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Ethereum is often depicted as traditional finances adversary in a Manichean struggle for decentralization. In reality, there isnt any conflict at all. Rather than subverting the traditional financial sector, Ethereum is improving it. Soon, the two systems will be inextricably entwined.

Ethereums core value propositions self-custody, transparency and disintermediation are enormously relevant to financial institutions, and they can be realized within existing regulatory frameworks. Ethereum has already taken the first steps toward institutional adoption, and with its unmatched network decentralization, it is all but destined to become the primary settlement layer for the worlds financial transactions.

Ethereum isnt here to deliver a stateless alternative currency or an anonymized shadow economy. What it offers is simple: neutrality.

Ethereum is the global financial systems first truly unbiased referee, and its arrival couldnt be more timely. The geopolitical stability afforded by the United States preeminence is eroding, and domestic politics in major economies have become increasingly volatile. In a multipolar world, the financial system urgently needs to maintain reliable rules of the road.

Related: Thanks to Ethereum, altcoin is no longer a slur

Ethereums system for settling transactions and storing data is practically incorruptible. That is largely because of the unrivaled decentralization of its consensus layer, which spans more than 500,000 validators distributed among more than 10,000 physical nodes in dozens of countries. Despite concerns to the contrary, Ethereum is trending toward greater decentralization over time, not less.

To be sure, Ethereum will never replace traditional contracts or legal authorities for mediating disputes. What it promises, with its inviolable and unbiased code, is to prevent countless disputes from arising in the first place.

From Celsius to FTX and Silvergate, the events that led up to crypto winter speak more to the shortcomings of traditional finance than to the failings of crypto. In each instance, the classic principal-agent problem was worsened by lax oversight and overcentralization.

Historically, the default approach to this problem has been regulation. Greater oversight is certainly needed, but Ethereum offers more foundational solutions. Trustless smart contracts and distributed ledgers can remove certain dimensions of the principal-agent problem entirely.

Soon, Ethereum and its scaling chains will permeate traditional banking and asset management. From savings accounts to retirement portfolios, virtually every investor will self-custody their assets in trustless smart contracts, and carefully regulated on-ramps will render the tokenization of fiat currencies virtually frictionless.

Meanwhile, investors and, eventually, regulators will insist that asset managers report fund performance using trustless on-chain oracles. In these areas, Ethereum wont run afoul of regulations, it will reinforce them. Eventually, authorities will become as attentive to the technical specifications of smart contracts as they are to required liquidity reserves.

The future of Ethereum is not permissionless. Identity-based permissioning will be standard fare, but so seamless as to be practically unnoticeable. With the proliferation of central bank digital currencies, state censorship will be a serious concern. Laws restraining governments from arbitrarily freezing digital assets will gather significant political momentum.

In short, Ethereum has the potential to dramatically reduce private financial malfeasance, but its impact on state censorship will be more limited.

Ethereums future may still be far off, but its building blocks are already here. Decentralized finance (DeFi) overheated into a speculative conflagration in 2021, but that frenzy of activity spurred considerable innovation. The technology now exists to create a wide array of disintermediated markets and tokenized financial instruments.

What is missing is connectivity with the broader financial system. That is the focus of an emerging class of regulated fiat-to-crypto on-ramps and custodians, such as Circle. The U.S.-based company had laid the foundation for the digital economy with USD Coin (USDC), its tokenized dollar. Circle is now building out additional critical infrastructure, such as hybrid fiat-and-crypto accounts that on-ramp directly to Ethereum and its scaling chains.

Related: Federal regulators are preparing to pass judgment on Ethereum

In the coming years, expect to see a proliferation of tokenized securities, starting with risk-off fixed-income assets. There will also be heavy investment in Ethereum staking pools, which will emerge as a critical strategic asset in the institutional crypto market. Other areas of focus will include on-chain financial reporting, streamlined user flows for regulatory compliance and institutional-grade tokenized derivatives.

To be sure, a recent spate of enforcement actions has cooled development activity in the U.S., but it will remain a major market for the coming wave of regulated protocols.

The surge in regulatory pressure on crypto, particularly DeFi, marks the end of an era. Large swaths of Ethereums ecosystem, especially protocols that cant or wont adapt to the changing landscape, will effectively be weeded out. Those that remain, however, will be well adapted to integration with the existing financial system. Ethereums transformative impact on traditional finance has only just begun.

Alex ODonnell is the founder and CEO of Umami Labs and worked as an early contributor to Umami DAO. Prior to Umami Labs, he worked for seven years as a financial journalist at Reuters, where he covered M&A and IPOs.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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Ethereum is going to transform investing - Cointelegraph

When building Bitcoin, Satoshi Nakamoto envisioned a decentralized digital currency that could operate without the need for centralized institutions such as banks and governments.

Satoshi did not picture a situation where a few entities controlled a significant portion of the entire network, essentially centralizing power and influence.

Bitcoin mining centralization, a result of market competition over the years, goes against the fundamental principle of cryptocurrency.

Bitcoin mining centralization is the concentration of mining power among a few dominant players. Originally, anyone with a computer and internet connection could mine Bitcoin. However, the network grew with time, and as a result, mining became more competitive.

This led to the development of specialized chips known as ASICs (Application Specific Integrated Circuits), which outperformed GPUs and CPUs by being more efficient. Unfortunately, ASICs are expensive and out of reach for most people, and the fact that newer, better, but more costly versions are released exacerbates the situation.

Miners began to form pools to combine their computing power and share the rewards earned. The largest pools also acquire the latest technologies to stay ahead of the competition, which caused others who couldn't keep up to drop off.

Over time, a few large mining pools, including Foundry USA, Antpool, and F2Pool, have come to dominate the Bitcoin mining industry, controlling a significant percentage of the total hash rate at any given time. This beats the logic of cryptocurrency, which is supposed to distribute power among many players.

Several factors contribute to the centralization of Bitcoin mining. Most of these factors also apply in a typical competitive market. They include

While Bitcoin mining centralization is a natural process inspired by competition, it presents a few challenges to the network and ecosystem.

All these challenges require careful consideration and action if the integrity and security of the Bitcoin ecosystem are to be preserved. But how?

Over time, various parties have suggested ways to solve the centralization issue.

Bitcoin Core developer Matt Corrallo proposed the BetterHash Protocol, which involves decentralizing the selection of transactions going into a block to individual hardware operators. However, it didn't provide a mechanism that would ensure miners will choose transactions that create a balanced difficulty for the Bitcoin network hence opening another loophole for centralization. It also introduced inefficiencies due to the need to constantly monitor the network, which was hard to adopt.

Meanwhile, the crypto mining pool P2Pool suggested decentralizing payouts to address the issue. However, by decentralizing payouts, small miners who rely on consistent payouts to cover costs would be disadvantaged. Also, it required low-latency connections between miners and the P2Pool server, which meant whenever a miner experienced high latency, their mining performance would be negatively impacted. For these reasons, it didn't incentivize its adoption.

The most direct way to solve Bitcoin mining centralization is to decentralize the mining pools. This can be achieved through incentives that encourage the use of smaller and more decentralized mining pools. A practical incentive would be to fund innovation and experimentation by small miners, leading to better and more competitive mining strategies.

Notably, former Twitter CEO Jack Dorsey's payment company, Block, started working on an open Bitcoin mining system to make the network more decentralized and permissionless. Block aimed to build its own high-performance open-source ASIC and a Bitcoin wallet to make Bitcoin custody more mainstream.

Nevertheless, incentives alone may not be enough to encourage decentralization. Regulatory policies, network upgrades, and community initiatives may also be necessary to encourage the growth of smaller and more decentralized mining pools.

It's difficult to predict that Bitcoin mining will become more decentralized. Mining power will remain centralized among dominant players as mining becomes more expensive.

Due to economies of scale and other bottlenecks, smaller miners continue to struggle against the big dogs. As a result, it would take tremendous efforts by the rest of the Bitcoin network to implement strategies and solutions to solve Bitcoin mining centralization.

Originally posted here:

What Is Bitcoin Mining Centralization and Why Is It a Concern? - MUO - MakeUseOf

Since Ethereum (ETH -1.16%) was created in 2015 it has radically altered the cryptocurrency landscape. Thanks to an innovation known as smart contracts, developers could create blockchain-based applications that automatically run and transfer value when certain criteria are met.

Initially, Ethereum was the only smart-contract-capable blockchain, but in recent years this has changed. New blockchains have come into existence that not only offer smart contract functionality, but also a slew of other features hoping to build off of Ethereum.

One of those blockchains is Solana (SOL -0.19%), a blazingly fast smart contract blockchain that has a considerable user base and is the 10th most valuable cryptocurrency by market cap. Many believe Solana could eventually outdo Ethereum as the premier smart contract blockchain, but those hopes might be greatly inflated.

Image source: Getty Images.

First, let's address the elephant in the room: Solana's multiple outages. Over the past year, Solana has experienced at least six network outages, including the most recent one in February where the blockchain was down for more than 18 hours, disrupting a number of exchanges and apps running on the network.

In contrast, Ethereum has a proven track record of stability and reliability. Ethereum's network has been operating smoothly for years, even with the increasing demand for decentralized applications and smart contracts.

Another key factor to consider when comparing Ethereum and Solana is the total value locked (TVL) metric. TVL is an important measure of the adoption and usage of a blockchain in the world of decentralized finance (DeFi). Since DeFi functionality is one of the primary use cases for both Ethereum and Solana, evaluating TVL can be an easy way to compare the two.

Ethereum utterly dominates the decentralized finance (DeFi) market with a TVL of more than $31 billion, compared to Solana's TVL of just over $292 million. That means Ethereum supports 100 times more value in DeFi than Solana. Clearly, the competition isn't even close and demonstrates the greater adoption and usage of Ethereum's network in the DeFi market. From this perspective, Ethereum is a much more attractive investment option for those looking to tap into the growing DeFi niche.

Fans of Solana often say that it has some of the fastest transaction speeds. While this is true, it distorts the purpose of a blockchain. One of the primary reasons blockchain technology is so profound is because it allows users to transfer value in a decentralized and secure fashion. While Solana prioritizes speed, it sacrifices higher levels of decentralization and security found in Ethereum.

Although many are quick to point out that Ethereum moves at a snail's pace compared to Solana, they also fail to realize that there is serious progress being made to narrow this gap thanks to new solutions known as Layer 2s.

Through the use of Layer 2 solutions such as Optimism, Polygon, and Arbitrum, Ethereum is transformed into a lightning-fast network, while also maintaining its decentralized and secure nature. As these solutions continue to be developed and adopted, Ethereum's competitive advantage over Solana will likely become even more apparent.

So, what does this mean for investors looking to pick between Solana and Ethereum? Although Solana may seem like a tempting option with its impressive speed, the lack of value it supports in DeFi and the sacrifices in decentralization and security make it a riskier investment, especially considering it still remains down more than 90% from its all time high.

Ethereum, on the other hand, has a proven track record and a solid foundation in the decentralized finance market. Its market dominance, along with the development of Layer 2 solutions, makes it a safer and more promising investment for those looking for long-term growth.

RJ Fulton has positions in Ethereum, Polygon, and Solana. The Motley Fool has positions in and recommends Ethereum, Polygon, and Solana. The Motley Fool has a disclosure policy.

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What's a Better Buy: Ethereum or Solana? - The Motley Fool