New Delhi: Ether has been slowly but steadily outperforming its better-known-rival Bitcoin once again as optimism over a long-sought update that vows to reduce carbon footprint of the world’s most-used blockchain appears to be getting closer to fruition, according to a report by Bloomberg.
Ether, the native cryptocurrency of the Ethereum blockchain, has rallied about 14 per cent in the past seven days, while Bitcoin rose 5.9 per cent. Ether is down about 20 per cent and Bitcoin has slumped around 10 per cent so far this year.
The latest bout of outperformance is taking place as anticipation builds for the biggest software upgrade in Ethereum’s eight-year history.
Merge, which is expected to roll out within months, will change how transactions on Ethereum are ordered, helping the network consume less electricity and run more efficiently. Developers have been promising the upgrade for years. The last test of this software before the Merge is triggered started on March 15, and after some initial snags such as error messages, appears to be running smoothly.
“The ETH merge on ‘Kiln testnet' caused ETH to outperform the market,” said Teong Hng, co-founder and chief executive officer of Hong Kong-based Satori Research. “It is regarded as an upgrade in terms of the transactions' validations in Ethereum. The merge was successful with no major issue reported.”
The new software could make Ethereum more attractive for environmentally-conscious investors and will also reduce the supply of Ether in circulation.
According to the Bloomberg report, after the merger Ethereum's network will stop using millions of powerful servers called miners to order transactions on the blockchain. Instead, people will be able to place their Ethers into special staking wallets, which will be used to order transactions, a system called Proof of Stake. The stakers won't be able to take their coins out at least until another software upgrade, expected about six months after the Merge.
Kyle Samani, co-founder of Multicoin Capital, said that they are also going to be less likely than miners to sell newly minted coins they receive as rewards for being stakers, as they don't have as high operating costs as energy-thirsty miners. After the Merge, Ethereum's energy consumption should drop 99 per cent.
The Merge was expected to take place months ago, but had been delayed, as Ethereum developers worked to make sure everything goes smoothly. The entire Ethereum economy, including $349 million in Ether, plus billions in decentralised-finance apps and non-fungible tokens depend on it. Ethereum Foundation officially planned for the Merge to happen in the second quarter of 2022, but had recently said in a blog that the exact timing hasn't been determined, a possible sign of a small delay.
Tim Beiko, a computer scientist who coordinates Ethereum developers, said, “It would take a catastrophic event for it to not happen this year." Still, some miners expect the Merge will get pushed out into the fall.