Knife and Fork?
Fayre TL'DR:
What's New This Week?
Knife and Fork
With ETH 2.0 (aka “The Merge”), it’s expected the Ethereum network will transition from “Proof-of-Work” (“PoW”) to “Proof-of-Stake” (“PoS”). This is something that Vitalik Buterin has been going on about since 2015. Nonetheless, it’s becoming more and more a reality. Note, however, that these are two different consensus mechanisms. These mechanisms bring different incentives and, with that, different sides.
Miners are on one of those sides. They spend significant amounts of money on hardware and collect revenue (in ETH) in exchange for securing the network, verifying transactions and adding new blocks to the Ethereum blockchain.?
With a shift to PoS, miners will have to drop their profitable mining activity in favour of a PoS hard fork that involves staking Ether to validate transactions (with the underlying risk of the collateral losing value). This means their assets (hardware) will no longer generate revenue under a PoS system and will become worthless… Unless those assets are repurposed.
As a result, some miners are thinking of ways to “sweat their assets", including finding another chain they can mine on that has value and provides the same marginal revenue the Ethereum network currently allows. They are talking about the possibility of the Ethereum network being forked.
It wouldn’t be the first time this has happened. In fact, in 2016 a division amongst miners gave rise to another fork: the Ethereum Classic (ETC) network. But this time it’s different. Mainly because the value proposition of any forked network would have to surpass the value proposition offered by Ethereum’s PoS network. A value for such a network proposition depends on several factors, such as the number of apps sitting on top of it, their total value locked (i.e. liquidity they attract) and, naturally, the developers willing to build on top of it.
Moreover, as mentioned in previous editions of our newsletter, the Merge brings a fundamental change in the narrative for investors, as it enables a model whereby cash flows are more predictable. This means it becomes a revenue generating model that is easier to understand and more able to reach a wider audience.
This does not mean the likelihood of the fork to happen is low, it simply means that retail traders need to watch out for fundamentals and not fall for any trap that might seem bullish in the short-run.
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Use This Ice-Breaker Next Time You Need One:
Decentralisation is one of the big topics in crypto. Understanding it is key to understanding crypto in general. It refers to the shift to distributed networks in a world whereby control and decision-making is typically concentrated (centralised). One of the main characteristics of a decentralised blockchain is that it provides a trustless environment and reduces reliance on specific actors.
Just saying.
Crypto Bros...
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