WEBVTT - Time to Upgrade the Ethereum Blockchain (Again)

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<v Speaker 1>This is Bloomberg Crypto, a daily Bloomberg Ihad podcast, and

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<v Speaker 1>I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.

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<v Speaker 1>It's Monday, February six. It's almost time for another blockchain

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<v Speaker 1>software upgrade on the Ethereum network. Yes again. Nearly five

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<v Speaker 1>months ago, the Ethereum blockchain successfully completed what was at

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<v Speaker 1>the time a very complicated and years in the making update,

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<v Speaker 1>called the Merge. It allowed the blockchain to move from

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<v Speaker 1>validating transactions using computers that were very energy intensive two

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<v Speaker 1>computers and a process that was a little bit less

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<v Speaker 1>energy intensive, or actually a lot less energy intensive. That

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<v Speaker 1>switch cut if Arium's power consumption by more according to

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<v Speaker 1>various calculations. And after that upgrade, the price of Ether,

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<v Speaker 1>the token that trades on the Ethereum blockchain, rallied a

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<v Speaker 1>fair amount, but it's since fallen by about fifteen or

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<v Speaker 1>so percent. Now the software developers who work on Ethereum

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<v Speaker 1>are gearing up for another upgrade. This one is called Shanghai,

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<v Speaker 1>and the reason that people care about it is because

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<v Speaker 1>it will allow the tokens that are used to order

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<v Speaker 1>those transactions on the brock chain to be withdrawn Basically,

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<v Speaker 1>it means that all of those tokens being used to

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<v Speaker 1>order transactions on the blockchain that can't be withdrawn will

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<v Speaker 1>once again be available and accessible to their owners. Here

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<v Speaker 1>to talk more about what's coming in the Shanghai upgrade

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<v Speaker 1>is Bloomberg Proposa Olga, Karif Olga, Welcome back to the podcast.

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<v Speaker 1>I feel like there's always something going on with the

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<v Speaker 1>Ethereum blockchain, so true, it seems like can upgrade after

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<v Speaker 1>an upgrade, after an upgrade. So you know, several months

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<v Speaker 1>ago we had you and our colleague David Pan on

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<v Speaker 1>the show a few times to talk about what was

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<v Speaker 1>called the merge. We've been waiting for this upgrade for years.

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<v Speaker 1>This change, known as a merge, is a software upgrade.

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<v Speaker 1>It's a Theium's transition from proof of work to proof

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<v Speaker 1>of state. People were like, well, work will be a disaster,

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<v Speaker 1>and it went super smoothly. The upgrade will allow Themium

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<v Speaker 1>developers to introduce new features. This update will see the

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<v Speaker 1>Etherium may net combined with the Beacon chain, which is

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<v Speaker 1>a proof of stake system and is expected to be

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<v Speaker 1>more eco friendly by minimizing the environment. As a result

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<v Speaker 1>of that going super smoothly. It now sounds like Ethereum

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<v Speaker 1>much like any kind of software project has this roadmap

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<v Speaker 1>that requires you know, app updates pretty much, what's the

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<v Speaker 1>next big update that's coming to the blockchain. So the

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<v Speaker 1>next big upgrade everybody is talking about is called chain Hai.

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<v Speaker 1>It's expected to happen in March. But you know, as

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<v Speaker 1>with everything Ethereum, it might still the timeline might still

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<v Speaker 1>slide um and essentially it's um. It's it's the next

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<v Speaker 1>step after the merge that should uh sort of help

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<v Speaker 1>Ethereum become a more attractive ecosystem for you know, everybody,

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<v Speaker 1>from investors to developers. Why so, what the merge did

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<v Speaker 1>was it moved Ethereum from being run by so called

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<v Speaker 1>miners or you know, very powerful computers that helped order

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<v Speaker 1>transactions on the blockchain to a blockchain that takes a

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<v Speaker 1>lot less energy and sort of After the merge, what

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<v Speaker 1>happened is that Ethereum started ordering transactions using so called

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<v Speaker 1>staked coins. Essentially, anybody who has Ether can uh stake

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<v Speaker 1>it or put it into special staking wallet. What Shanghai

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<v Speaker 1>does is it allows people who staked their Ether into

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<v Speaker 1>the special staking wallets to take it out believe it

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<v Speaker 1>or not. If you right now, if you've staked your ether,

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<v Speaker 1>it's stuck there and you cannot take it out, that

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<v Speaker 1>seems less than ideal. Why why do people agree to

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<v Speaker 1>do that? You know, there's a lot of trust in

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<v Speaker 1>ethereum developers who have proven time after time that they

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<v Speaker 1>do what they say they will do. Plus people who

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<v Speaker 1>stake their coins they aren't yield, which fluctuates. For instance,

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<v Speaker 1>in the fullts at one point it was about ten

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<v Speaker 1>percent um and right now it's around six. So it's

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<v Speaker 1>it's pretty substantial, uh, you know, especially in today's uh

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<v Speaker 1>unpredictable you know, often sort of down crypto markets. Mm hmmm.

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<v Speaker 1>So if I'm hearing you correctly, it sounds like one

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<v Speaker 1>there was a lot of trust in the ecosystem. There

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<v Speaker 1>was a lot of like developer belief that this is

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<v Speaker 1>the right thing to do. These folks are going to

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<v Speaker 1>do the right thing. We're comfortable, you know, as you say,

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<v Speaker 1>staking our ethery essentially like putting our hard earned tokens

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<v Speaker 1>away for a while in service of the cause the community,

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<v Speaker 1>the greater good. Pick a motivating factor, and it also

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<v Speaker 1>sounds like while you're doing good for the community, you're

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<v Speaker 1>getting free money, absolutely, and that's exactly what it is.

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<v Speaker 1>You know, after the crypto crash of last year where

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<v Speaker 1>a lot of crypto lenders essentially went up in flames,

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<v Speaker 1>or most of them rather. Um, you know, there aren't

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<v Speaker 1>a lot of places to put your crypto into and

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<v Speaker 1>to earn yield. And for much of last year, crypto

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<v Speaker 1>prices have been trending down, like in the double dgets.

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<v Speaker 1>So um, you know, for people who are looking for

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<v Speaker 1>safer you know, relatively safer returns on their coins while

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<v Speaker 1>they're sitting there waiting for another bullmarket. Um, this has

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<v Speaker 1>been a pretty attractive option, not without its risks. So

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<v Speaker 1>and what are some of those risks that you just

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<v Speaker 1>don't get your money back? Right? So, one of the

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<v Speaker 1>risks risks is that shang Hai gets delayed, you know,

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<v Speaker 1>the subgrade that allows you to withdraw your tokens could

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<v Speaker 1>get delayed still by some unexpected bugs or something else.

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<v Speaker 1>Another risk is that while your tokens are sitting there

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<v Speaker 1>waiting to get unlocked, eventually, you know, something crazy happens

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<v Speaker 1>in the crypto markets and you can't withdraw, You can't

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<v Speaker 1>sort of make a smart move to save your money.

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<v Speaker 1>So that's another risk. So let's assume because crypto is

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<v Speaker 1>full of optimists, but everything goes completely smoothly, there's no downtime.

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<v Speaker 1>Everything's great, people get their staked ether back. What happens next,

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<v Speaker 1>what comes after? So what comes after? You know a

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<v Speaker 1>lot of people have very rosy expectations for what happens

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<v Speaker 1>after Shanghai. They think that they'll be able to take

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<v Speaker 1>their money out of the staking wallets, you know, immediately

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<v Speaker 1>whenever they want. People who are I guess more realistic

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<v Speaker 1>believe that it's gonna it could take days and weeks

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<v Speaker 1>and perhaps even months to get to unlock your tokens

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<v Speaker 1>because there might be a line, and especially right after Shanghai,

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<v Speaker 1>as this unlock functionality first appears, you know, there could

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<v Speaker 1>be a rush to take money out. A lot of

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<v Speaker 1>people lost money in the crypto markets the last year.

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<v Speaker 1>They might need it, so there could be a lot

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<v Speaker 1>of withdrawals and a very long line. So you know,

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<v Speaker 1>this is something to keep in mind. This is not

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<v Speaker 1>like in and on sort of functionality where you can

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<v Speaker 1>just everybody can just unstake all at once. Now, if

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<v Speaker 1>you are, say a normal person who's not a crypto

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<v Speaker 1>reporter or the host of a crypto podcast, and you're thinking,

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<v Speaker 1>does the Shanghai upgrade me and Ether is gonna go up,

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<v Speaker 1>down or sideways? What's the answer. So it's one of

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<v Speaker 1>those expected upgrades. Everybody has known about it for months,

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<v Speaker 1>essentially how it often happens, and this is what happened

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<v Speaker 1>with the merge as well, the previous upgrade, where while

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<v Speaker 1>Ether basically price ran up ahead of the news, and

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<v Speaker 1>then as merge happened, it plunged as investors wanted, you know,

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<v Speaker 1>to realize their profits from making this bet. And a

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<v Speaker 1>lot of people believe this is what could happen here.

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<v Speaker 1>And this concern is not just Ether but a whole

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<v Speaker 1>There is a whole, big ecosystem of tokens related to

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<v Speaker 1>steak that this uh sort of selling the news um

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<v Speaker 1>expectation could impact as well. So there's an expectation that

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<v Speaker 1>this run up will continue until Shanghai happens, and then

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<v Speaker 1>some of these prices could uh come down back to

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<v Speaker 1>earth again. So so there's a lot of um gameplay

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<v Speaker 1>involved here as people try to speculate on on Shane

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<v Speaker 1>Hai coming up, you'll hear more from Bloomberg reports Olga

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<v Speaker 1>Cariif on how ethereums next expected upgrade could affect the industry.

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<v Speaker 1>We'll be right back. See this is why you never

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<v Speaker 1>ask your reposto what a price is gonna do, because

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<v Speaker 1>I'll give you like a very detailed technical explanation, but

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<v Speaker 1>then not tell you if it's gonna go up outside,

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<v Speaker 1>which do we know we are not allowed anyway, So

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<v Speaker 1>this is like the ideal way to handle this question. Um.

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<v Speaker 1>Just as kind of a final thing. You know, we

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<v Speaker 1>saw just in the past couple of weeks that n

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<v Speaker 1>f t s are potentially coming to bitcoin, which has

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<v Speaker 1>shocked and appalled Bitcoin purists, but other people are like,

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<v Speaker 1>whoa more ways to make money? And f t s

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<v Speaker 1>obviously are one of the big defining use cases of Ethereum.

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<v Speaker 1>Most n f t s today are built on top

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<v Speaker 1>of either Ethereum itself or one of kind of you know,

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<v Speaker 1>the associated slash spinoff blockchains. What are the kinds of

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<v Speaker 1>things that Ethereum developers are thinking about beyond like upgrades

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<v Speaker 1>and bug fixes, Are there any really transformational new features

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<v Speaker 1>that might be coming to the blockchain to continue to

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<v Speaker 1>make it be an attractive place for software depth A

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<v Speaker 1>whole bunch of features we're supposed to be part of Shanghai,

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<v Speaker 1>and we're taken out at the last minute because the

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<v Speaker 1>developers just want to get this unlocking, you know, withdrawals

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<v Speaker 1>functionality done so right now. With n f t s,

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<v Speaker 1>for instance, most of n f t s still live

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<v Speaker 1>on Ethereum. There are um on Salona and a few

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<v Speaker 1>other blockchains, but the bulk really is lives on Ethereum.

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<v Speaker 1>And if you look at developer activity um, you know

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<v Speaker 1>Ethereum is definitely one of the very few places to

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<v Speaker 1>be especially in this market. Developers are thinking of a

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<v Speaker 1>whole bunch of new types of applications. A lot of

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<v Speaker 1>them are thinking about, for instance, social type applications with

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<v Speaker 1>coins baked in, and um lots of other interesting use cases.

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<v Speaker 1>During downturns is when they uh sort of come up

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<v Speaker 1>with the next big thing. I think we're still waiting

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<v Speaker 1>to see what it will be after this downturn, but

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<v Speaker 1>that's at least my bed just because there is so

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<v Speaker 1>much development still help happening here. Yeah. Yeah, this is

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<v Speaker 1>kind of like the classic argument for why people are

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<v Speaker 1>excited about one of our favorite buzzwords on the show,

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<v Speaker 1>the underlying technology. All right, thank you so much. It's

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<v Speaker 1>always a pleasure to have you on, Stacy. My pleasure

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<v Speaker 1>is really enjoyed it. That was Bloomberg Report Olga Karif

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<v Speaker 1>you can find more of her reporting on the Bloomberg

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<v Speaker 1>terminal and on Bloomberg dot com, and for more check

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<v Speaker 1>out or twice weekly newsletter Bloomberg Crypto. This is Bloomberg Crypto,

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<v Speaker 1>Send us your comments, questions or suggestions for the show

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<v Speaker 1>to Crypto at Bloomberg dot net. The supervising producer of

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<v Speaker 1>Bloomberg Crypto is Vicky Vergelina. Our senior producer is Janet Babin.

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<v Speaker 1>Stacy Marie schml to be back tomorrow