Deutsche Telekom hopes to cash in on Ethereum Merge

German telco group Deutsche Telekom is making the most of Ethereum’s newly-acquired eco-credentials.

Earlier this month, the world’s second-most-valuable cryptocurrency switched the method it uses for validating transactions on its blockchain from proof-of-work to proof-of-stake.

What does this mean? Well, it’s hard to explain in brief, but if a blockchain is to fulfil its role as a trustless and immutable digital ledger, it requires a complex method of authenticating each new block on the chain and the transactions contained therein.

The two most widely-used methods of doing this are proof-of-work (PoW) and proof-of-stake (PoS). With PoW, the authenticity of a new block is confirmed by a computer solving an incredibly-complex mathematical equation. Known as mining, the reward for this endeavour comes in the form of the blockchain’s native cryptocurrency, such as a Bitcoin, for example. The first miner to solve the equation receives the reward.

Problems with PoW arise when thousands of miners compete with one another to validate the next block, because together they use an incredible amount of electricity. According to Cambridge University’s Centre for Alternative Finance, Bitcoin mining consumes more electricity per year than Kazakhstan.

Until mid-September, the Ethereum blockchain was also based on PoW. Now though, it uses PoS. With PoS, instead of miners you have forgers. They stake their cryptocurrency (in Ethereum’s case that would be Ether) in specially-designated staking wallets hosted on computers – referred to here as validators – in order to have a shot at being chosen to validate – or forge – the next block in the chain. A minimum of 32 Ether is required (worth roughly £38,000) in order to stake, and the more crypto they stake, the bigger chance they have of being chosen to forge the next block. As a reward, they receive a transaction fee.

Now, instead of resource-intensive mining, the blockchain only a requires a network of validators to host staking wallets to confirm each new block. When the Ethereum Foundation switched its consensus mechanism from PoW to PoS – a process it called ‘The Merge’ – it said it reduced the blockchain’s energy consumption by around 99.95 percent.

On Thursday, Deutsche Telekom announced that its T-Systems Multimedia Solutions (MMS) division is supporting the new and environmentally-improved Ethereum blockchain by hosting a validator. It has also partnered with StakeWise, which operates so-called staking pools that enable people who can’t afford £38,000-worth of Ether to combine their resources and stake their crypto in return for a share of the reward.

“We are now taking the next decisive step in the blockchain world and are doing pioneering work here with Ethereum,” said Tobias Jung, Product Manager for Staking at T-Systems MMS.

“With the move to Proof-of-Stake, we expect strong demand and significantly increasing capital flows in the Ethereum network. We are therefore pleased that T-Systems MMS, as an infrastructure provider, is giving our protocol more reliability and making the Ethereum ecosystem safer overall,” added StakeWise co-founder Kirill Kutakov.

DT’s involvement with Ethereum adds a dose of credibility to the much – and sometimes justifiably – maligned blockchain sector. Despite the volatility of crypto prices, its use by scammers and hackers, and the madness of paying thousands of pounds for a cartoon picture of an ape, there are those who are still confident in the inherent value of the underlying technology.

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