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Ethereum has a market cap of $70 billion as compared to Bitcoin’s $360 billion. Istock
Ethereum has a market cap of $70 billion as compared to Bitcoin’s $360 billion. Istock

Ether 2.0 upgrade to cut costs, reduce usage of electricity

  • Ethereum trades at $606 ( 44,605.49) at present, almost five times its value of 9,625 in early 2020

At a time when bitcoin has hit a lifetime high of just under $20,000, the world’s second-largest cryptocurrency, ethereum, or ether, is set to undergo a major transition that will help it overcome some of the challenges also faced by its larger peer.

On Tuesday, ether, which has a market cap of $70 billion compared to bitcoin’s $360 billion, launched ethereum 2.0, a faster, cheaper and more environmentally friendly system, which will help it reduce operating costs substantially.

Also Read Bitcoin approaches $20,000 as Crypto bulls push skeptics aside

“The main benefit of the shift to ethereum 2.0 will be a fall in the cost per transaction, charged by miners and validators. This at present is 700-800 for a bitcoin transaction and 150-200 for ethereum. It will also allow ordinary people to earn returns on ethereum by participating in this new process of validation (staking). These returns will fall over time as the amount of ethereum staked goes up, but is currently around 18%. We at Bitbns will soon launch a staking pool to allow our users to get some returns from staking," said Gaurav Dahake, founder, Bitbns, a Bengaluru-based crypto exchange.

Ethereum trades at $606 ( 44,605.49) at present, almost five times its value of 9,625 in early 2020. However, this is still a long way off from its peak of 88,125 on 12 January 2018.

Also Read Crypto-currencies beating gold as top asset this year

Bitcoin operates under the ‘proof of work’ model, which depends on miners, entities solving the complex mathematical equations to validate the bitcoin blockchain, or the record of all transactions in the system. Miners charge transaction fees for validating the blockchain, but the system requires large computational power, leading to higher electricity consumption and high cost per transaction. The need for higher power usage faced criticism from environmentalists.

“Ethereum 2.0 has increased the number of transactions that can be processed per second. This, coupled with the lower cost of transactions, positions it to complement, rather than supplement, bitcoin. Bitcoin will be seen more as a store of value, while ether will be a medium for transactions," said Ajeet Khurana, former chief executive officer of a large Indian cryptocurrency exchange.

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