Proof-of-Work

Ethereum chain split is possible after the Merge, survey finds — But will ETC price keep climbing?

Ethereum Classic is a relatively smaller PoW chain compared to Ethereum in terms of usage and hash rate.

Ethereum’s proof-of-work (PoW) powered by GPUs generated approximately $19 billion in revenue last year for ETH miners. But these revenue streams are in danger as Ethereum is expected to become a proof-of-stake (PoS) blockchain via “the Merge” upgrade in September.

Miners could then revolt against the new upgrade by continuing to mine on the old Ethereum PoW after the hard fork chain split. 

A survey from crypto hedge fund Galois Capital recently revealed that 33.1% of respondents believe that the Merge would create two parallel blockchains: ETH1 (PoW) and ETH2 (PoS).

Nevertheless, most respondents, or 53.7%, expect Ethereum’s chain to smoothly transition from PoW to PoS.

Is the ETH1 PoW “illogical”?

But contentious hard forks aren’t anything new. In fact, the current Ethereum chain came to be in 2016 following a controversial hard fork aimed at reversing a $60 million exploit, resulting in a chain split between Ethereum and Ethereum Classic (ETC).

This is where the argument of Ethereum Classic versus ETH1 begins. Since Ethereum Classic is already a PoW chain, creating a similar chain, ETH1, will not have “much relevance,” according to some Redditors. 

Several other comments from Reddit explaining why ETH1 will fail include:

Meanwhile, most respondents in the Galois Capital survey also believe that exchanges and projects (especially Tether) will support ETH2 over ETH1 in the event of a hard fork.

What does it mean for Ethereum Classic?

After reaching a record high in May 2022, the Ethereum network’s hash rate has been downtrend, indicating that miners are pausing or shutting down their rigs in the weeks leading up to the Merge.

On the other hand, they could also be becoming stakers on the Ethereum’s PoS chain.

Ethereum hash rate performance since September 2021. Source: YCharts

The miners’ exit from the Ethereum network is visible in the recent increase in GPU sales in the secondary market (against lower demand), according to Tom’s Hardware GPU Pricing Index.

Nonetheless, there’s also an uptick in the number of social media threads that shows the miners’ strategy after the Merge will likely be to switch to whatever PoW chain is more profitable.

As of July 29, Ethereum Classic was topping miners’ interest for its 116% weekly profitability, data on WhatToMine.com shows. 

Simultaneously, the price of ETC has soared by more than 200% in July.

ETC/USD daily price chart. Source: TradingView

But that does not take away the fact that Ethereum Classic is a very small project compared to Ethereum.

As of June 29, Ethereum Classic had over 53,000 daily active addresses versus Ethereum’s 763,000.

Ethereum Classic daily active addresses. Source: BitInfoCharts.com

The difference suggests that ETC’s ongoing price boom is purely speculative since Ethereum Classic remains largely underutilized as a chain and with only a handful of projects. Therefore, ETC is certainly at risk of a “sell the news” event after the Merge. 

At the same time, a potential ETH1 PoW chain may also push down demand for ETC. 

ETC price target

On the weekly chart, ETC’s price has reached a resistance confluence, awaiting a breakout as the euphoria surrounding the Merge grows.

Related: Crypto mining still profitable in the long-term, expert says

The confluence comprises the 0.786 Fib line (~$43) and a multi-month descending trendline. Both have historically capped ETC’s bullish attempts in the past, as the chart below illustrates.

Nonetheless, a breakout move increases the token’s potential to hit $75 next, due to its proximity to the 0.618 Fib line.

ETC/USD weekly price chart. Source: TradingView

Conversely, a pullback move from either the resistance confluence or the 0.618 Fib line could have ETC eye a drop toward the support area illustrated above. It is defined by the red bar, the multi-year rising trendline support (purple) and the descending channel’s lower trendline (green).

In other words, ETC risks dropping toward the $10–$12 area by September, down 75% from July 29’s price.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Ethereum dev confirms Goerli merger date, the final update before the Merge

The Goerli merger requires node operators to update both their consensus layer and execution layer clients in tandem, rather than just one of the two.

The Ethereum mainnet is just one testnet merger away from officially transitioning to a proof-of-stake (PoS) blockchain. After multiple shadow forks and testnet merges, the years-long journey has reached the final stage with the announcement of the final testnet merge to the Beacon chain.

The transition to PoS began in December 2020 with the launch of the Beacon chain, starting Phase 0 of the three-phase process. Phase 1, the current phase, was slated to be completed by 2021. However, due to numerous delays and unfinished work on the developers’ end, it is expected to be completed by the third week of September. The final phase of the transition is slated to be completed by late 2023.

Lead Ethereum developer Tim Beiko took to Twitter to announce the details of the Goerli testnet transition. The Goreli testnet will merge with the Beacon Chain called Prater and the combined Goerli/Prater network will retain the Goerli name post-merge.

The testnet merger will be completed in two phases starting on Aug. 4 with the Bellatrix upgrade on the consensus layer. The Bellatrix upgrade will be triggered by the epoch height of 112260.

Ethereum’s PoS network progresses in epochs instead of blocks, where one epoch is a bundle of up to 32 blocks.

The second phase of the upgrade will be called Paris, where the execution layer will transition from proof-of-work (PoW) to proof-of-stake. This phase is expected to be completed between August 6–12. The Paris upgrade will be triggered by a specific Terminal Total Difficulty (TTD) of 10790000. Once the execution layer crosses the threshold TTD, the next block will be solely produced by a PoS validator.

The official announcement noted that the upcoming Goerli merge will be different from the early testnet integration since the node operators need to update both their consensus layer and execution layer clients in tandem, rather than just one of the two. The developer team also attached numerous client releases that support the testnet Merge.

Related: Ethereum options data show pro traders ready to go long into ETH’s Merge

The upcoming final testnet merge will only impact the node operators and testnet participants, Ether (ETH) holders and stakers won’t have to make any changes from their end. The testnet merge will be the final rehearsal before the Ethereum mainnet officially merges with the Beacon chain on Sept. 19. However, the perpetual Merge date could see a change depending on the outcome of the Goerli test net.

The PoS transition of the Ethereum network is being slated as the biggest upgrade for the blockchain network since its inception. The upgrade is focused on increasing scalability through the introduction of sharding and reducing high transaction costs. However, most of the scalability features are expected to be integrated after the completion of the final phase of the transition, which is expected by the second half of 2023.

Ethereum Classic gets ‘endorsement’ from Vitalik Buterin, but ETC price still risks 50% crash

ETC’s ongoing price rebound looks eerily similar to a bull trap event from 2021.

Ethereum Classic (ETC) continues to reap benefits from its blockchain rival Ethereum’s upcoming transition from proof-of-work (PoW) to proof-of-stake (PoS). 

Vitalik Buterin likes Ethereum Classic

Notably, ETC’s price jumped by a little over 20% to reach $27.50, two days after Ethereum co-founder Vitalik Buterin’s endorsement of Ethereum Classic went viral across social media. In his comments, Buterin presented the chain as a “fine” PoW alternative to Ethereum.

The statements appeared amid fears that Ethereum’s potential network upgrade this September will force PoW miners elsewhere. 

In other words, they would be looking for alternative PoW networks to ensure that their rigs remain functional. That could benefit Ethereum Classic since it’s the original version of Ethereum and could therefore ensure an easy migration for miners.

ETC technical outlook

Impressively, ETC price has rebounded by over 120% since mid June, making it the standout performer over the past month. Nonetheless, it is still down over 85% versus its May 2021 record high of $185, suggesting that its ongoing retracement move could technically be a bull trap.

A convincing piece of evidence comes from ETC’s 150% price rebound between June 2021 and September 2021, which became a false recovery signal.

Interestingly, ETC’s ongoing price action appears similar to the one in 2021, as illustrated in the daily chart below.

ETC/USD daily price chart. Source: TradingView

Like in 2021, ETC this year has been consolidating inside the range defined by its 0.236 Fib line (~$28.50) as support and 0.382 Fib line (~$22.80) as resistance. Similarly, the token’s daily relative strength has been correcting from its “overbought” area during the price consolidation.

Related: This little-known DeFi crypto token has rallied over 800% in a month

Therefore, ETC could continue trending sideways in the $22.80–$28.50 price range, followed by a breakdown toward the 0 Fib line near $13.65.

In other words, a 50% price drop from July ‘s price.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Lido DAO most ‘overbought’ since April as LDO price rallies 150% in two weeks — what’s next?

Ethereum 2.0’s tentative launch in September raises LDO’s prospects of holding its gains.

The price of Lido DAO (LDO) dropped heavily a day after its key momentum oscillator crossed into “overbought” territory.

LDO undergoes overbought correction

LDO’s price plunged to as low as $1.04 on July 16 from $1.32 on July 15, amounting to a 20%-plus decline. The token’s sharp downside move took its cues from multiple bearish technical indicators, including its daily relative strength index (RSI) and its 100-day exponential moving average (EMA).

LDO’s latest plunge came after it rallied over 150% in just two weeks, a move that simultaneously pushed its daily RSI above 70 on July 15, thus turning it overbought. 

An overbought RSI signals that the rally may be nearing an end while readying for a short-term pullback.

Meanwhile, more downside cues for the Lido DAO token came from its 100-day EMA (the black wave in the chart above) near $1.30, which capped LDO from extending its 150% price rally.

LDO/USD daily price chart. Source: TradingView

In its initial stages, the price action looked similar to LDO’s correction in April 2022, after its RSI crossed above 70 for the first time in history. Notably, the Lido DAO token had undergone a 90%-plus price decline to reach $0.39, its record low, by mid-June 2022. 

Related: What are the top social tokens waiting to take off? | Find out now on The Market Report

That raises LDO’s potential to repeat the April-June 2022 correction, albeit with no exact bottom in sight. That said, the token’s interim downside target appears near its 50-day EMA (the red wave) at $0.90, down another 20% from today’s price.

On the other hand, a break below the 50-day EMA would risk crashing LDO to around $0.75, which coincides with the 0.618 Fib line of the Fibonacci retracement graph drawn from $0.39-swing low to $1.31-swing high.

Ethereum 2.0 expected in September

On July 15, Ethereum developers confirmed that their network’s much-awaited transition to proof-of-stake from proof-of-work, dubbed “the Merge” or “Ethereum 2.0,” would tentatively occur on September 19.

LDO surged nearly 25% on the day of the announcement due to its close ties to Ethereum.

In particular, LDO serves as a governance token at Lido, a liquid staking platform that has locked over 4.13 million ETH (worth around $5 billion) into Merge’s official smart contract on behalf of its users.

Ethereum 2.0 total value staked by provider. Source: Glassnode

Post Ethereum’s announcement, the number of Ether deposited into the Merge smart contracts via Lido increased.

With Lido currently the biggest provider by total value staked, a successful Merge launch could bring more users to Lido, which, in turn, could boost demand for LDO tokens.

Therefore, a technical correction in LDO’s price could follow up with a rebound toward the 100-day EMA if the Ethereum’s plans to become a proof-of-stake chain comes punctually.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Ethereum devs confirm the perpetual date for The Merge

Ethereum’s transition journey from PoW to PoS journey could take up to years as it began with the launch of Beacon Chain in December 2020 and has seen several delays on the way.

Ethereum network is nearing the merger phase of its crucial transition from proof-of-work (PoW) mining consensus to proof-of-stake (PoS). Ethereum (ETH) devs offered a perpetual merger date during a conference call on Thursday.

The conference call saw core Ethereum developer Tim Beiko, who runs core protocol meetings, propose September 19 as the tentative target date for the merger. The proposed target date didn’t face any objection from the core developers.

Later, Ethereum developer superphiz.eth tweeted about the roadmap to the merger and also cleared that the proposed target date should be seen as a roadmap rather than a hard deadline.

Ethereum’s transition journey to PoS-based ETH 2.0 began on December 1, 2020, with the launch of Beacon Chain, initiating Phase 0 of the transition. Phase 1 of the program was scheduled to launch in mid-2021 but got delayed to the first quarter of 2022 owing to unfinished work and the complexities involved in the code auditing.

Earlier in June this year, Sepolia testnet Beacon Chain went live, setting the stage for its Merge dress rehearsal to give Ethereum network developers valuable technical insights. The Sepolia was eventually merged with the network on July 7.

The final trial of the Merge is set to occur on the Goerli network, which is scheduled for the second week of August. After its merger, the official Merge slated for the second half of September would become a priority for devs.

Ethereum’s transition to PoS based network is expected to reduce its energy consumption by 99% and the introduction of sharding (expected by the first quarter of 2023) would make the network highly scalable and on par with centralized payment processors.

Related: Vitalik argues that proof-of-stake is a ‘solution’ to Ethereum’s environmental woes

The PoS vs. PoW debate has been a long-running one, where PoS proponents claim it’s more environment friendly and equally secure while PoW proponents, including the likes of Jack Dorsey, have called PoS centralized and less secure.

Lately, Ethereum co-founder Vitalik Buterin has been aggressively defending PoS, arguing that quite opposite to common belief, PoS does not include voting on protocol parameters, just like proof-of-work (PoW) doesn’t. Buterin also explained that nodes reject invalid blocks in both PoS and PoW.

While Buterin continues to bat for PoS, a recent report from HOPR highlighted some of the key vulnerabilities that could prove critical post Merge.

“We should stress that this isn’t an emergency: It doesn’t affect any funds today. But this WILL be a major problem post Merge and validators are incentivized to disrupt each other to poach a share of millions of $$$ in MEV.”

The report highlighted that validators on the network leak their IP addresses while broadcasting attestations and blocks, which are linked to their public key but these validators are known ahead of time, allowing for highly targeted and selective attacks (DoS or other) against upcoming validators.

The HOPR team noted that an audit report has even labeled the issue as “mitigated,” which is not true because attackers are not limited to (DoS) attacking the Teku node.

ECB report likens PoW to fossil fuel cars, PoS to electric vehicles

European Central Bank researchers anticipate a clash between the green transition policies and Bitcoin investors.

Amid the soaring inflation, the European Central Bank (ECB) has found time to sum up its concerns about the “significant carbon footprint” of Bitcoin (BTC) and other cryptocurrencies, which require vast amounts of computational power. 

ECB published the report titled “Mining the environment — is climate risk priced into crypto-assets?” on July 12. In the report, the ECB research group reinforces the environmental narrative about the battle of protocols, where the proof-of-work (PoW) concept represents a threat to the planet. In contrast, the proof-of-stake (PoS) is the only sustainable crypto option, experts argue.

The article compares the amount of consumed energy by Bitcoin to the yearly energy consumption of individual countries, such as Spain, the Netherlands and Austria. It claims that the combined carbon footprint for Bitcoin and Ether (ETH) negates past the greenhouse gas (GHG) emission savings for most Eurozone countries as of May 2022.

As the main reason behind the significant energy consumption lies in the PoW consensus mechanism, authors deem both Bitcoin and tokens based on the Ethereum blockchain, including stablecoins like Tether (USDT), as particularly non-sustainable and putting the whole green transition project at risk. In July, Ethereum completed a significant trial for the Merge on the Sepolia testnet, pushing the platform nearer to the shift to the PoS consensus mechanism.

Related: NYC Mayor Eric Adams speaks out against PoW mining ban legislation

At some point, the article sharpens the tension between the green transition goals and crypto in large up to the point of a possible war. Political and social choices on energy sources and energy consumption levels could lead policymakers to privilege certain productive activities, which, in turn, would bring risks for crypto-assets valuation.

According to the report, the benefit of Bitcoin for society is doubtful, and thus:

“It is difficult to see how authorities could opt to ban petrol cars over a transition period but turn a blind eye to bitcoin-type assets built on PoW technology.”

In a further car analogy, the report claims the PoS is the crypto version of the electric vehicle and an obvious candidate for policymakers’ incentivization. 

Last week, the ECB released a report analyzing the growth of the cryptocurrency market over the past decade and the risks it poses to the existing financial system. It concluded that a lack of regulatory oversight added to the recent downfall of algorithmic stablecoins ecosystems such as Terra (LUNA) — now renamed Terra Classic (LUNC) — indicating the contagion effects such stablecoins could have on the financial system.

5 events that could put an end to the current crypto bear market

Crypto bear markets are rough, but there are five moonshot events that could turn the ship around.

Much to the chagrin of cryptocurrency investors across the ecosystem, the bear market has officially set in and brought with it devastating price collapses that have left relatively few unscathed. 

As the popular topic of conversation now centers on bearish predictions of how low Bitcoin (BTC) will go and how long this iteration of the crypto winter will last, those with more experience on the matter know that it’s virtually impossible to predict the bottom and it would be wise to apply those energies elsewhere.

Instead of focusing on the when of the end, perhaps it’s more constructive to explore what events might help pull the market out of the bear market depths and put it on a path to its next up cycle.

Here’s a look at five potential catalysts that could pull the crypto market out of its current malaise.

A successful Ethereum merge

One of the most highly anticipated developments of the past five years has been the ongoing transition of the Ethereum network from proof-of-work to proof-of-stake.

While the process has been a drawn-out one that has faced numerous setbacks, the official switch is now closer than ever following the successful completion of the Merge trial on the public test network Sepolia.

It’s possible that the building hype around the Ethereum Merge could help pull the crypto market out of its bearish state should the transition go off without a hitch, especially if it helps lead to more scalability and a faster user experience. As it stands right now, the Merge is set to take place in August 2022.

It should be noted that a successful Merge could also lead to a “buy the rumor, sell the news” type of event where prices briefly pump due to the euphoria of crypto holders, only to fall back down once the dire state of the global financial system comes back to the forefront.

Approval of a spot Bitcoin ETF

Another event that has been rumored for years that could spark a crypto revival is the passage of a spot Bitcoin exchange-traded fund (ETF) for United States markets.

Ever since 2017, when the first BTC ETF proposed by the Winklevoss twins was denied by the U.S. Securities and Exchange Commission (SEC), there has been one rejection after another for any physically-backed Bitcoin ETF proposal put forward.

Reasons for the rejection typically revolve around the charge that cryptocurrency markets are easily manipulated and the proper safeguards are not in place to protect investors.

If a spot ETF were to be approved, it would render this long-running objection moot and bring a new level of legitimacy to Bitcoin and the crypto asset class as a whole. This has the potential to usher in a new wave of institutional adoption that could bring about the end of the crypto winter as new funds flow into the market.

The Fed reverses course

“Don’t fight the Fed” is a common expression investors use to explain one of the most influential forces on global financial markets. After multiple years of easy money policies and near-zero interest rates, the U.S. Federal Reserve approved an interest rate hike of 0.25%, the first-rate hike in more than three years.

Since then, the Fed has implemented two additional rate hikes of 0.5% and 0.75%, bringing the current benchmark interest rate to a range of 1.5% to 1.75%.

During the same period of time, risk assets around the world have been falling in price, with Bitcoin declining from $48,000 at the end of March to its current price, which is trading near support at $20,000.

The historic rise in the cryptocurrency and legacy markets that was witnessed in 2021 was largely driven by the easy money policies of the Fed, and it’s highly likely that a return to such policies would once again see funds flow into the crypto ecosystem.

Major adoption of Bitcoin as legal tender

2021 saw El Salvador become the first country in the world to adopt Bitcoin as a legal tender for use by its citizens. In April of 2022, the Central African Republic (CAR) became the second country to do so, pointing to a growing trend.

While the use of BTC as a legal form of tender has been a long-running goal of crypto proponents and the decisions by El Salvador and CAR are worth celebrating, its adoption by such small players on the world stage has done little to promote more mainstream acceptance.

That would likely change, however, if a larger market such as Japan or Germany were to open up to officially promoting the use of BTC by their citizens for their daily purchases.

Recent developments on the global stage, including conflicts and food shortages, are pushing governments to do things they never considered, and it’s not outside the realm of possibility that a larger economy could turn to Bitcoin as a currency of last resort as fiat currencies continue to lose their purchasing power.

Related: EU-regulated firm Banking Circle adopts USDC stablecoin

Integration as a payment option by a large company

A common excuse as to why people don’t use Bitcoin or cryptocurrencies for their everyday purchases is because it’s not really accepted anywhere.

While there are options available for accessing the value held in crypto, such as debit cards and online payment integrations with platforms like Shopify, the ability to make purchases by conducting transactions directly on a blockchain network is relatively limited.

On several occasions, Elon Musk has demonstrated that the mere mention of integrating blockchain-based payments can spark a market rally for the token in question.

Based on this and other examples of price pumps that followed speculation about a major adoption announcement, it’s likely that crypto payments being integrated by a major company such as Amazon or Apple could spark a bullish wave of momentum.

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The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Banking uses 56 times more energy than Bitcoin: Valuechain report

Analysis of Bitcoin’s proof-of-work and the Lightning Network exposes the banking system as energy-hungry, demonstrating that Bitcoin is better for the planet.

Fresh figures on Bitcoin’s (BTC) energy consumption, efficiency and scalability serve to expose the banking sector while bathing the world’s largest cryptocurrency in a new light. 

A research report published by Michel Khazzaka, an IT engineer, cryptographer and consultant, calculates that Bitcoin payments are a “million times more efficient” than the legacy financial system. Plus, the banking sector “uses 56 times more energy than Bitcoin.”

The report compiles almost four years of research and suggests a new calculation for estimating Bitcoin’s proof-of-work energy consumption. In an interview, Khazzaka told Cointelegraph:

“Bitcoin Lightning, and Bitcoin, in general, are really great and very efficient technological solutions that deserve to be adopted on a large scale. This invention is brilliant enough, efficient enough, and powerful enough to get mass adoption.”

Khazzaka, who founded payments consultancy Valuechain in late 2021, proposes an alternative to the energy estimates provided by Cambridge Bitcoin Electricity Consumption Index (CBECI). The index, often cited by Cointelegraph, estimates that Bitcoin consumes roughly 122 TW/H per year.

Taking into account the average lifespan of Bitcoin mining machines as well as the rate at which new IT materials are created, Khazzaka suggests that Bitcoin consumes 88.95 TWh per year, considerably less than Cambridge’s estimate.

Graph to show total count of mining units over time over 160 months. Source: Khazzaka report

A payments specialist who wrote his dissertation about cryptography in 2003, and discovered Bitcoin in 2011, Khazzaka also puts the banking sector under the microscope to effectively compare the two monetary systems. Khazzaka told Cointelegraph he “really underestimates every aspect of the banking sector,” and contrary to critics, his report is “biased to the banking system.”

Nonetheless, taking into account the creation of money, transporting money, physical banking infrastructure energy consumption, etc, he arrives at a figure of 4,981 TWh. Rounded up, 5,000 TWh is consumed by the “classical payments” sector every year. Consequently, banking uses 56 times more energy than Bitcoin.

The report examines transaction efficiency revealing that currently, “at current block size and if the blocks are filled to their maximum capacity ηmax = 5.7× better energy efficiency than the classical system.” However, that’s without taking into account the Lightning Network. In the interview, Khazzaka explained:

“Lightning will allow the bitcoin protocol to do more transactions without consuming more energy. And this is magic.”

Related: The Lightning Network Lunch: A Bitcoin contactless payment story

The report concludes that the combination of Bitcoin and the Lightning Network allows Bitcoin to become “194 million” times more energy efficient than a classical payment system.

For Khazzaka, the report lays bare that the “Banking and payments industry needs to adopt blockchain and maybe even Bitcoin.” While Khazzaka’s conclusion may come as a surprise to the cypherpunks and anarchocapitalists who favor the crypto space, Khazzaka believes that Bitcoin could actually benefit banking:

“If they are courageous enough blockchain technology, it will improve their efficiency and their scalability.”

Although Bitcoin’s energy use is frequently critiqued, the investigation into the banking sector will come as welcome news to many. 

What are Bitcoin improvement proposals (BIPs), and how do they work?

Bitcoin improvement proposals are an essential part of cryptocurrency governance. Learn here what they are and how they work.

What are the types of Bitcoin improvement proposals (BIPs)?

There are three main kinds of BIPs: standard, informational and consensus BIPs.

Standard BIPs

They identify standards used by Bitcoin software like wallets or exchanges and aim at changing the protocol; therefore, they require consensus to be approved. For example, they might submit encoding methods for securing Bitcoin or are recommended in the case of interoperability, which means that wallets should be able to recognize and function with any Bitcoin address to be useful.

Informational BIPs

They have an informative purpose only. They offer general guidelines to the community but do not introduce a new feature and are, therefore, not required to gain consensus within the community.

Consensus BIPs

Also called process BIPs, consensus BIPs seek to change a process, and, similar to standard BIPs, require universal consensus despite containing changes outside of the Bitcoin protocol. Consensus changes require explicit activation on the Bitcoin network.

BIPs are an essential component of Bitcoin governance and represent an efficient way to improve and upgrade the top cryptocurrency with no central leader. Ultimately, this is what matters for the technology to be successful.

How are BIPs approved?

Gathering significant consensus within the community is the first step of the process. Sometimes, even the most valuable proposals can take years before they are approved or rejected because the community can’t find an agreement.

Once a BIP is submitted as a draft to the BIP GitHub, the proposal gets reviewed and worked on transparently so that everyone can view its progress and consequent testing outcomes. As Bitcoin blockchain is based on code, protocol changes will have to be reflected in the code, and miners will have to add a reference to their hashed block to signal that they accept or reject their implementation.

Because of the severe implications some changes might inflict on miners, a modification in the code requires acceptance by a vast majority of around 95% unless a reasonable motive is given for a lower threshold. Ninety-five percent support will have to be signaled from the last 2,016 miners (approximately 14 days worth of mining with 10-minute blocks).

As an example, we’ll use the recent implementation of the Taproot soft-fork, labeled as BIP 341. In April 2021, via the means of a “speedy trial code” – meant to give a quick resolution to the upgrade – the Taproot activation was merged into Bitcoin Core.

In the following couple of weeks, at least 90% of the blocks mined (1,815 out of 2,016 blocks mined) included an encoded reference indicating that the miners who mined those blocks favored the upgrade. This paved the way for the astonishing consensus achieved in the following months, leading to the final approval in November 2021.

The final and official approval of a BIP happens automatically when users (node operators) choose which Bitcoin Core version to download and run a node that reflects that change. Then, all upgraded nodes can recognize and accept transactions made using that upgraded protocol.

In summary, these are the main steps of the approval process:

  • Anyone can submit a BIP to change Bitcoin core;

  • An editor must pass the BIP;

  • The BIP must be approved by ∼95% of miners; and

  • The community must upgrade to the new software version.

Here’s a graphic of the BIP approval process:

Image_0

How do Bitcoin improvement proposals (BIPs) work?

Before becoming a formal BIP, the proposal is communicated via email or other communication channels like Slack, where initial feedback is provided by the community.

Once the proposal receives significant support, the author can progress it to the next stage and turn it into a BIP.  The proposal should be written in BIP style and format and provide a concise technical specification and rationale for the feature. The BIP champion is responsible for promoting the idea and building consensus around it by replying to feedback and questions.

Before becoming a draft, BIPs need to get the go-ahead from the editor. At that point, it is submitted to the BIP list as a draft, and an editor assigns it a BIP number and publishes it to the Bitcoin Core GitHub repository of BIPs.

The BIP is formally generated and ready for review and feedback before advancing to the testing phase. BIPs are also assigned a status that everyone can check to assess progress.

Typically, anyone can activate the BIP rejected status if no progress is made within three years of the proposal.

Who can propose changes to Bitcoin?

As an open and decentralized network, Bitcoin is not owned by anyone, just like the internet or other technologies are not owned by anyone.

The Bitcoin community is formed of supporters of the technology regardless of their background. Developers, miners and especially regular users control Bitcoin, not a specific central authority. Indeed, developers and miners drive and improve the network; however, users choose which software version they want to utilize.

Hence, anyone can propose a change to Bitcoin as long as they have the skills and knowledge to suggest something relevant to add to the Bitcoin protocol.

How are Bitcoin improvement proposals (BIPs) created?

BIPs result from informal proposals and ideas usually generated in meetups, forum chats or social media engagement, especially on CryptoTwitter.

Pre-emptying an idea in forums and chats before turning it into a BIP will save time for both the ideator and the community if a proposal has already been submitted or the idea is not in line with the general development standards.

Every BIP should be submitted with the aim of being accepted, and since the process is lengthy and requires time and resources, BIP authors must be highly cautious when submitting a proposal. By asking the community first, the chances of a proposal being rejected are strongly reduced.

Anyone from the community can become a BIP champion, which means an author who writes the proposal in BIP style and format and promotes the idea, and discusses it in the relevant forums to get the relevant consensus.

A BIP should concern a significant change or addition to the Bitcoin protocol. Little changes, bugs or patches do not need to be turned into BIPs; they can simply follow the standard workflow required by each project development.

What is a Bitcoin improvement proposal?

Being a blockchain, Bitcoin necessitates regular upgrades, from bug fixes to changes to the algorithms or simplification of its code to provide more efficiency.

A BIP is the standard method employed to promote ideas, changes and improvements to the Bitcoin protocol, a formal document to introduce new features or processes to the network. BIPs can change anything from consensus rules to community standards or development processes within the protocol. A BIP aims to provide upgrade and development coordination within the Bitcoin community, which has no leaders.

The first BIP (BIP 0001) was submitted by British-Iranian programmer Amir Taaki in 2011 — two years after Bitcoin was created– to describe what a BIP is. However, changes to the protocol are not a prerogative of developers and programmers only.

As an open network, Bitcoin allows everyone who desires and has the skills to participate and submit a BIP. Let’s take a look at the Bitcoin improvement proposal process.

How are Bitcoin improvements implemented?

Bitcoin structure is made of software, hardware and energy resources, and governance is managed entirely through its code. By running a node, everybody agrees on the code rules.

Being an open-source, decentralized cryptocurrency based on a proof-of-work (PoW) consensus system, Bitcoin has no central authority to decide future core protocol changes. Therefore, its development relies on decisions taken by the community through improvement proposals called Bitcoin improvements proposals (BIPs).

From the initial proposal to the final stage, Bitcoin’s development process is deliberately lengthy and purposeful to preserve the network’s security and ensure that trust in the system is maintained at all times.

However, not every change to Bitcoin (BTC) requires a BIP, which is used mainly to improve the protocol. For instance, in the case of the user interface, there’s no need to go through the long process of a BIP.

BIPs will be implemented in anticipation of significant protocol upgrades or large-scale amendments to the system, such as new transaction types like SegWit or transaction properties like replace-by-fee (RBF).

Swedish central bankers snipe Bitcoin mining, cite rampant energy use

A report by the Riksbank makes the case for banning Bitcoin mining in Sweden over proof-of-work energy consumption concerns; Bitcoin Twitter was quick to react.

Another day, another environmental attack on proof-of-work (PoW) mining. A report shared by the Swedish central bank argued that energy-intensive Bitcoin (BTC) and cryptocurrency mining should be banned. 

The Swedish central bank, known as the Riksbank, is the oldest central bank in the world. In a damning report entitled, “Cryptocurrencies and their impact on financial stability,” the bank had a crack at PoW cryptocurrency mining. PoW mining employs energy-guzzling data centers that solve puzzles to secure blockchains. The report stated:

“Recently, some extraction of crypto assets has been established in northern Sweden, where it consumes as much electricity as 200,000 households do on an annual basis.”

For Knut Svanholm, a Bitcoin author who recently penned  “∞/21M,” told Cointelegraph, “A central bank has no business telling people what they can and cannot do with their electricity.”

“If they really cared about the environment, they’d shut their own operation down for good tomorrow morning.”

The paper cites peers at the environmental agency and the Swedish Financial Supervisory Authority, equivalent to the United States Securities and Exchange Commission, in its examination of Bitcoin’s energy use: 

“The proof-of-work method, which is used to confirm transactions and extract new cryptocurrencies, should be banned in favor of other, less energy-intensive methods.”

Svanholm has a different take: “Bitcoin mining is guessing a number over and over again. […] As so many other Swedish institutions have done before them, they [the central bank] choose to comment on something that they don’t understand and have no business having even an opinion on.”

The report comes as little surprise, given that banks and governments regularly take aim at PoW energy use. The report also flies in the face of Bitcoin adoption in Sweden. Home to a number of Bitcoin startups, Sweden is advanced in terms of European Bitcoin adoption.

Prominent Swedish Bitcoiners, including Svanholm as well as Christian Ander, the founder of Swedish Bitcoin exchange BTX, were quick to refute the report on Twitter. Svanholm shared a Youtube video that argued that “none of the energy used for Bitcoin mining goes to waste.”

Ander called the report “highly inappropriate.” He tweeted:

“Energy consumption must be neutral, production must be regulated. Do not regulate what individuals do with it.”

As the bank’s friends at the International Monetary Fund march onward with a central bank digital currency — as it would use less energy — the figures for Bitcoin mining are stark. In late 2021, Bitcoin took first place as the cleanest industry in the world with its high renewable energy mix. In neighboring Norway, Bitcoin miners use 100% renewable energy, while Bitcoin miners worldwide strive to make the world a better place.

Related: Bitcoin’s real energy use questioned as Ethereum founder criticizes BTC

The proposed ban from the Swedish central bankers also lands concurrently with the publication of a report examining the energy efficiency of crypto transactions . The report stated:

“When Bitcoin Lightning layer is compared to Instant Payment scheme, Bitcoin gains exponentially in scalability and efficiency, proving to be up to a million times more energy efficient per transaction than Instant Payments.”

Bitcoin’s Lightning Network recently hit the 4,000 BTC milestone showing its promise as a payment solution. Lightning payments take place off-chain and use considerably less electricity than the Bitcoin miners that secure the network’s layer 1. 

Nonetheless, research from Cambridge Centre for Alternative Finance states that Bitcoin consumes an estimated 15GW of electricity each day. In meme-worthy material, back-of-the-napkin math from one Twitter user claims that clothes driers in the U.S. consume more energy: 

An Our World in Data report demonstrated that the global sports industry emits three times the emissions of the Bitcoin network. It begs the question, why do central banks continue to attack PoW’s energy usage? And which financial institution will fire the next shot?