race among the biggest miners, which run server farms consuming vast amounts of electricity.
And to many techno-utopian enthusiasts, using all that computing power to continually solve what amounts to pointless problems is a big waste.
That’s where Casper comes in.
Rather than rewarding miners with the most computing power, the “proof-of-stake” model requires that users put up collateral if they want to collect fees for validating transactions. The more collateral you put up, the more money you can get paid for verifying transactions.
It would take power away from miners like Streng, who have to approve software changes, and make it easier to implement improvements on the fly. A handful of bitcoin miners in China have already hamstrung some attempts to increase that cryptocurrency’s capacity. (Miners can’t vote against the switch.)
The move will make Ethereum “more attractive in large-scale applications,” said William Mougayar, author of “The Business Blockchain.”
Hyperledger, a blockchain venture with more than than 100 members including IBM, JPMorgan and American Express, could adopt Ethereum’s “proof-of-stake” model if it’s successful, according to Brian Behlendorf, the consortium’s executive director. It could also help put the network in “a league of our own,” Andrew Keys, head of global business development at startup ConsenSys, the world’s largest Ethereum-centric blockchain software engineering company.
No Sure Thing
Making “proof-of-stake” work is hardly a foregone conclusion.
Casper’s rollout has been delayed before. And the use of deposits potentially increases the risk of hacking. (While Zamfir said he’s working to make sure hackers can’t steal deposits, he couldn’t rule out the possibility, however remote, that an attack could, in effect, delete the money.)
Streng, who stands to lose out if Casper is implemented, is wary.
“There’s a lot of incentive for people to game the system,” he said.
Trust in Ethereum was badly shaken last summer, when a hacker stole millions from a project called the DAO. Developers had to rush to implement a software change, which ended up splitting the Ethereum community in two. Now, each operates its own, separate blockchain.
Zamfir says the benefits outweigh the risks. One of the biggest is “transaction finality.” Unlike most blockchain technologies, which require multiple verifications, settlement on Casper can occur much faster. With some enhancements, the feature could ultimately enable Ethereum to process more payments faster — a key selling point for financial companies.
Mona El Isa, a former Goldman Sachs trader who runs Melonport AG, which builds software for fund managers who invest in digital assets on Ethereum, is confident that developers can work out any kinks with Casper.
“In these early stages of this new technology, you can’t expect everything to go right,” El Isa said.
If Casper ultimately happens, Streng says it won’t be the end of the world. He can redeploy his servers to mine other cryptocurrencies or become a depositor on Ethereum instead. But he isn’t holding his breath just yet. Implementing such a sweeping change isn’t going to be easy and it’s still possible the plan could be scrapped altogether, he says.
“The developers have very bright minds,” he said. Nevertheless, “they wouldn’t risk the Ethereum network, in my opinion.”
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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