Proof-of-Stake

Ethereum price technicals hint at 35% gains versus Bitcoin in 2023

Ethereum market dominance has doubled since the lunch of its staking contract in December 2020 as ETH price eyes levels not seen in five years versus Bitcoin.

Ethereum’s native token, Ether (ETH), could grow by 35% versus Bitcoin (BTC) this year to hit 0.1 BTC for the first time since 2018 as it forms a classic bullish continuation pattern.

Ethereum price must first break key resistance

Dubbed an ascending triangle, the pattern forms when the price fluctuates inside a range defined by rising trendline support and horizontal trendline resistance. It typically resolves after the price breaks out in the direction of its previous trend.

On a weekly chart, the ETH/BTC pair has been painting an ascending pattern since May 2021. The Ethereum token eyes a breakout above the pattern’s horizontal trendline resistance near 0.0776 BTC. Breaking this level could then see the price rally by as much as the triangle’s maximum height. 

In other words, the ETH/BTC pair could reach the next big resistance level at 0.1 BTC in 2023, or 35% from the current price levels.

ETH/BTC weekly price chart. Source: TradingView

Nonetheless, it is important to mention that ETH/BTC has attempted to break above the triangle’s resistance trendline eight times since May 2021. The attempts included two major  breakouts in November 2021 and September 2022, which saw the pair rallying 14% and 9%, respectively.

Both rallies fizzled out inside the 0.082 to 0.085 BTC area, followed by extreme price corrections that took ETH/BTC back inside the triangle range. Given this multi-year hurdle, the pair could face stiff resistance inside the 0.082 to 0.085 BTC range, even if it breaks above the triangle. 

Such a move would risk crashing ETH toward the triangle support, which coincides with its 50-week exponential moving average (50-week EMA), represented by the red line in the chart above, near 0.070 BTC, down nearly 6% from the current price levels. 

ETH “deflation” narrative

Ether’s bullish setup versus Bitcoin appears as ETH dominance has doubled versus other crypto assets in the past few years. 

Notably, ETH’s market capitalization has risen to nearly 20.5% of the entire crypto market valuation in January 2023, from about 10% in December 2020, when the Ethereum network started its transition from proof-of-work (PoW) to proof-of-stake (PoS) with the launch of a dedicated staking smart contract.

ETH.D weekly performance chart. Source: TradingView

Becoming a PoS blockchain has brought two key changes to Ethereum’s economy. First, users temporarily lock away a portion of their Ether holdings into Ethereum’s PoS smart contract to earn yield. And second, the Ethereum network has started burning some transaction fees.

Related: Ethereum ‘shark’ accumulation, Shanghai hard fork put $2K ETH price in play

Both changes have had a deflationary impact on overall supply. As a result, the Ethereum network now regularly produces fewer Ether tokens than are taken out of circulation, which theoretically makes ETH a “deflationary” asset.

ETH supply change since the Ethereum PoS upgrade in September 2022. Source: UltraSound.Money

The ETH/BTC price has grown nearly 250% since December 2020 despite still being down roughly 50% from its all-time highs witnessed in 2017. 

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The most eco-friendly blockchain networks in 2022

This year saw the realignment of the crypto industry toward greener, more energy-efficient blockchains.

2022 saw the continued advancement of green crypto projects as more industry companies focused on sustainability to reduce carbon emissions. A series of elemental forces drove the paradigm shift, including user demands for faster and more energy-efficient blockchains, growing climate change awareness among investors, and rising government concerns about energy consumption in the crypto sector.

Among the most notable eco-friendly crypto developments in 2022 was the transition of the Ethereum blockchain from a proof-of-work (PoW) to proof-of-stake (PoS) consensus layer. The Merge, completed in September, joined the original execution layer of Ethereum with its new PoS consensus layer, the Beacon Chain. It eliminated the need for energy-intensive mining by enabling the network to be secured using staked Ether (ETH). The conversion reduced the Ethereum network’s energy consumption by 99.9% immediately. Ethereum’s position as a leading programmable blockchain signaled industry-wide progression to low-carbon-emission solutions.

Mohammed AlKaff AlHashmi, the co-founder of the Islamic Coin cryptocurrency, spoke with Cointelegraph about how the sector was evolving to cater to emerging demands.

“In 2022, green projects follow three main vectors. The first is cutting their energy consumption and emissions — such as Ethereum reducing consumption by 99.9% and Polygon presenting itself as carbon-neutral. The second is ReFi — a new trend of regenerative finance that experiments with financial incentives to draw down carbon emissions.”

AlHashmi mentioned that his network had adopted a new emission-reduction model to achieve its eco-friendly objectives: “In the case of Haqq [the blockchain that issues Islamic Coin], the protocol automatically deposits 10% of the issued amount into a special Evergreen DAO, a nonprofit virtual foundation focused on long-term sustainability and community impact.”

Dimitry Mihaylov, chief scientific officer at blockchain gaming metaverse Farcana, told Cointelegraph that lowering emissions and on-chain transaction costs was good for the industry in the long term, as it would attract users, investors, and governments.

“Today, a regular banking transaction consumes an order of magnitude less electricity than a blockchain-based transaction, but we are betting on the development of more energy-efficient mining equipment and faster blockchain protocols. If successful, ‘green’ crypto projects are likely to receive strong support from both governments and potential users.”

That said, 2022 saw the rise of some unique, innovative, eco-friendly cryptocurrency projects contributing to a greener world.

Chia Network

Chia Network takes a unique approach to lower carbon emissions by using a proof-of-space-and-time protocol that differs greatly from early energy-intensive crypto-mining mechanisms that require powerful GPUs and processors. The network performs efficient transaction validations, also known as farming, and allocates users’ empty computer storage space into plots.

The process functions through a decentralized network of nodes acting as clients and servers connecting with their peers. The low processing power requirements allow anyone with a decent spec computer to farm Chia (XCH) tokens.

Related: How to farm Chia: A guide to XCH token farming using a hard drive

The network relies on farmers to provide storage space and then allocates mining privileges to each miner based on randomly generated numbers assigned to each space. The storage space whose stored numbers match closely with those generated by the network wins mining privileges.

This algorithmic formula rewards a greater allocation of random numbers to farmers with the most storage space, creating more winning chances.

XCH can be farmed using a range of infrastructures, including cloud computing and data storage platforms such as Amazon Web Services. Chia Network’s use cases include support for decentralized finance projects, asset tokenization platforms and decentralized exchanges.

On the energy front, Chia Network claims to use about 0.12% of the annualized energy used by the Bitcoin network. While the concept is inventive, it has drawbacks. Additional demand for hard disk and solid state drives has emerged in countries like China because mining XCH may wear out drives in as little as 40 days, in some instances.

Despite this downside, the network has presented money-making opportunities for data storage providers with unused space and companies with worn but operational data storage hardware that is no longer in active use.

Algorand

The Algorand blockchain network is built with an environmental focus and has made major strides toward becoming carbon-negative over the past two years.

In 2021, Algorand partnered with ClimateTrade, a a company that uses blockchain technology to help businesses offset their carbon footprint, enabling them to track their emissions in pursuit of broad sustainability goals.

Related: What is the Algorand blockchain, and how does it work?

The partnership enabled a portion of Algorand’s transaction fees to be put aside for purchasing the necessary carbon credits needed to offset the network’s carbon footprint. Algorand is a proof-of-stake blockchain, making it more energy efficient than Bitcoin’s (BTC) proof-of-work consensus mechanism.

For perspective, one Bitcoin transaction consumes approximately 1,206.52 kilowatt-hours of electricity, while Algorand claims one transaction only consumes about 0.000008 kWh of energy.

Solana

Solana is a blockchain platform designed to host decentralized applications. It uses the PoS consensus mechanism to validate transactions and embodies the tenets of green token generation. The platform can theoretically process over 60,000 transactions per second. This eclipses the Bitcoin network, which processes seven transactions per second.

On-chain transactions are settled using SOL (SOL) — the platform’s native cryptocurrency. The network has, since its inception, been working to achieve carbon neutrality, and it reached the milestone for the first time in 2021 by joining a carbon offset program.

Earlier this year, Solana received a favorable carbon rating from the Crypto Carbon Ratings Institute (CCRI) for consuming the lowest energy at a rate of 0.166 watt-hours per transaction.

While many blockchain networks use the energy-efficient PoS consensus mechanism, Solana’s efficiency is boosted by another novel mechanism called proof-of-history (PoH). With PoH, a timestamp creates a historical record to prove an event has occurred at a specific time. The nifty, pioneering solution allows the network to focus on validating current transactions without having to reference past temporal claims by nodes.

This enables consistency, as nodes must abide by set transaction ordering. The process allows the protocol to be fast and energy efficient.

Avalanche

Avalanche is a blockchain platform that aims to address the blockchain trilemma of scalability, efficiency, and security by using its unique proof-of-stake consensus mechanism. The platform uses its native AVAX (AVAX) token to facilitate transactions and distribute system rewards.

Related: What is Avalanche Network (AVAX) and how does it work?

Avalanche has been lauded as one of the most energy-efficient chains in 2022. According to a research study by the CCRI, the Avalanche public blockchain consumed about 0.0005% of the amount of energy used by the Bitcoin network, which is pretty impressive.

These and other high-efficiency properties have made Avalanche the platform of choice for projects with environmental considerations.

The future of eco-friendly crypto projects

Eco-friendly cryptocurrency projects are here to stay. They are designed to be more environmentally sustainable and are becoming increasingly popular among users due to their scaling capabilities and lower gas fees.

The benefits they provide will likely lead to the development of more environmentally friendly blockchains while encouraging the enhancement of existing ones. That said, 2022 sits at the cusp of a new era where green crypto projects become more prevalent.

Ethereum bulls wake up after four years to transfer 22,982 ETH

The ETH tokens in question originated from trading platforms Genesis and Poloniex and were found transferring 13,103.99 ETH and 9,878 ETH, respectively.

At a time of bear market-induced uncertainty, crypto investors often tend to stick with Bitcoin (BTC) and Ether (ETH) to evade impermanent losses. As a result, the significant movement of such assets intrigues the community as they try and decipher the intent behind the move.

Two addresses that have remained dormant for over four years recently came back to life to transfer 22,982 ETH to new addresses — leaving investors scratching their heads. The ETH tokens in question originated from trading platforms Genesis and Poloniex and were found transferring 13,103.99 ETH and 9,878 ETH, respectively.

Blockchain investigator Peckshield found that the last movement of the ETH tokens in question dates back to October 2018, when the price of Ether ranged roughly between $190 to $230. On the day of the transfer, the asset was priced at nearly $1,200 per ETH.

Historical movement of the ETH funds. Source: Peckshield 

The above flowchart shows the historical movement of the assets and how they made their journey over the years from the trading platforms to the new addresses. While no specifics have been revealed at the time of writing, community speculation links the tokens to funding collateral for a project.

The brainchild of co-founders Vitalik Buterin and Charles Hoskinson, among othersEthereum came into existence back in July 2015 and has positioned itself as a trustworthy investment over the years.

Related: MetaMask to allow users to purchase and transfer Ethereum via PayPal

Ever since Ethereum completed the Merge upgrade, the network’s energy consumption was reduced by 99.9%.

The Ethereum Energy Consumption Index. Source: digiconomist.net

As a direct result of the shift to a proof-of-stake consensus mechanism, the Ethereum network’s carbon footprint currently stands at 0.1 million tonnes of CO2 (MtCO2) per year.

Casper Association launches $25M grant to support developers on its blockchain

To complement the launch of its grant program, Casper said it will provide education to support developers and innovators on its network.

Scalable blockchain network Casper announced the launch of its new Casper Accelerate Grant Program on Nov. 23, created to support developers and innovators who are building apps to support infrastructure, end-user applications, and research innovation on its blockchain.

The Casper Network is a proof-of-stake (PoS) enterprise-focused blockchain designed to help businesses to build private or permissioned applications aimed at accelerating businesses and the adoption of blockchain technology. The network also boasts of solving the “scalability trilemma,” which revolves around “security, decentralization, and high throughput.” It also features upgradeable smart contracts, relatively lower gas fees compared to other layer-1 blockchains, and developer-friendly features to make it easier for the protocol to evolve as businesses expand their use.

To complement the launch of its grant program, Casper said it is creating a new digital portal to support developers and innovators on the network with practical tools and code, to help build their products. The developer portal is scheduled to go live in the first quarter of 2023. 

Related: zkSync developer Matter Labs raises $200M, commits to open-sourcing platform

Despite being in a bear market, projects still appear to be raising and investing funds to improve the Web3 ecosystem and the adoption of blockchain technology. On Nov 23, Cointelegraph reported that Onomy, a Cosmos blockchain-based ecosystem, raised millions from investors for the development of its new protocol, a project that seeks to merge decentralized finance (DeFi) and the foreign exchange market. 

On Oct. 18, Celestia Foundation also announced that it had raised $55 million in funding for building a modular blockchain architecture with the goal of solving challenges inherent to deploying and scaling blockchains. The company shared that it intends to build infrastructure that will make it easy for anyone with the technical know-how to deploy their own blockchain at minimal expense.

Cardano to launch new algorithmic stablecoin in 2023

‘Djed’ is set to go live in Jan. 2023, after a successful audit and a series of rigorous stress tests

Proof-of-stake blockchain platform, Cardano, has partnered with COTI, a DAG-based Layer 1 protocol, to launch what it refers to as an over-collateralized algorithmic stablecoin. The project said in an announcement provided to Cointelegraph that the stablecoin will be backed by excess collateral in the form of cryptocurrency stored in a reserve.

According to the release, Djed is set to go live on the mainnet in Jan. 2023, pending a successful audit and a series of rigorous stress testing. According to the developers, Djed will be pegged to the US Dollar, backed by Cardano ($ADA), and will use $SHEN as its reserve coin. 

The algorithmic stablecoin will be integrated with selected partners and Decentralized Exchanges (DEXs), who will reward users for providing liquidity using Djed. In a bid to grow at a sustainably healthy pace, the developers plan to adopt a gradual and slow approach to providing $ADA liquidity to the Djed smart contract. 

Shahaf Bar-Geffen, the CEO of COTI shared at the official announcement at the Cardano Summit:

“Recent market events have proven again that we need a safe haven from volatility, and Djed will serve as this safe haven in the Cardano network. Not only do we need a stablecoin, but we need one that is decentralized, and has on chain proof of reserves.” 

Related: Cardano price chart paints ‘Burj Khalifa’ with 7-month losing streak — More losses ahead?

Despite Cardano’s lackluster price action, the blockchain continues to build and innovate within the ecosystem. On Sept. 22, Cardano’s long-awaited Vasil upgrade finally went live. The hard fork was designed to help improve the ecosystem’s scalability and general transaction throughput capacity, as well as advance Cardano’s decentralized applications (DApps) development capacity. At the time of publication, Cardano was trading at $0.30.

Is GPU mining profitable after the Ethereum Merge?

The Ethereum merge is the upgrade from proof-of-work to proof-of-stake as a way of validating block transactions on the network.

What is the future of GPU mining?

The future of GPU mining depends upon miners’ willingness to continue mining alternative GPU mineable cryptocurrencies. 

Mining, the foundation of PoW cryptocurrencies, may continue to flourish, given that energy costs are low for GPU miners. Moreover, the application of graphics processing units beyond mining, including graphics designing, gaming and video editing, make them ideal for fixed capital investment. 

Also, when one blockchain migrates to alternative consensus algorithms, GPU miners can utilize their rigs to mine other cryptocurrencies. This implies that GPU miners can continue using their mining rigs during events like the Merge, unlike application-specific integrated circuit (ASIC) miners, as ASICs cannot be repurposed to mine alternative cryptocurrencies. 

On the contrary, compared to GPUs, ASICs are more energy-efficient and offer a higher hash rate, inducing miners to switch to application-specific integrated circuit equipment. However, the cost of setting up an ASIC mining rig makes it unattractive to solo miners.

Above all, the equipment a miner chooses should be supported by the blockchain on which they will be mining cryptocurrencies. Other factors determining mining profitability include electricity costs, block reward, hash rate and cryptocurrency price that a miner is looking to mine, which must be taken into consideration before buying GPUs, CPUs, ASICs or any other mining equipment.

Can miners migrate to the PoS version of Ethereum?

Miners may change their business model to proof-of-stake consensus. 

It is difficult for Ethereum supporters to abandon the chain due to the Merge and the possibility that it could render mining on Ethereum ineffective. However, decentralized finance (DeFi) staking has gained the interest of such people because of higher payouts, as fees that were formerly paid by the blockchain to miners will shift to validators.

More technical upgrades, revisions and forks will follow the Merge, according to Ethereum cofounder Vitalik Buterin. For instance, Ethereum Foundation intends to introduce and refine sharding and rollups on the blockchain, which will positively impact transaction speed and gas fees. 

Additionally, Ethereum core developers hope to simplify data storage on the blockchain with the Purge and the Verge. The Purge is a technical improvement that will reduce storage space for storing Ether on a hard disk. This will eliminate the need for nodes to keep transaction history and simplify the Ethereum protocol.

Another concept called the Verge, which is an implementation of Verkle Trees as a sort of mathematical proof, will allow any Ethereum user to become a network validator, as they won’t need extensive disk storage to keep vast amounts of block data. 

Large-scale miners may adopt a data-focused strategy and engage in high-performance computing. For example, GPU miners could gain from Web3 protocols like Livepeer and Render if they can pool resources. Nonetheless, a considerable concern is still in the air of imminent Ether (ETH) selling pressure.

An Ethereum GPU miner can invest more in what they already have and explore other emerging technologies like artificial intelligence (AI), cloud computing and others. Furthermore, the GPUs can be repurposed for cloud computing without necessarily having to add more investment. For example, Hut 8 Mining, which has over 180 GPUs, is already refurbishing its Ethereum data center for machine learning, AI and engineering purposes.

What are the alternative options for Ethereum miners?

The Merge forced miners to shift to alternative GPU mineable cryptocurrencies, a newly forked version or dump or sell their equipment at a low price.

Shift to alternative GPU mineable cryptocurrencies

One of the direct effects of the Merge includes miners turning to the Ethereum fork, Ethereum Classic (ETC), to keep utilizing their equipment. For instance, the blockchain fork’s hash rate increased the day after the Merge. The hash rate describes the computation power needed to approve a transaction on the blockchain through a proof-of-work consensus mechanism. 

As Ethereum Classic blockchain still practices the PoW method for mining, Canada-based Hive blockchain (crypto mining giant) disclosed its plans to mine other proof-of-work cryptocurrencies like ETC, Dogecoin (DOGE) and Litecoin (LTC), among others. However, shifting to a PoW blockchain may undermine the environmental benefits that the PoS version offers.

Ethereum miners can switch to a newly forked version

A Chinese miner who resists Ethereum Network’s shift to proof-of-stake forked Ethereum to preserve the proof-of-work consensus method. The newly forked version is called the EthereumPOW (ETHW), which hopes to accommodate GPU miners in the future.

The trade of tokens reflecting a proof-of-work fork of Ethereum is supported by cryptocurrency exchanges like Poloniex and BitMEX as well as the Tron blockchain.  

Some of the GPU miners may quit the game

Returning to past revenue figures that were provided on Ethereum is difficult. Those chances are low with stablecoin chains or any other PoW blockchain. Overflow of hash rate to alternative GPU mineable coins is also a threat to the mining venture. 

It is challenging to earn previous rewards that were offered on Ethereum, due to which miners started shifting to alternative GPU-mineable coins. However, the increased hash rate means a hike in mining difficulty, causing miners to get rid of GPU miners. 

Hive blockchain agrees that only miners with efficient equipment will succeed in the long run for this reason. As a result, many miners may sell their GPUs if the difficulty of alternate chains keeps increasing.

On the other hand, the selling may not occur since a dumping effect will result from an increasing supply of GPU capability compared to a decrease in demand. Therefore, the likely outcomes of such a scenario can be a vast majority of miners either dumping or selling their equipment at low prices. However, as crypto mining places a lot of strain on the GPU hardware, gamers and even film editors might not be optimistic about buying the machines.

What are the pros and cons of GPU mining?

Using a GPU for mining offers both benefits like scalability and faster processing but with drawbacks such as complex setup processes, maintenance and electricity cost.

GPU mining is inherently more powerful than central processing unit (CPU) mining, as graphical processing units can handle the same calculations faster. In addition, the system’s power can be enhanced by using extra graphic cards, making GPU mining a scalable alternative to CPU mining.

The more advanced GPUs come with gaming, video editing and machine learning support, giving them the versatility to speed up various applications outside of typical graphics rendering. For instance, graphical processing units can render 2D and 3D graphics, allowing gamers to play at larger resolutions.

Similarly, since GPUs have a staggering amount of computational power, they can significantly speed up applications like image recognition that benefit from their highly parallel architecture. In computing, GPU parallel processing refers to the simultaneous execution of numerous calculations or processes.

Nonetheless, the process of setting up a GPU mining rig is quite complex, which involves downloading and configuring software that supports GPU mining, signing up for a mining pool, and creating a worker (mining device’s name that serves as the login for mining software).

Moreover, unexpected errors can cause defects in the equipment, which poses a financial burden on the miner. Also, the cost of electricity may not be covered by the reward (amount of cryptocurrency) earned in return for providing computing power.

What does the Ethereum Merge mean for Ethereum mining and GPU miners?

Ethereum upgraded from proof-of-work to proof-of-stake, meaning miners will be out of work, and their equipment will be useless.

GPU miners are individuals that validate transaction blocks by using specialized graphics cards to solve challenging mathematical challenges. Miners use graphic cards because they can quickly and repeatedly divide and process tasks that need a lot of energy and resources. 

However, Ethereum’s prolonged plan to reduce energy consumption by 99% by phasing out cryptocurrency mining was completed on Sept. 15, raising concerns about existing mining equipment. For instance, it may result in an accumulation of e-waste brought on by increased useless mining rigs, which could trigger another climate emergency, ultimately offsetting the advantages of the switch to the proof-of-stake (PoS) consensus mechanism.

Unlike proof-of-work (PoW), where several computers act as nodes and validate a single block, randomly selected validators create new blocks in PoS. In the long term, this renders thousands of graphical processing unit (GPU) rigs useless, making Ethereum mining less economical than it has previously been.

Polygon Studios’ Ryan Watt talks Web3’s core principles and fairer internet

Ryan Wyatt, the CEO of Polygon Studios, shares his thoughts on blockchain upgrades and his plans for Polygon in supporting the upcoming Web3 disruption.

The year 2022 in crypto was eventful in many ways. However, the negative impacts of a bear market dampened the excitement around the blockchain upgrades that significantly brought crypto ecosystems closer to the future of finance.

For Bitcoin, it was the Taproot soft fork upgrade, which was aimed at improving the scripting capabilities and privacy of the Bitcoin network. Ethereum underwent the Merge upgrade to transition from a proof-of-work to a proof-of-stake (PoS) consensus mechanism.

Leading decentralized Ethereum scaling platform Polygon kicked off the year with mainnet upgrades based on Ethereum Improvement Proposal (EIP)-1559, otherwise known as the London hard fork. The upgrade was accompanied by Polygon (MATIC) token burning and better fee visibility.

On Jan. 25, Ryan Wyatt joined Polygon Studios as the CEO after resigning from YouTube as global head of gaming. Speaking to Cointelegraph, Wyatt discussed the importance of timely blockchain upgrades and his vision for Polygon.

Cointelegraph: What is your perspective on blockchain upgrades when it comes to Polygon? What are some key points of consideration when discussing changes to the network?

Ryan Wyatt: As with everything we do, Polygon takes a holistic approach to upgrades. There are always multiple different solutions to every issue, so it is more productive to explore as many of them as possible. There are many paths to explore when it comes to Ethereum scaling, and aggregating multiple solutions together represent the most promising strategic approach.

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For example, our latest upgrade, zkEVM — the first zero knowledge rollup fully compatible with Ethereum Virtual Machine (EVM) — is principally designed to address Ethereum’s high transaction fees and latency. Whereas Polygon Avail, which we announced shortly before zkEVM, addresses the data availability problem by taking a modular approach (decoupling transaction execution from data availability).

It is already clear that there cannot be a “one solution to rule them all,” a full suite of scaling products needs to be developed to bring mass adoption to Ethereum and Web3 in general.

CT: How do you think the general public perceives blockchain upgrades? And, what impact does it have on the decision-making process for the devs, if any?

RW: Decentralization, usability and user-centricity are among the core principles of Web3, so network upgrades often reflect those ideals. We believe that people usually appreciate upgrades that aim to increase the overall utility and usability of blockchains. Similarly, developers tend to prioritize their communities’ needs when discussing and implementing upgrades, so that’s a mutually beneficial relationship.

CT: What implications do blockchain upgrades such as the Merge have on the other ecosystems that are directly or indirectly connected to the Ethereum ecosystem?

RW: Before the Merge, almost all carbon emissions on Polygon — roughly 99.9% — emanated from smart contracts and holdings on the Ethereum network. Subsequently, as the Merge has now massively reduced Ethereum’s own energy consumption and ensuing carbon emissions, this positive effect has also rubbed off on Polygon and related platforms, making them much more sustainable as well.

The scaling issue, however, still persists. While the transition to PoS laid the groundwork for sharding and other scaling techniques, it did little to remediate issues with high fees and slow transaction speeds. As such, layer-2 solutions like Polygon still hold invaluable utility. As Ethereum becomes more scalable and efficient, so will Polygon; every improvement made to Ethereum enhances Polygon’s existing strengths.

CT: What is Polygon’s secret to becoming one of the biggest names in the crypto space. Also, how do you intend to maintain a dominant position in the future?

RW: Polygon’s primary mission is to help in collaborative building toward a fairer internet, where anyone can find opportunities anywhere. We provide the infrastructure for a new world where people and technology collaborate and exchange value globally and freely, without gatekeepers or intermediaries.

To this end, Polygon is onboarding world-class new talent from Web2 and Web3 to provide both the tech stack and the infrastructure needed to ensure long-term success for projects. Polygon’s recruitment drive includes top-tier talent from leading companies such as EA, Amazon and Google.

Meanwhile, Polygon’s developer network is constantly expanding and now exceeds 37,000 decentralized applications (DApps), while more than 60 metaverse platforms support Polygon, including Sandbox, Decentraland and Somnium Space.

Polygon is also helping many Web2 companies, including Starbucks, Adobe, Clinique and Stripe, to integrate Web3 functionality and has raised $450 million in February to further fuel its Web3-focused initiatives.

CT: Does Ethereum’s latest upgrade help improve Polygon? 

RW: All DApps in the Polygon ecosystem now benefit from significantly lower energy consumption/carbon emissions thanks to the Merge. This is coupled with our own sustainability efforts, which saw the network go carbon neutral this year — benefiting thousands of Polygon DApps with a negligible carbon footprint.

Recent: WhatsApp crash: Are decentralized blockchain messengers a real alternative?

By the end of the year, Polygon aims to go carbon-negative as it continues to onboard projects that cater to Web3. Businesses in crypto have taken the lead in building Web3 solutions and blockchain networks like Polygon are prepared to onboard, enable cross-compatibility with other ecosystems and improve the overall performance of such offerings.

Polygon Studios’ Ryan Wyatt talks Web3’s core principles and fairer internet

Ryan Wyatt, the CEO of Polygon Studios, shares his thoughts on blockchain upgrades and his plans for Polygon in supporting the upcoming Web3 disruption.

The year 2022 in crypto was eventful in many ways. However, the negative impacts of a bear market dampened the excitement around the blockchain upgrades that significantly brought crypto ecosystems closer to the future of finance.

For Bitcoin, it was the Taproot soft fork upgrade, which was aimed at improving the scripting capabilities and privacy of the Bitcoin network. Ethereum underwent the Merge upgrade to transition from a proof-of-work to a proof-of-stake (PoS) consensus mechanism.

Leading decentralized Ethereum scaling platform Polygon kicked off the year with mainnet upgrades based on Ethereum Improvement Proposal (EIP)-1559, otherwise known as the London hard fork. The upgrade was accompanied by Polygon (MATIC) token burning and better fee visibility.

On Jan. 25, Ryan Wyatt joined Polygon Studios as the CEO after resigning from YouTube as global head of gaming. Speaking to Cointelegraph, Wyatt discussed the importance of timely blockchain upgrades and his vision for Polygon.

Cointelegraph: What is your perspective on blockchain upgrades when it comes to Polygon? What are some key points of consideration when discussing changes to the network?

Ryan Wyatt: As with everything we do, Polygon takes a holistic approach to upgrades. There are always multiple different solutions to every issue, so it is more productive to explore as many of them as possible. There are many paths to explore when it comes to Ethereum scaling, and aggregating multiple solutions together represent the most promising strategic approach.

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For example, our latest upgrade, zkEVM — the first zero knowledge rollup fully compatible with Ethereum Virtual Machine (EVM) — is principally designed to address Ethereum’s high transaction fees and latency. Whereas Polygon Avail, which we announced shortly before zkEVM, addresses the data availability problem by taking a modular approach (decoupling transaction execution from data availability).

It is already clear that there cannot be a “one solution to rule them all,” a full suite of scaling products needs to be developed to bring mass adoption to Ethereum and Web3 in general.

CT: How do you think the general public perceives blockchain upgrades? And, what impact does it have on the decision-making process for the devs, if any?

RW: Decentralization, usability and user-centricity are among the core principles of Web3, so network upgrades often reflect those ideals. We believe that people usually appreciate upgrades that aim to increase the overall utility and usability of blockchains. Similarly, developers tend to prioritize their communities’ needs when discussing and implementing upgrades, so that’s a mutually beneficial relationship.

CT: What implications do blockchain upgrades such as the Merge have on the other ecosystems that are directly or indirectly connected to the Ethereum ecosystem?

RW: Before the Merge, almost all carbon emissions on Polygon — roughly 99.9% — emanated from smart contracts and holdings on the Ethereum network. Subsequently, as the Merge has now massively reduced Ethereum’s own energy consumption and ensuing carbon emissions, this positive effect has also rubbed off on Polygon and related platforms, making them much more sustainable as well.

The scaling issue, however, still persists. While the transition to PoS laid the groundwork for sharding and other scaling techniques, it did little to remediate issues with high fees and slow transaction speeds. As such, layer-2 solutions like Polygon still hold invaluable utility. As Ethereum becomes more scalable and efficient, so will Polygon; every improvement made to Ethereum enhances Polygon’s existing strengths.

CT: What is Polygon’s secret to becoming one of the biggest names in the crypto space. Also, how do you intend to maintain a dominant position in the future?

RW: Polygon’s primary mission is to help in collaborative building toward a fairer internet, where anyone can find opportunities anywhere. We provide the infrastructure for a new world where people and technology collaborate and exchange value globally and freely, without gatekeepers or intermediaries.

To this end, Polygon is onboarding world-class new talent from Web2 and Web3 to provide both the tech stack and the infrastructure needed to ensure long-term success for projects. Polygon’s recruitment drive includes top-tier talent from leading companies such as EA, Amazon and Google.

Meanwhile, Polygon’s developer network is constantly expanding and now exceeds 37,000 decentralized applications (DApps), while more than 60 metaverse platforms support Polygon, including Sandbox, Decentraland and Somnium Space.

Polygon is also helping many Web2 companies, including Starbucks, Adobe, Clinique and Stripe, to integrate Web3 functionality and has raised $450 million in February to further fuel its Web3-focused initiatives.

CT: Does Ethereum’s latest upgrade help improve Polygon? 

RW: All DApps in the Polygon ecosystem now benefit from significantly lower energy consumption/carbon emissions thanks to the Merge. This is coupled with our own sustainability efforts, which saw the network go carbon neutral this year — benefiting thousands of Polygon DApps with a negligible carbon footprint.

Recent: WhatsApp crash: Are decentralized blockchain messengers a real alternative?

By the end of the year, Polygon aims to go carbon-negative as it continues to onboard projects that cater to Web3. Businesses in crypto have taken the lead in building Web3 solutions and blockchain networks like Polygon are prepared to onboard, enable cross-compatibility with other ecosystems and improve the overall performance of such offerings.

The Merge brings down Ethereum’s network power consumption by over 99.9%

Before the Merge upgrade, in 2022, the energy consumption of Ethereum ranged between 46.31 terawatt hour (TWh) per year to 93.98 TWh per year.

The Merge, which is considered one of the most significant blockchain upgrades on Ethereum to date, brought down the network’s energy consumption by 99.9% immediately.

On Sept. 15, the Ethereum blockchain migrated from proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism in an effort to transition into a green blockchain. What followed was an immediate and steep drop in total energy consumption of the Ethereum network.

The Ethereum Energy Consumption Index. Source: digiconomist.net

Before the Merge upgrade, in 2022, the energy consumption of Ethereum ranged between 46.31 terawatt hour (TWh) per year to 93.98 TWh per year. The lowest energy consumption for Ethereum was recorded on Dec. 26, 2019, at 4.75 TWh per year.

The estimated annual energy consumption in TWh/yr for various industries. Source: ethereum.org

Starting from Sept. 15, the day of the Ethereum Merge, Ethereum’s energy dropped down by over 99.9% and continues to maintain low energy usage. As a result, the network’s carbon footprint currently stands at 0.1 million tonnes of CO2 (MtCO2) per year.

When translated to single Ethereum transactions, the electrical consumption is as low as 0.03-kilowatt hour (kWh) and the carbon footprint stands at 0.01 kgCO2, which, according to digiconomist, is equivalent to the energy used when watching two hours of YouTube.

Related: Ethereum sets record ETH short liquidations, wiping out $500 billion in 2 days

Despite the celebrations around Ethereum’s transition to PoS, community members raised concerns related to the blockchain’s centralization and higher regulatory scrutiny.

The centralization aspect became evident right after the Merge, as 46.15% of the nodes for storing data, processing transactions and adding new blockchain blocks could be attributed to just two addresses.

While Ethereum proponents claim that anyone with 32 Ether (ETH) can become a validator, it is important to note that 32 ETH, or around $41,416, is not a small amount for a newbie or common trader.

Ethereum at the center of centralization debate as SEC lays claim

Ethereum’s transition to PoS was celebrated as a key upgrade. However, a month after the move, centralization concerns are mounting high.

Ethereum went through a key network upgrade on Sept. 15, shifting from its proof-of-work (PoW) mining consensus to a proof-of-stake (PoS) one. The key upgrade is dubbed the Merge. 

The Merge was slated as a critical change for the Ethereum network that would make it more energy efficient, with later improvements to scalability and decentralization to come.

A little over a month later, however, some industry observers fear the PoS transition has pushed Ethereum toward more centralization and higher regulatory scrutiny.

The Merge replaced the way transactions were verified on the Ethereum network. Instead of miners putting in their computational power to verify a transition, validators now pledge Ether (ETH) tokens to verify those transactions. The issue with this system is that validators with a higher number of Ether have a larger say, given they have a larger percentage of validator nodes or staked ETH.

To become a validator on the Ethereum network, one must stake a minimum of 32 ETH. Thus, whales and big crypto exchanges have staked millions of ETH to have a larger portion of the validator nodes.

Current staking activities look very centralized, with the leading liquid staking protocol Lido and leading centralized exchanges such as Coinbase, Kraken and Binance accounting for over 60% of the staked ETH.

RA Wilson, chief technology officer of crypto and carbon credits exchange 1GCX, told Cointelegraph that the Merge has enabled large holders of Ether to gain mass control of the network, making it significantly more centralized and certainly less secure and explained:

“Many ETH holders stake their crypto on centralized exchanges such as Coinbase, which allows these platforms to become dominant holders on the network, contributing to stakeholder centralization.”

The centralization aspect was quite evident right after the Merge, as 46.15% of the nodes for storing data, processing transactions and adding new blockchain blocks could be attributed to just two addresses.

Arcane Crypto analyst Vetle Lunde told Cointelegraph that while the PoS transition was important for Ethereum’s long-term goals of energy efficiency and scalability, one should be aware of the trade-offs:

“The largest validators being exchanges represent a potential long-term risk. Exchanges already find themselves in a difficult regulatory landscape, and precautionary rejections of transactions may conflict with one important core principle in the crypto ethos, censorship resistance.”

While Ethereum proponents claim that anyone with 32 ETH can become a validator, it is important to note that 32 ETH, or around $41,416, is not a small amount for a newbie or common trader, added to the fact that the lock-in period is quite long. 

Slava Demchuk, CEO of Web3 complaint platform PureFi, told Cointelegraph that the centralization and complexities involved in staking would make centralized entities like Coinbase more powerful:

“Most people will be staking with custodians (such as Coinbase) due to the simplicity and the fact that they don’t have 32ETH. This way, large companies will have a majority share of the network, making it more centralized. It means that entities with more ETH will have more control.”

The fear of regulatory scrutiny

Earlier in 2018, the SEC claimed that Ether is not a security, owing to its decentralized development and expansion over time. However, that may change with the move to PoS, which has complicated the relationship between the Ethereum blockchain and regulators.

Gary Gensler, Chair of the United States Securities and Exchange Commission (SEC), testified before the Senate Banking Committee on the day of the Merge, stating that revenue from “expectation of profit to be derived from the efforts of others” would include proof-of-stake digital assets.

Gensler also mentioned that staking from large centralized exchanges looks “very similar” to lending, calling out high-yield products that caused the recent crypto market meltdown and lumping these products into the financial instruments under the scrutiny of the SEC.

Furthermore, in an SEC lawsuit filed just a week after the Merge, the SEC claimed jurisdiction over the Ethereum network as the majority of nodes are concentrated in the United States.

While the SEC’s claims raised some eyebrows and with many criticizing the regulator for its approach, some believe Ethereum has had it coming, as Gensler has already stated that moving to PoS could trigger securities laws. Ruadhan, the lead developer of PoW-based mining token developer Seasonal Tokens, told Cointelegraph:

“The argument that many of the validators are located in the U.S. is weak because it’s not even a majority. However, this move does show an intent to regulate, and it would cause a major disruption to the economy if Ethereum were to be classified as a security. Centralized exchanges would need to de-list Ethereum. The world economy is currently very vulnerable, and Ethereum’s market cap is so large that an event like this could have spillover effects and even cause an economic crisis.”

Ruadhan predicted that if Ethereum was classified as a security, then it would be much more heavily regulated regardless of how centralized it is: “If there are very few block proposers, all concentrated in the United States, then they can be forced to censor transactions that violate U.S. sanctions, which would mean that Ethereum’s censorship resistance is lost.”

Kenneth Goodwin, director of regulatory and institutional affairs at Blockchain Intelligence Group, told Cointelegraph that the move to PoS has certainly provided the SEC with leverage to oversee validators and even the nodes themselves as long as they are connected with a U.S. person, entity or jurisdiction. However, there is an irony to the situation. Goodwin explained:

“The irony here is that this could be one of the networks in consideration for the U.S. central bank digital currency given its central nature of it. On the flip side, there would be more regulatory oversight that may include creating a system of registration for validators and Ether protocol-based projects. Nevertheless, it seems as though the SEC is seeking to classify Ethereum as a security.”

Jae Yang, CEO and co-founder of noncustodial crypto exchange Tacen, told Cointelegraph that centralization could become a concern for Ethereum if regulators move to impose Anti-Money Laundering (AML) regulations on staking. 

“Centralization will be a concern if the FinCEN or other regulators impose Know Your Customer, AML or other AML compliance requirements on users simply staking ether. Though a long shot at this point, there is a risk that centralized validators omit certain transactions, establishing themselves as the third-party intermediary on decision-making that goes against the very guiding principles of the decentralized financial system,” he explained.

Long-term impact of PoS transition

Despite concerns of over-centralization and regulatory scrutiny, industry observers are confident that the Ethereum blockchain will overcome these short-term issues and continue to play a key role in developing the ecosystem in the long term.

Okcoin chief operating officer Jason Lau advocated for an expanded view of the transition. He told Cointelegraph:

“When we think about the centralization vs decentralization debate, we need to look at the long-term. Open blockchains require a high level of decentralization to ensure censorship resistance, openness and security, so any shift towards more centralization would be worth keeping an eye on. The community is well aware of the importance of encouraging and ensuring a diverse set of participants, and we will see how this plays out over time.”

Wilson noted that the network may become slightly more decentralized over the course of the next 6–8 months, as lock-up periods on Ethereum begin to expire and holders will be able to withdraw their staked tokens.

And while node and validator centralization is a valid concern, Chen Zhuling, co-founder and CEO of noncustodial staking service provider RockX, noted PoW mining on Ethereum was as centralized as validators of the current PoS-based network.

Chen told Cointelegraph that in the PoW era, “Three mining pools dominated the Ethereum network’s hashrate. You could hardly compete with other miners to verify blocks if you didn’t possess an immense amount of computing power, requiring expensive, energy-guzzling mining rigs.”

Chen also advocated for a long-term view of the PoS transition as currently, tokens are mostly controlled by large foundations for the sake of security and on the goodwill assumption that they wouldn’t do anything to corrupt the network.

Demchuk was quick to point out that centralization in staking does not mean it will be easy for a large malicious group of stakers to potentially take control of the Ethereum network, as “there is an additional protective measure. ‘Bad’ validators will get slashed, meaning that their ‘stake’ can get confiscated.”

Ethereum might have transitioned to a PoS network, but a majority of scalability and other features will only arrive after the completion of the final phase, expected by the end of 2024.

Going ahead, it will be interesting to see how Ethereum overcomes the centralization of validators and addresses the growing regulatory concerns facing the network.