Daily News Analysis » Ethereum Cryptocurrency

Ethereum Cryptocurrency

Recently, The second-largest cryptocurrency Ethereum has undergone a technical upgrade and this upgrade is called the 'Merge'.

Why in the News?

Recently, The second-largest cryptocurrency Ethereum has undergone a technical upgrade and this upgrade is called the ‘Merge’.

Key Points: 

  • Most blockchains use large amounts of energy and have come under fire from environmentalists.
  • Now, Ethereum has been transitioned from the Proof-of-Work (PoW) consensus method of setting transactions to the Proof-of-Stake (PoS).
    • Proof of work system: energy-hungry computers validate transactions by solving complex maths problems.
    • Proof of stake system:  where individuals and companies act as validators, using their ether as collateral, to win newly created tokens.
  • Significance: This will make Ethereum at least “99 per cent more energy efficient”.

About Cryptocurrency:

  • A Cryptocurrency is a medium of exchange, such as the rupee or the US dollar, but is digital in format.
    • For Example, Bitcoin, Ethereum
  • These are decentralised in nature, which means that no single entity owns or controls them. 
  • There are two types of crypto assets – coins and tokens. 
  • Coins have their own blockchain network while tokens are part of projects built on top of existing blockchains. 

What is Blockchain Technology?

  • Also referred to as Distributed Ledger Technology (DLT), Blockchain is a system which helps in recording information. 
  • The system is basically a digital ledger of transactions that is distributed with the entire network of computer systems and servers on the blockchain.
  • Every block in the chain contains information of transactions made and every new transaction’s information is added to each participant’s ledger. 
  • In this way, the database is managed by multiple participants and is decentralised (there is no central agency managing the system).
  • Bitcoin and other digital currencies such as Ethereum use blockchain technology to function.

Benefits:

  • Checks Corruption: As blocks run on a peer-to-peer network, it helps keep corruption in check by tracking the flow of funds and transactions.
  • Cost Saving: Cryptocurrencies and blockchains bring many advantages, including cost-savings, decentralisation and transparency.
  • Saves Time: They are entirely conducted on the internet so,  can save substantial time for the remitter and the receiver.