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Ethereum Closes In on Long-Sought Fix to Cut Energy Use Over 99%

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Vitalik Buterin - Investors King

Users and developers of the world’s most-used blockchain have been wrangling with its carbon-footprint problem for as long as it’s been around. Now, they say, several recent breakthroughs will finally enable them to drastically cut energy use in a year or less.

Ethereum and better-known-rival Bitcoin both operate using a proof-of-work system that requires a global network of computers running around the clock. Software developers at Ethereum have been working for years to transition the blockchain to what’s known as a proof-of-stake system — which uses a totally different approach to secure the network that also eliminates the carbon emissions issue.

The change — delayed by complicated technical setbacks — couldn’t come soon enough for the cryptocurrency world, which weathered one of its biggest bouts of volatility ever this month after Elon Musk announced that Tesla Inc. would stop accepting Bitcoin as payment for cars because of the surging energy use. Bitcoin’s network currently uses more power per year than Pakistan or the United Arab Emirates, according to the Cambridge Bitcoin Electricity Consumption Index. The compilers of the index don’t measure Ethereum energy use.

“Switching to proof of stake has become more urgent for us because of how crypto and Ethereum have grown over the last year,” Vitalik Buterin, the inventor of Ethereum, said in an interview. He’s hoping the change is made by year end, while others say it will be in place by the first half of 2022. That’s about a year earlier than was expected in December.

“I’m definitely very happy that one of the biggest problems of blockchain will go away when proof of stake is complete,” said Buterin, who has been advocating for the shift since the blockchain was launched in 2015. “It’s amazing.”

The change could help boost the price of the cryptocurrency Ether, which is necessary to use Ethereum, as investors who are environmentally conscious take note of its vastly smaller carbon footprint. Much of the criticism of proof of work has come from millennials and investors who value positive environmental, social and governance, or ESG, standards.

“It’s hard to ignore that the ESG narrative is going to be big,” said Wilson Withiam, an analyst at Messari who specializes in blockchain protocols. “If you’re looking at Ether as an investment, it doesn’t have that looming over it.”

Pantera Capital, an early Bitcoin investment firm, agreed. “Ethereum has a massive ecosystem of decentralized finance use cases with rapidly growing adoption,” Dan Morehead, founder of Pantera, wrote in a May 10 note to investors. “Combine these two dynamics and we think Ethereum will keep gaining market share relative to Bitcoin.”

The transition Ethereum developers are making is a huge undertaking. They have to create, test and implement an entirely new way of securing their network while maintaining the existing blockchain. Then when the time is right, they’ll merge the existing blockchain into the new architecture that uses proof of stake to verify transactions. The shift will also radically increase the speed of transactions that Ethereum can process, making it more competitive with established payment networks like Visa or Mastercard.

Proof of work uses the capital costs of buying and maintaining computer hardware as well as the electricity to run them as the economic investments that must be paid by the people who are securing the network, known as miners. In return, the first miner to verify the latest batch of Bitcoin or Ethereum transactions is rewarded with free Bitcoin or Ether.

That system has come under fierce criticism for years, most recently by Musk, who called recent consumption trends “insane.”

Read more: Tesla’s Musk Renews Critique of Bitcoin, Talks Up Dogecoin

In proof of stake, the cryptocurrency Ether replaces hardware and electricity as the capital cost. A minimum of 32 Ether is required for a user to stake on the new network. The more Ether a user stakes the better chance they have of being chosen to secure the next batch of transactions, which will be rewarded with a free, albeit smaller, amount of Ether just as in proof of work.

So far, more than 4.6 million Ether have been staked in what’s called the beacon chain, worth about $11.5 billion at an Ether price of $2,503. That means once proof of stake is in place, the only electricity cost will come from the servers that host Ethereum nodes, similar to any company that uses cloud-based computing.

“Nobody talks about Netflix’s environmental footprint because they’re only running servers,” said Tim Beiko, who coordinates the developer work on the new network for the Ethereum Foundation, set up to fund and oversee development of the Ethereum protocol.

Danny Ryan, a researcher at the foundation, said Ethereum’s proof of work uses 45,000 gigawatt hours per year. With proof of stake, “you can verify a blockchain with a consumer laptop,” he said. “My estimates is that you’d see 1/10,000th of the energy than the current Ethereum network.”

One of the first breakthroughs came when developers created a system where contracts on Ethereum can be executed off the main chain, what’s known as roll ups. That takes an enormous amount of pressure and demand off of the main underlying network, and also means fewer changes to the network need to be made.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Ethereum

Dormant Ether Holder Awakens, Transfers Nearly $90 Million to Kraken Exchange

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Ethereum- Investorsking

A significant Ethereum (ETH) holder, dormant for five years, recently transferred almost $90 million worth of the token to the crypto exchange Kraken.

The on-chain analytics tool Lookonchain reported this development in the early hours of Tuesday, shedding light on the activities of this long-inactive “whale.”

A whale refers to an entity holding a substantial amount of any cryptocurrency.

Blockchain data reveals that during the Asian morning hours, the whale deposited 39,260 ether into Kraken. In 2017, this same address received 47,260 ether estimated at over $11 million at the time.

 

Upon analyzing the address, it was discovered that previous transactions were not linked to the cold storage of any exchange.

However, there is a possibility of a connection to trading firm Cumberland as indicated by labeling on the data tool Arkham.

The significance of such a large holder moving assets to an exchange lies in the potential repercussions for the market.

When whales transfer funds to exchanges, it often raises speculation about selling pressure as the holder might either sell the tokens for stablecoins or convert them into other cryptocurrencies.

This event adds an element of intrigue to the cryptocurrency market as observers keenly watch for any subsequent market movements.

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Ethereum

RxR Analysis Reveals: Ether’s True Worth 27% Higher than Market Price

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RxR, a research-driven partnership between Republic Crypto and Re7 Capital, has revealed that Ether (ETH), the native token of the Ethereum blockchain, is currently trading at a 27% discount to its actual fair value.

This revelation comes as a result of RxR’s innovative approach to evaluating the worth of cryptocurrencies. Instead of relying solely on traditional metrics, RxR’s methodology incorporates a blended version of the Metcalfe law that takes into account both the active user base on the continuously expanding Ethereum scaling networks and the users on the Ethereum mainnet.

Ether, as a fundamental component of the Ethereum ecosystem, facilitates a wide range of activities, from simple transactions to participating in network security through staking, earning interest, and even storing non-fungible tokens. As such, the value of Ether has long been intertwined with Ethereum’s network usage.

Lewis Harland, an analyst at RxR, explained the significance of this approach, stating, “Ethereum’s network valuation exhibits a closer alignment with the updated Metcalfe law index when the active user base of Ethereum’s scaling networks is included in the model, in contrast to when it is omitted.”

Harland continued, “The updated model, which factors in these networks, places ETH’s valuation at $275 billion, indicating that the current market capitalization is trading at a substantial 27% discount.”

Ether’s market capitalization consistently tracks the blended Metcalfe law model more accurately than the traditional model, which fails to consider the growing activity on layer 2 networks or offchain solutions built atop the Ethereum mainnet.

In essence, this analysis challenges the perception that Ether might be overvalued, as suggested by the traditional Metcalfe law Model.

The emergence of Layer 2 technology has undoubtedly become one of the most dynamic and exciting developments in the crypto market. Key protocols, such as Coinbase’s BASE, Arbitrum, and Optimism, have found their unique niches within this landscape.

According to data from L2Beat, the total value locked in layer 2 protocols has surged more than threefold in just two years, reaching an impressive milestone of over $9 billion.

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Nearly 90% of Ethereum Supply Now Held Off Crypto Exchanges

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Ethereum - Investors King

Data shows that nearly 90 percent of Ethereum supply has left cryptocurrency exchanges for cold wallets or staking polls. This is the largest since 2015. 

It is worth noting that consumers have started moving their Ethereum holdings en masse to self-custody addresses since September last year. A process that was intensified in November during the FTX meltdown, which undermined the trust in centralised platforms. 

A similar scenario also played out with Binance on Tuesday when more than 3000 BTC was withdrawn within 24 hours from the platform following a threat from the U.S. Commodity Futures Trading Commission (CFTC)  to sue the exchange for allegedly violating trading regulations.

Investors often tend to move their digital assets from centralised exchanges to cold wallets at the slightest controversy. 

According to on-chain analytics provider Santiment, the total supply of ETH held on exchanges is currently at its lowest level since July 2015, with only 10.31% of existing ETH available. The remaining almost 90% of Ethereum is being held by wallets controlled by users. 

A low proportion of ETH on exchanges means that if significant buying pressure were to be seen on the market, the cryptocurrency’s price would likely go up, as there is little supply readily available to satisfy demand. 

Investors King understands that other factors responsible for this trend include the transition of Ethereum network from a Proof-of-Work (PoW) consensus algorithm into a Proof-of-Stake (PoS) consensus algorithm.

In addition, Ethereum staking has been seen as a source of revenue for both cryptocurrency holders and exchanges. These platforms offer users a staking service allowing them to maintain liquidity by locking their ETH on-chain to earn rewards. 

Another tenable reason is that investors are starting to see Ethereum as a potential long-term investment vehicle, much like Bitcoin. This is evident in the growing number of holders, who are holding onto their Ethereum for the long term, as opposed to trading it on cryptocurrency exchanges.

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