Crypto could use a bit of good news these days. It got some last month. Ethereum, the most popular open source crypto platform, appears to have success fully upgraded its software architecture from a type of blockchain known as “proof-of-work”, which it has run since its inception in 2015, to a type of blockchain known as “proof-of-stake”.
This upgrade, which came to be called, simply, “The Merge”, is already being heralded as a watershed moment in the short history of crypto. And many crypto fans hope that it will turn things around for the crypto movement, which has been besiege in the past year by trillions of dollars in losses, a string of major scams and hacks, and a new wave of regulatory scrutiny. Me personally, I’m not so sure yet it actually will change things around soon, as more changes are required. But before I tell you why, let’s first review some of the reasons that crypto supporters are celebrating.
First, it was far from given that “The Merge” would work. Switching a blockchain’s so-called consensus mechanism – the way that it processes and verifies new transactions – is terrifyingly complex. Before “The Merge”, nobody had tried such a maneuver on a crypto platform anywhere near Ethereum’s size, and it took years of testing and research for developers to get confident enough to attempt one. It’s comparable to driving a car at high speed and trying to exchange the engine at the same time.
Ethereum, which is open source, hosts hundreds of billions of dollars’ worth of cryptocurrency transactions, NFT collections and D EFI protocols, all of which could have been irreparably broken if “The Merge” hadn’t gone according to plan. But “The Merge” appears to have gone as smoothly as Ethereum fans could have hoped.
The second reason crypto fans are happy about “The Merge” is that the new Ethereum blockchain is much more environmentally friendly than the old one. Ethereum used to be secured by a network of high-powered computers that competed against one another to solve cryptographic puzzles, burning vast amounts of energy in the process which is called “proof– of – work”.
It will now be secured by a process known as “staking”, which involves investors agreeing to deposit their crypto coins in a shared pool in exchange for a chance to earn financial rewards.
Apart from this, there are additional benefits to “The Merge” – it’s expected to make Ethereum faster and more efficient in the long run – but the environmental footprint is the big, immediate improvement, as the new Ethereum blockchain will consume 99.95% less energy than the old one. That’s a huge change – comparable to the entire nation of Finland going off the grid. And it should help industry advocates make the case that crypto can be green.
Third, many crypto fans are optimistic that “The Merge” will be good for the value of Ether, Ethereum’s native cryptocurrency. For reasons that are too complicated to get into here, running the Ethereum blockchain requires destroying (or “burning”) billions of dollars’ worth of Ether every year. The new Ethereum blockchain will still burn Ether, but it won’t need to create as much new Ether to pay out rewards to participants. That means that the overall supply of Ether could shrink, increasing the value of existing coins.
In addition, miners – the people who run those giant, energy-guzzling server farms under the old “proof-of work-“ system – will no longer be forced to sell some of their Ether to pay their electricity bills, which could result in more stable prices. Because it is now secured by investors staking large pools of Ether, rather than by networks of puzzle-solving computers, the new Ethereum could also increase the crypto industry’s overall centralization, giving more power to large firms such as Binance, Coinbase, Uraken and Lido – and potentially making it easier for governments to crack down on Ethereum itself by pressuring those firms to censor certain transactions. That’s bad news!
And of course, “The merge” won’t put money-losing crypto investors back in the black or recover the assets lost by investors in failed crypto projects including Luna and the Celsius Network.
Make no mistake, “The merge” was a technological marvel, a genuine boon to the environment and a testament to the power of cooperative open-source development. I’m glad that it happened, and the developers who toiled away for years to make it work should feel immense proud of how smoothly it went. But crypto in my opinion will need more than a successful “The Merge” to turn its fortunes around into mainstream. Sorry to take the fizz out of the champagne but there is still a long way to go for the Ethereum blockchain.
So, what about Bitcoin?
Bitcoin, the bitcoiners like to claim, is not crypto. And, you understand, crypto bad, bitcoin good. Very, very good! They like to repeat that bitcoin is a lifeline for so many people around the world – please stop lumping it in with crypto, which is morally reprehensible.” Not so long ago I suggested that one way of practicing the art of “intellectual humility” is to “steelman” your opponent’s position – that is, rather than finding their weakest points and arguing against those you present the strongest version of their argument possible. And so I’m going to try to apply this technique here, before explaining why I believe they are wrong. So why do the so-called “bitcoin maximalists” – The purists who argue that bitcoin is the “one-and-only” cryptocurrency that has value – make this claim?
They state that the organic way that bitcoin came into being cannot be replicated and that, while bitcoin can be copied, it will always have a first-mover advantage and thus cannot be unseated. Sounds in my opinion, a bit like Henry Ford.
They point out, too, that there was no market for bitcoin when it was invented, and so the network was maintained not-for-profit but by people who believed in the value of the system – unlike later coins, some of which were issued by big corporations. Bitcoin arose not as a way to make money, but out of a libertarian internet subculture that believed technology, specifically cryptography, was key to driving social and political change.
Maximalists also say that bitcoin’s incentive mechanism, the energy-intensive “proof-of-work” mining process is the only way of ensuring a truly decentralized system. But while you can see why bitcoiners might be keen to distance themselves from the plethora of scams and failures that have especially recently occurred in crypto land, their arguments, in my opinion, don’t stand up.
First, it in my opinion doesn’t matter what bitcoin’s origins were – the people who push it now have the same financial incentives as those pushing any other crypto token. Satoshi Nakamoto, The creator of bitcoin, might have intended it to be used as money, but that does not make it so – it in my opinion, fulfills almost none of the necessary criteria, and Instead operates in a pyramid- shape structure that relies on constantly recruiting new members.
Second, bitcoin is in my opinion, not in fact a fully decentralized system -.not only do miners group together to form “mining pools” but wealth of bitcoins is also hugely concentrated.
Third, a “first-mover advantage” does not always last. Other crypto tokens already have various features that bitcoin does not, and there has been renewed talk of a “flippening” which Ethereum’s value overtakes that of bitcoin due to the former’s switch (The Merge) to a less carbon – intensive form of mining.
Finally, the real reason bitcoin maximalist want to separate bitcoin from the rest of crypto is to create the illusion of scarcity in a world where there is none. CoinMarketCap now lists more than 21. 1000 different crypto tokens, which bitcoin maximalists call “shitcoins”. And of course they do – if there is infinite supply, how can there be any value? This in my opinion is still the core problem of crypto, and bitcoin cannot solve it.
This is not to say that there aren’t some crypto projects and tokens that are better than others. But a spade, no matter how shiny, is still a spade.
This is why I personally believe, a successful crypto token needs a tradeable, stable, non-governmental influenced, and less volatile underlying (for example a commodity) which provides it the credibility and acceptance in the niche market it wants to operate and being utilized.
And bitcoin, I’m afraid, in the end is still crypto.