Why I’m Even More Excited for the Post-Merge Crypto Space
As far as finance goes, crypto is the first new asset class in centuries. It’s just barely beginning to make its impact felt.
But the technology that makes proof-of-work validation systems “go” dates from 2009. It’s okay. It’s “good enough,” and it works, but it’s dinosaur stuff. It’s not the best we can do anymore.
I mean, do you still use a phone or laptop from 2009? No, because it’s 2022 and we can do a lot better than that.
Same goes for blockchain validation: we can do a lot better than that now.
But, it’s a technology that’s been around long enough that an obstinate “old guard” has cropped up, around Bitcoin, especially. They’re desperately clinging to outdated technology and standards, whether it’s because of inertia or arrogance or fear or some mix. They’re maximalists, basically; as soon as a demonstrably better alternative appears, it’s shouted down.
We see that happening now with Ethereum. The Merge is less than 48 hours away, and the diehards are falling all over themselves trying to set up a proof-of-work alternative – more on that in a second.
But like I’ve said before, the maximalists are wrong, and not even they can stop what’s coming around the corner, post-Merge.
It’s a way more efficient and lucrative way to “do” crypto.
There Are a Lot of Problems with Proof-of-Work Now
At first, they were revolutionary, but these days crypto miners are finding themselves increasingly on the pointy end of history. This week’s Ethereum Merge is only going to make that more stark.
The big problem, as I see it, is they’re useless. Or, should I say, not very useful. They buy and house huge numbers of the computers that solve the endless math problems that Bitcoin’s proof-of-work system needs to secure its blockchain.
Its wasteful and dirty – I’m sure you’ve seen the factoid that Bitcoin’s validation consumes “more electricity than the entire country of Argentina” in a year. It ties up valuable computer chips – which are a finite resource, too – to do what amounts to useless busywork.
The thing is, we don’t need that anymore. We can use proof-of-stake (PoS). The only reason we couldn’t start with that in 2009 is because nobody had any crypto yet. Owners can commit and freeze their cryptocurrency to validate transactions and generate more tokens.
A little further down the road, we’ll see proof-of-useful-work (PoUW) validation. There are already a small handful of PoUW projects out there. Like the name suggests, the computing effort required will actually have a point. This effort could go into machine learning for artificial intelligence (AI), say, or predicting complex, chaotic weather patterns, or tracking butterfly migrations – the sky’s the limit. PoUW will still be cleaner and more efficient than “classical” PoW. PoUW is a really exciting concept I’m going to be watching closely as I load up on good AI tokens.
And PoS validation still has massive untapped potential – and yet-to-be-realized upside.
Crypto’s Future Is Probably Miner-less
Cardano gets it. That’s why it was designed to use PoS validation from Day One. Ethereum gets it. That’s why it’s transforming itself into a proof-of-stake cryptocurrency with its Merge update, which will be complete before this work week is out.
Crypto miners… don’t get it. At least they don’t seem to. They are cheesed off, though.
Their whole economic reason for being is diminishing fast and, understandably, they aren’t taking it well. Their liquidity is drying up – miners are hocking their rigs to pay down debts, but a lot of them are finding their equipment isn’t worth what they thought it was. And with the cost of electricity skyrocketing in some places, there’s no conceivable path to profitability, either. Retail miners have been over a barrel for months at this point.
Ethereum miners, specifically, are looking desperate right now. I’ve been looking at a ton of different moneymaking opportunities ahead of Ethereum’s Merge and transition to PoW (more on that here), but instead of doing likewise, a group of miners is pressing ahead with a hard fork that will see a smaller group of nodes break off and keep a PoW “flavor” of Ethereum. This fork hasn’t happened yet, but people are trading it on an I.O.U basis on a few exchanges. If it manages to happen, it’ll trade under the ETHW ticker.
If the fork happens and you get ETHW tokens, I’d sell them on the same day or soon after. There might be a pop, which would be the best ETHW could hope for. Flip those tokens for a few bucks and take some profit. Otherwise these forked tokens are going to be worth next to nothing.
Now, you’d think I was a Bitcoin bear having said all this, but it’s quite the opposite. Bitcoin isn’t going away anytime soon – maybe ever. It’s digital gold, and physical gold itself is still trading after 5,000-plus years. It’s unlikely to 100X your money, but it’ll continue to perform.
But no new or existing crypto project can legitimately claim it’s “innovative” if it’s still using classical PoW.