The Ethereum merge is upon us; let's dive deep
The Ethereum developer community is buzzing with excitement and anticipation as a key milestone in the Ethereum history approaches. The network is transitioning from a proof-of-work (PoW) consensus method to a proof-of-stake (PoS) consensus mechanism to confirm transaction blocks, a process known colloquially as the "Merge." This event has been in the works for years and is one of the most eagerly awaited in the crypto community.
Since there are thousands of contracts, DeFi structures, and DApps actively running on the network that must maintain consensus and continue to operate throughout the transition, Shifting from Proof of Work (PoW) to Proof of Stake (PoS) necessitates significant changes in the protocol and Ethereum's economic structure. Ethereum developers are also sorting out how to manage all of this on the go.
Initially, the transition process was represented under the name "Ethereum 2.0." but Those who keep on track know that the name "Ethereum 2.0" has been discarded, and the project to update Ethereum has been renamed. "Consensus Layer" and "Execution Layer."
In January, the Ethereum Foundation revealed "what happened to Eth2" in a blog post on their official website. According to the foundation, the name changes are intended to make it easier to describe the shift from eth1 to eth2 and to create a less confusing picture of the process. And make it clear to the community who might misinterpret that Eth1 comes first, and Eth2 comes after, or Eth1 ceases to exist once Eth2 exists.
There will be three phases in the process, and we are in phase 0 currently:
Phase 0 (The Merge): The transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) blockchain verification to avail a more efficient and fair transaction block consensus mechanism
Phase 1: the addition of sharding which entails fragmenting the blockchain. As a result, nodes now deal with smaller groups of data rather than interacting with the entire blockchain.
Phase 2: Migration of DApps to ETH 2.0 shard chains by allowing cross-shard interoperability.
In the "merge", the plan is for a PoS "consensus layer" (aka Eth2) to coexist with the existing PoW "execution layer" (Eth1) until the two can be integrated. At some point, Ethereum will eliminate all PoW miners from its network with a "difficulty bomb" that renders mining quickly unprofitable, leaving only the PoS confirmation mechanism in existence.
The eventual aim is for Ethereum's advancements to bring it closer to overcoming the cryptocurrency trilemma, which describes how difficult it is to address three critical features of a blockchain concurrently without sacrificing any of them: scalability, decentralisation, and security.
And with the advent of decentralised finance apps, Ethereum's yearly energy usage has risen to 44.5 TWh per year, around the same as major financial centres like Hong Kong and Singapore. Proof-of-stake consensus and sharding promise to give quick transaction times with minimal network costs while not compromising scalability, security, and decentralisation.
We can already see the changes it's bringing to the space. For instance, the native coin of Lido Finance is on a surge now. Lido Finance is a staking project that allows users to deposit and receive a return on their Ethereum holdings. This is not the same as providing liquidity on a decentralised exchange (DEX); rather, these deposits are intended to help secure the PoS-based Ethereum 2.0, which has recently been rebranded as "Consensus Layer."
Now, that pretty much explains why Lido finance soars as the Ethereum merge nears. LDO, The native token behind Lido Finance, is a governance token that allows holders to vote on proposals and change fee parameters in Lido Finance. According to CoinMarketCap data, LDO has increased by more than 10% in the last 24 hours, rising from around $4.25 to a high of $4.82. LDO has now retraced some of its losses and is currently trading at $4.56, up 6.7% on the day.
Following The Merge, Ethereum is expected to be the most widely utilised ( miight even lift Ether's value ahead of Bitcoin), powerful, and energy-efficient blockchain. The amount of energy required to confirm blocks on the Ethereum chain is predicted to decrease by 99.5 per cent. This is, without a doubt, one of the most promising developments in the crypto industry.
CME Group 'Looking At' Offering Solana, Cardano Futures
Payal Shah, the director of stock and cryptocurrency products at CME, indicated that Solana (SOL) and Cardano (ADA) could soon have futures contracts available on the Chicago Mercantile Exchange. When asked if CME was considering issuing futures and other derivative products for cryptocurrencies, she answered, "We're looking at it...we get a lot of requests from clients for anything other than the top two—Solana, Cardano."
SOL and ADA have consolidated their positions in the top 10 by market cap, even though they are still classified as "altcoins" because they aren't Bitcoin or Ether. SOL was the sixth-largest coin with a $44.3 billion market cap on Friday afternoon, while ADA was the eighth-largest currency with a $39.5 billion market cap. Solana, in particular, has witnessed a lot of development. In 2021, it was the best-performing coin, rising from $1.84 at the beginning of the year to $178.26 by December 15.
Crypto derivatives, such as Bitcoin futures, allow investors to bet on the price of an asset without having to hold the underlying commodity physically. Investors use them to speculate on price movement and protect themselves against the asset's volatility. The group's initial Bitcoin futures contract has also seen a lot of growth.
Regulatory paperwork and settling exchange's futures contracts to an index are challenges they have to face since they rely on five distinct exchanges for price; if one goes down, they still have an accurate price and settle.
Outside of CME, crypto-native exchanges have been paying close attention to the crypto derivatives industry. Crypto.com, FTX, and Coinbase have all made steps to cater to futures traders in the last year.
Europe's CBDC Designers Wrestle With Privacy Issues
Privacy appears to be slipping down the priority list for those working on a new digital euro, with experts warning that the design choices could make privacy more challenging. There have been no explicit policy decisions on whether the euro might be issued in a new, digital format, but the idea is gaining traction. Euro finance ministers will meet on Monday to address the matter, and the European Commission is expected to launch a survey soon, paving the way for new legislation.
In a consultation conducted by the European Central Bank last year, ensuring that a digital euro protects privacy emerged as the top priority. It's understandable, given that data on spending habits could expose personal information such as a person's lifestyle, tastes, and political beliefs.
According to the internal policy paper that would form the foundation of their discussion, fully anonymous digital money would pose "severe issues."That fits with the trend seen in conventional cryptocurrency markets, where national governments – and, as of Thursday, the European Parliament – have been keen to bring in customer identity checks for even small bitcoin payments, despite industry complaints about invading privacy. Panetta, a member of the European Central Bank, appears to be toying with a centralised model in which individuals' assets are housed in central bank accounts rather than a more distributed system in which tokens move relatively freely.
According to the ECB's research, many people have no idea what a digital euro is or why you'd want one, which is already a significant roadblock for Panetta to overcome. For others, this apathy has turned into outright fear of harm to the EU crypto community.
Some fear that the ECB's drive to prevent companies like Meta Platforms (Facebook's parent firm) from encroaching on their turf will harm people's privacy and innovation in the EU.
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