One of the two most well-known cryptocurrencies for many people, Ethereum, or ETH, is significantly different from Bitcoin, or BTC. For instance, there are over 122 million Ethereum tokens in circulation – over 10 times more when compared to Bitcoin. The coin was created in 2013, and launched in 2015, in Switzerland by eight people – including Russian-Canadian Vitalik Buterin, who co-created Ethereum after World of Warcraft weakened his in-game character. This move, according to Vitalik, made him criticize centralized services, a philosophy that is at the core of Ethereum: Unlike Bitcoin – which acts like digital gold – Ethereum is a technology platform for applications not run by governments or companies. The Ethereum blockchain, for instance, made up more than half of the Decentralized Finance (DeFi) market in 2022. Because of Ethereum’s high market share in DeFi, price developments of this cryptocurrency or significant changes to how the currency works – like during the Ethereum Merge of September 2022 - can have a big impact.
Ethereum Merge, and the energy savings of “Proof-of-Stake”
Originally, both Bitcoin and Ethereum could be mined, as new tokens are rewarded to anyone who verifies a blockchain transaction on their PC. This is called “Proof-of-Work” or PoW. In September 2022, Ethereum (ETH) moved away from PoW to “Proof-of-Stake” (PoS): New coins will be created after crypto owners put in (“stake”) their own coins to get a chance at transaction verification (and, thus, rewards). Solana (SOL) and Cardano (ADA) both already used this method of coin creation before, but Ethereum quickly rose to become the top cryptocurrency in terms of staked value. The main argument for this switch is energy use: The energy consumption of an Ethereum transaction equaled over 100,000 VISA transactions in December 2021 but was much lower after the Merge. The change, Ethereum’s creators observe, can impact both how people perceive cryptocurrencies but also the future development of popular DeFi categories within Ethereum, like crypto lending.
Ethereum “Split”, or the search for “Proof-of Work” alternatives
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Raynor de Best
Content expert covering payments and (crypto)currencies