The Make Or Break Move For Ethereum You Need To Know About

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The Make Or Break Move For Ethereum You Need To Know About

The Ethereum Upgrade, It’s Here, Maybe

With the cryptocurrency markets wallowing near long-term lows traders are wondering what it will take to renew interest in the technology. Well my friends, let me tell you. The cryptocurrency markets are down for a couple of reasons and one of them is the long awaited upgrade and improvement of the Ethereum network.

Ethereum, the world’s most advanced cryptocurrency, has long been plagued by sluggish speeds, security issues, and inflationary concerns related to the POW style of blockchain mining. The upgrades, labeled Constantinople, is the second half of a consensus-backed hardfork that is aiming to solve many of these issues.

The upgrade will include 5 (five) EIP’s, Ethereum Improvement Protocols, including a reduction of block rewards that is intended to delay a difficulty bomb whose purpose is to facilitate the implementation of POS networking. The good news, the double good news, is that the upgrade is consensus-backed, as in it is a hardfork but it won’t result in a new coin, and that it’s actually coming after 18 months of speculation.

The upgrade is planned for mid-January and could be the spark ETH has needed to drive it higher. While the Constantinople upgrade won’t solve all the problems facing the Ethereum network it will help the implementation of second-layer solutions such as OmiseGo and Raiden. What this means is that ETH will see its value increase exponentially as a surge in OMG and Raiden value will compound any increase in value seen ETH.

Ethereum Price Analysis, HODL’ers Holding Out

ETH/USD has been drifting higher since hitting bottom in mid-December. The bottom, hit on low volume, bears the hallmarks of a bear-trap that traders should be wary of. While there is reason to think ETH may continue to see its value fall there are equally abundant reasons to think the opposite.

Over the last week the ETH/USD has reached a six-week high that is supported by the indicators. Both MACD and stochastic are bullish and suggest upward drift will continue until the upgrade goes into effect. Once done we should see ETH spike with a chance of hitting$200 or $220 within a few week’s of the release.

Longer-term ETH and all cryptocurrency/blockchain investments are being held back by regulation. Regulation, or lack of it, has kept investment dollars at bay and will continue to do so until a solid framework can be erected. The good news on this front is the BAAKT network. BAAKT is a joint-venture between ICE and partners and the best crytp-based infrastructure on the planet because it is SEC/CFTC compliant (exchange trading, clearing houses, third-party custodial services).

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Bottom line; Ethereum is on the brink of truly changing the blockchain ecosphere. The combination of ETH upgrades, the switch to POS, and the added catalysts of US regulation is a force that will push ETH to retest its all-time highs (sooner or later).

Everything you need to know about the Ethereum “hard fork”

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Ethereum burst onto the virtual currency scene almost a year ago. It’s similar to bitcoin, but with a key difference. In addition to supporting its own digital currency, ether, it also supports smart contracts, agreements written in computer code that execute automatically when conditions are met.

Though it garnered significant attention from the start, Ethereum’s biggest moment came in April 2020, with a radical experiment called the Distributed Autonomous Organization, or the DAO. Created by German blockchain startup, the DAO had an ambitious goal—to build a humanless venture capital firm that would allow the investors to make all the decisions through smart contracts. There would be no leaders, no authorities. Only rules coded by humans, and executed by computer protocols.

Launched on April 30th, it took off like a runaway train. By May 21, it had raised $150 million from roughly 11,000 investors, in what’s considered the biggest crowdfunding effort in history.

For Ethereum, the backbone of the project, it was a major vote of confidence in its nascent technology.

Then it got hacked.

On June 17th, someone started siphoning money out of the DAO. People were watching in real time as the money was stolen—like a live video feed of a bank robbery. By the end, the hacker, who has said that he was simply taking advantage of a technical loophole in the DAO, had amassed $50 million in ether, based on current exchange rates.

While the core developers who designed and run Ethereum didn’t really have anything to do with the DAO, they were left to deal with the mess. The seven of them, led by Vitalik Buterin, decided to hack the hacker.

They managed to stop the theft and move the funds into another smart contract where they currently sit. But that’s only a temporary stopgap: the way the code of DAO was written, there is a question of whether the original hacker can still lay claim to the funds. Fixing this would require more intervention from the core developers.

Whether to do so has created an existential question for Ethereum. One of its underlying tenets is that it’s a decentralized platform, meaning the power lies almost exclusively with all of its users. By stepping in to fix this problem, it would completely undermine that objective. This has led to a heated debate between those who want to return the funds and the “code is king” purists who say that the the power of smart contracts lies in their immutability.

The intervention that’s being weighed is called a “fork.” It’s a decentralized network’s version of a reset button. It would entail rolling back the entire Ethereum network to a previous day. Doing so would basically eliminate the DAO, and move all the money into a smart contract that can only reimburse investors.

The initial proposal was a soft fork. This would entail a majority of the Ethereum miners (those who verify transactions on the network) voting on the roll back. Unfortunately, a security flaw was found in the voting process, which eliminated this option.

That leaves a hard fork, where the core developers of Ethereum unilaterally make the decision to essentially create a new version of the network with different rules than the original. Then, miners, exchanges, and other major apps that are built on it need to decide if they want to a part of the new version of Ethereum or the original. Hence, the idea of a fork.

“The Hard Fork is a delicate topic and the way we see it, no decision is the right one. As this is not a decision that can be made by the foundation or any other single entity, we again turn towards the community to assess its wishes in order to provide the most appropriate protocol change,” Ethereum cofounder Jeffrey Wilcox wrote in a blog post Friday (July 15).

The community seems unanimous—according to Ethereum’s publicly available Github code, a hard fork is tentatively scheduled for July 20.

But, after all this turmoil, several questions remain:

What happens to the banks working on smart contracts?

Ethereum’s greatest promise lies in its ability to offer smart contracts, which are basically small programs, built on its blockchain. Financial institutions believe smart contracts offer a way to cut costs and speed up trading and settlement. Big banks like Citi and J.P. Morgan, along with clearinghouses like the Depository Trust & Clearing Corporation, have been building and testing ways to trade credit default swaps with smart contracts, for instance.

Analysts think smart contracts, if developed sufficiently, could eventually replace lawyers and judges in some cases. “Doing so in principle removes the potential for parties to have a dispute: both parties are held to whatever outcome the smart contract determines,” writes Houman Shadab, a professor at the New York Law School who specializes in the area.

An Ethereum hard fork, however, could be a spanner in the works. If contracts held to be inviolable can effectively be overturned by a collective decision to run new software, what guarantee do financial institutions have that their transactions and funds are secure? “I think this exposes one of the problems [facing financial institutions],” says Simon Taylor, a co-founder of financial technology consultancy 11FS, based in London.

Taylor, who headed blockchain projects at Barclays until last month, says incidents like the DAO hack and the hard fork only underscore the need for banks and other regulated institutions to build their own private blockchains. Banks can reduce the threat of a community decision being implemented without their support. “If you want results now, the answer must be to build a [virtual private network] for asset transfer,” Taylor says. “This is undoubtedly the right choice for financial institutions.”

Another bank insider thinks financial institutions will simply take a hard fork in stride. The technology is so new that banks are still in a research and development phase, so they have ample time to price in assumptions around any potential future forks, says Huy Nguyen Trieu, a well-known fintech analyst and until recently a managing director at Citi in London. “Whether you have a hard fork or soft fork, the cat is already out of the bag,” he says. “So it doesn’t change anything. Even if there was [a hard fork], whenever [banks] think of a smart contract, they will take it into account.”

What about the moral hazard of a “bailout”?

One of Ethereum’s core principles is that it offers a way for developers to write decentralized applications that external parties can’t alter. These applications will exist “without any possibility of downtime, censorship, fraud or third-party interference,” says Ethereum’s official documentation.

What would be the point of this? One example might be a smart contract that disbursed funds to activists in an oppressive regime. It can’t simply be shut down by a cease-and-desist order delivered to an office, or even by sending in troops to cart away servers. That’s because that particular pool of funds exists as an application on the Ethereum blockchain, which is dispersed around the world on whatever servers run its code.

This property of Ethereum is known as censorship resistance. But if a hard fork is implemented to reverse a smart contract gone wrong, doesn’t this violate the principle of censorship resistance? “If you take the direction of restoring value to people who lost value, you break the idea of smart contracts,” says Vinay Gupta, a London-based strategist at Consensys, one of the most well known development firms working on Ethereum. ”Maybe we can justify this as a one-off, and it won’t happen again. But maybe it opens the door to a never-ending string of complaints from people who lost 25 cents and want it back.”

The decision to hard-fork the protocol in order to return the hacked funds is a sort of moral hazard for the cryptocurrency world. Just as central bankers were confronted with having to bail out failing banks in 2008, the miners, exchanges, and companies in the Ethereum economy now must face the prospect of a systemic intervention to right a wrong. The irony isn’t lost on Gupta. ”It turns out we have a lot in common with central banks,” he says. “Maybe not at the technical or legal level, but at a political level, people in our community expect us to be able to make things better for them.”

Even a true believer in Ethereum like Gupta is aware that a hard fork could be a serious violation of the principles that underlie the protocol. He stops short of saying a hard fork is a bad idea, but notes that “there are convincing arguments” on both sides. The decision to fork, or not, is a bit like voting for Brexit, he says. “ There’s no way in the UK right now that you can make any kind of comfortable prediction of our economy, because it’s changed, but we don’t know what the new rules will be,” he says. “It’s that sort of prolonged uncertainty.”

And, like Brexit, the Ethereum economy will be gambling with its future if it collectively agrees to pursue a fork. “We just have to roll the dice and see what happens,” Gupta says.

What happens to the price of Ether?

Ether’s price has tumbled from a high of about $15 as the DAO gained momentum to a current price of about $10. That’s instructive, because despite the uncertainty surrounding a potentially major change to the Ethereum codebase, the price has remained relatively stable.

While a decline of 33% might seem like a steep drop, it’s important to remember that this is roughly what ether was trading at in the months before the DAO launched. The DAO triggered a sharp spike in the price of ether as people bought the currency to participate in the experiment. So a drop back to the $10 level, even with a fork looming, is a vote of confidence from the market. At the start of the year, ether was trading at under a dollar.

That suggests the ether market has priced in the hard fork decision. Joe Lee, a co-founder of bitcoin derivatives platform Magnr in London, expects a successful hard fork decision to therefore boost the price of ether. ”I see this as validation that the community can build a very powerful system like Ethereum in the right way,” he says.

Lee has a price target of $15 for ether before the year is up, returning it to its pre-DAO hack heights.

Despite the drama over the previous weeks around the DAO hack, counter-hack, and forking proposals, the outlook for Ethereum is, implausibly, bright. Observers point to the way Ethereum developers have rapidly developed alternatives to solve the flood of technical and ethical problems revealed by the hack.

Emin Gün Sirer, the Cornell professor who has perhaps contributed the most research in the aftermath of the DAO hack, contrasts the way the Ethereum world has adapted to his discoveries of technical flaws with the DAO and its subsequent fixes. “The Ethereum community has been amazingly science-driven, open and forthright. The civilness of their response should be a shining example to other communities,” he wrote.

All you need to know about Ethereum’s Constantinople hard fork

Ethereum is preparing for its next important milestone, the Constantinople hard fork.

In this article, we will discuss what the Constantinople hard fork means for Ethereum, its implications for the future of the network and the potential impact on Ether’s market value.

As a quick summary, the launch of Ethereum has been planned in four stages: Frontier (the beta stage to develop and to test the decentralized applications (dapps)), Homestead (to stabilize the platform), Metropolis (ongoing) and Serenity (upcoming).

The second update of Metropolis hard fork, called the Constantinople hard fork, should have been finalized on 13th of August 2020, tested for two months and released by the second week of October. Yet, the fork got postponed to January 2020 after developers detected mistakes in its program during the testing period.

This delay has certainly put an additional pressure on Ethereum’s value during the last months of 2020, bringing the price of Ether below the $85 mark by mid-December. As such, the value of ETH came 94% off its all-time peak of $1’389 reached on the 15th of January 2020. Ethereum has even lost its position as the second biggest cryptocurrency by market cap to Ripple, as a result of a negative price divergence versus its major peers.

Hence, the least we can say is that Ethereum had a rough year.

Nowadays, with the global recovery in cryptocurrency prices, Ethereum rebounded 84% against the US dollar since its December bottom; the ETH/USDT advanced past $155 and Ethereum regained its position as the second most popular cryptocurrency in the market behind Bitcoin.

Whether the actual ETH recovery could continue may depend on the upcoming hard fork.

Ethereum’s much-expected Constantinople hard fork is now due by mid-January. There are market rumours, based on Ethereum team lead Péter Szilágyi’s predictions, that the hard fork could become effective by January 16th.

A quick glance at the Constantinople hard fork

The Constantinople hard fork is important, as it aims to smooth the shift from the current proof-of-work (PoW) protocol to the proof-of-stake (PoS) protocol, which should be achieved by the last stage of the Ethereum’s development plan, called Serenity. The PoW – PoS transition is a fundamental consensus change and could be a make-or-break point for Ethereum’s network.

The proof-of-work, also used by Bitcoin’s protocol, requires ‘miners’ to solve complex mathematical puzzles in exchange of a reward. This is called mining and the first miner to solve the problem is rewarded with units of the ‘mined’ cryptocurrency.

As miners become more efficient in solving the complex math puzzles, the difficulty of the computations increases to keep the average mining time stable in term. Hence, the PoW protocol is increasingly energy consuming and tends to consolidate power in the hands of big miners.

The proof-of-stake, on the other hand, will let the miners holding the largest stake create a new block. In opposition to PoW, ‘miners’ in a PoS setting are not rewarded by the creation of cryptocurrency but a transaction fee. As a result, they are called ‘forgers’ rather than ‘miners’.

The PoS is significantly less energy consuming and meaningfully more cost effective. It is more suitable for propping up the scalability of the network and lowering the costs in the long-term. This is why Ethereum is aiming to move to the PoS protocol.

To do so, Ethereum has come up with a procedure for gradually increasing the level of difficulty for miners, called the ‘difficulty bomb’, in September 2020. By making the mining process gradually less profitable for miners, the bomb aims to facilitate the move from PoW to PoS.

In an effort to smooth this PoW – PoS transition, the EIP 1234, as proposed for the Constantinople hard fork, will delay the intensity of the ‘difficulty bomb’ and ease the reward for mined blocks from three to two Ether. As a result, the PoW – PoS transition is expected to be delayed by 5 million blocks and should take around twelve months. As such, the delay will help keeping the PoW protocol unchanged for a longer period of time, though with lower mining reward, and have a less abrupt effect on the transition.

Hence, among the five Ethereum Improvement Proposals (EIPs) for the Constantinople hard fork, EIP 1234 is the most discussed and significant upgrade for miners.

The four other proposals, EIP 145, EIP 1014, EIP 1052 and EIP 1283 – that we will not cover in this article, are also about decreasing the complexity for developers and reducing the gas costs (operating costs).

As a final remark, many crypto-traders have certainly heard about Ethereum Casper. Casper is the PoS protocol that Ethereum developers have decided to adopt; it aims to punish malicious validators.

Risks related to the Constantinople hard fork

Ethereum is well bid ahead of the Constantinople hard fork. Yet, there are risks related to the upcoming event.

First, there is a delay risk. At this point, there is no certainty regarding the hard fork’s date. As mentioned earlier in this article, the Constantinople hard fork has already been delayed by several months. A minor delay will certainly not be a major issue for the market, however a significant postponement would raise questions about Ethereum’s ability to keep up with its four-stage development plan, could again damage the sentiment in Ethereum and trigger a fresh sell-off.

Second, there is the risk of acceptance. The PoW – PoS transition is a fundamental change for Ethereum’s network. While PoS should allow scaling the network indefinitely, it is not effective in dealing with the worst-case scenarios, according to many miners. These scenarios include rarely occurring events, such as stolen private keys or network interruptions, which could have a dramatic impact on the network activity and security. In case of stolen keys, bad actors would take control of the network. While in the case of network interruption, the nodes would have hard time reorganizing themselves. This is because the nodes in the PoW setting would be automatically tempted to rearrange themselves and gravitate toward a single chain in case of an unexpected event. However, in the context of the PoS, there might be confusion on which chain is canonical, provided that the PoS doesn’t focus on the authenticity of the chain.

Also, some miners will certainly be opposed to the shift from PoW to PoS, as this would move the balance of power from miners to stakeholders.

If all miners do not switch to the new PoS protocol, then Ethereum’s blockchain might fork. This is because the new blockchain would become incompatible with the old chain following the series of updates.

Nonetheless, this is not the base case scenario in the short-term. The Constantinople hard fork is seen as ‘non-contentious’, hence most developers are expected to shift to the new protocol, leaving the Ethereum’s blockchain intact following the update.

The question of a ‘contentious’ fork will likely be raised in the later stages of Ethereum’s protocol shift.

Don’t be influenced by the Bitcoin Cash hard fork

When it comes to hard forks, the Bitcoin Cash’s November fork is still very fresh in traders’ minds. Although the BCH hard fork was not expected to result in two separate blockchains and a heavy market sell-off, there were major red flags heading into the BCH hard fork.

But this is not the case for Ethereum’s impending Constantinople hard fork.

Traders should remember that technology upgrades are necessary and unavoidable in the context of cryptocurrencies. Of course, the fact that there is no guarantee of a smooth transition is a risk that should be managed by traders. Ethereum could be subject to higher price volatility leading up to the Constantinople hard fork and the days following the fork.

Yet, the hard fork is expected to release some of the tension regarding Ethereum and could be positive for the market valuation of Ether in the foreseeable future.

Trading of cryptocurrencies (BitCoin, Ethereum or any form of coins) and blockchain assets is highly speculative, carries a high level of risk and is not appropriate for every investor. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margins.

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