Can transformation spur Ethereum to overtake Bitcoin?

Glasgow (UK): The world's second most valuable cryptocurrency, Ether, has been touching all-time highs in price ahead of a major upgrade of its underlying platform, ethereum. Ether is currently worth in aggregate just shy of $500 billion (£363 billion). That's still slightly less than half that of the biggest cryptocurrency, Bitcoin. But could this upgrade, a vital step towards a much greener and faster version of the current system, put Ethereum on the path to becoming the dominant platform on the internet and make Ether number one? First of all, it's important to understand the difference between Bitcoin and Ethereum. Bitcoin is a system for allowing people to send value between one another without the need for banks. It is built on a technology known as blockchains, which are online ledgers whose transactions are checked and recorded by a decentralised network of computers known as validators.

These validators are incentivised for their work by receiving newly minted Bitcoin as rewards, in what is known as 'mining'. To make this more attractive, Bitcoin is relatively scarce: only around 18 million coins are in existence and the protocol is such that there can never be more than 21 million. Ether works in a similar way to bitcoin, but ethereum is different. It is a worldwide software platform with no host, on which developers are building thousands of blockchain-based applications. This means these applications can all run without being controlled by a company. Examples include cryptocurrency exchanges, insurance systems, and new kinds of gaming. At the heart of the platform is the idea of smart contracts, which are automated agreements that ensure that money and assets change hands when certain conditions have been fulfilled. All transactions on the platform ultimately use ether, and the success of the platform is why ether has been the second-largest cryptocurrency after bitcoin for the past few years. The fact that ether fuels the platform – even being referred to as gas fees – gives it a utility and an intrinsic value that bitcoin does not have. Why ethereum 2.0 Ethereum has several major problems, however. The first is that gas fees have become very expensive in the last couple of years because the network has become so popular and is therefore very congested. Validators prioritise users who are willing to pay the highest fees for their transactions. For example, the average transaction at the time of writing on crypto exchange Uniswap costs around US$44 in gas fees. Bitcoin has comparable issues with congestion, which its developers are trying to solve by building applications like Lightning on top which boast faster transaction speeds. The second problem for ethereum is that, as it has become more popular, the amount of computational power used by validators has rocketed. It's the same problem that has brought a lot of negative publicity to bitcoin, because it uses a lot of electricity. Bitcoin is currently using as much power as the whole of the Philippines, although its supporters argue that much of this is power that would otherwise be wasted – for example, oil rigs burning off natural gas because it's not profitable to sell it. Proponents also point out that the network is shifting towards using much more renewable power over time. At any rate, the eventual creation of an ethereum 2.0 will solve these problems by moving the platform's system of validation from "proof of work" to "proof of stake".