Why has Ether’s price almost doubled despite bears clawing at cryptos?

Despite a drop in crypto prices worldwide, the prices of Ether have been rising over the past month. The native token of the Ethereum blockchain was priced at $1889.96 at the time of writing, according to Coinmarketcap--up from around $1300 in July. What's pushing up its price?

Why this sudden interest in Ether?

On September 15, Ethereum--the second-largest blockchain in the world after Bitcoin--is scheduled to migrate to a new process of authenticating transactions. The move, called ‘Merge’, takes the platform from ‘Proof of Work (PoW)’ to ‘Proof of Stake (PoS)’. Merge is one of the most-awaited events in blockchain history and is said to make the Ethereum platform more attractive for developers worldwide, leading to more transactions and hence higher prices. Meanwhile, Ether--the official token of the Ethereum blockchain--has seen its price double since falling below $1,000 in June this year.

Proof of Work vs Proof of Stake?

PoW and PoS are consensus mechanisms, which help miners validate transactions through a process called mining. This process requires a lot of computing power, which in turn requires a lot of energy — most of which comes from fossil fuels. In the PoW system, miners compete against each other to solve complex cryptographic puzzles to validate transactions, and the first to solve the puzzle wins the reward in the form of new cryptos. PoS, however, limits the number of miners who can compete at a time by adding a set of rules to the system, and requiring miners to put up their own ‘stakes’. It requires miners to purchase the native token of the blockchain in question and whether they’re allowed to mine depends on these stakes. (A blockchain's native token is one that can be used for transactions and to pay fees. Any other token, built for various applications atop the blockchain, is termed as non-native and cannot be used for official transactions on the blockchain. For example, on Ethereum, tokens such as the Binance Coin (BNB)--the token for the Binance chain that has been built as a sidechain on Ethereum--would qualify as a non-native token). As a result, it reduces the overall impact on the environment, but also creates greater barriers to entry.

What is Merge?

At the moment, Ethereum mainly works on the PoW system, but the move to PoS started in August last year. Merge is basically the final upgrade and will convert Ethereum to a completely PoS-based system. In March, founder Vitalik Buterin said that the system has been in the works for seven years. The PoS blockchain — called Beacon Chain — has been under test for over 18 months now. On September 15, it will merge with the main Ethereum blockchain (hence the name, Merge). However, it is followed by four more steps, which may be what gives investors even more confidence — the surge, the verge, the purge and the splurge. Together, these four steps are expected to make the platform more scalable. In fact, Buterin has said that once all five steps are completed, Ethereum should be able to manage 100,000 transactions per second, which in theory puts it in the same league as Visa or Mastercard.

Why is Proof of Stake important?

According to Ethereum’s official website, the blockchain presently consumes around 112 terawatt-hour (TWh) of electricity per year to keep the network secure and running. This creates carbon emissions of around 53 metric tons per year. While Ethereum’s electricity consumption is equivalent to the entire country of The Netherlands, its carbon emissions are equivalent to Singapore’s, according to the website. It claims that moving to the proof of stake blockchain will reduce its energy consumption to “less than 0.05%” of what it was before — the moment its proof of work mainnet will be switched off.  Prominent blockchains that use PoS currently include Cardano, Solana and the now-infamous Terra — which lost over 99% of its value of its tokens in a span of two days, wiping out billions of public wealth.

Will Merge be safe?

Ethereum’s total market capitalization value at the time of writing was over $229 billion. If anyone intends to take over the entire blockchain, they will need to take over 51% of the blockchain, which on paper would require a massive amount of investment. At the same time, experts say ETH’s migration to POS will make the blockchain safer through a process called ‘slashing’. In this process, if a hacker is identified to be trying to take over the blockchain, their stakes could be ‘burned’ or put out of circulation on the blockchain, hence preventing a total hack of the network. All of this, however, is yet to be proved in reality. There are also concerns regarding bugs on the blockchain network, which experts state will surface only once Merge is completed. Such bugs could technically cause outages.