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May 23, 2022

Ember Nuggets #33 - What the h*ll is Proof of History?

Welcome to Ember Nuggets Issue #33! In this issue, we cover Proof of History and why Solana is much faster and more cost-effective because of it. Also covered are the Ethereum Merge and FTX expanding into equity trading.

Nugget #1: FTX expands into traditional equity trading

FTX, the second largest crypto exchange in the world, plans to expand into stock trading for its US operations. The launch of the program will allow users to invest in US exchange-listed securities, common stocks, and ETFs. Furthermore, the platform will be the first to allow funding of brokerage accounts with the USDC stablecoin.

The platform plans to directly route orders to the NASDAQ, avoid 3rd parties, and will not receive payment for order flow. Payment of order flow is what caused a lot of noise for Robinhood last year when users learned market-makers were compensating Robinhood for data and order flow details.

FTX’s transition to equity trading is natural, as SBF (founder/CEO), starts to bring traditional finance and crypto closer together. Furthermore, it hedges FTX’s downside during crypto bear markets / weak volumes.

Nugget #2: What is Proof of History?

Proof of History is another consensus mechanism, like Proof of Work (used by ETH/BTC). The founders of Solana developed Proof of History to reduce computation time in ordering transactions within a block and help reach consensus faster. To put it simply, the consensus mechanism creates timestamps to ensure the right sequence of events is captured on a block before being pushed to the main chain.

Solana utilizes this mechanism in an effort to improve transaction per second/scalability - a big problem for Ethereum today. The technology is not without its troubles but optically has attracted many users/developers. The main appeal:

  • Transactions per second: SOL has shown support up to 29K, while ETH can do ~15

  • Block time: SOL is under 3 seconds and ETH is roughly 12 seconds

There are a lot of changes and advancements in technology coming to both chains and we will cover those in future posts.

Nugget #3: The Merge Timeline

Ethereum’s biggest development last year was the London Fork (EIP-1559), the first step toward transitioning the chain to Proof of Stake. In 2022, we highly anticipate the Merge where Ethereum will migrate from a PoW to PoS. The Merge was anticipated to occur in June but now seems to be pushed back to August/September.

On a positive note, all the testing and launches on the testnet have seemed to go smoothly and Vitalik reiterated the Merge would occur in 2022. The Merge is a highly complex shift with many impacts on builders, users, and investors in Ethereum. For that reason, we will be working on a full-deep dive to share with you soon. But the big punchline: 99% energy savings, staking of ETH to generate 10-12% APY, and net deflationary tokenomics if demand exceeds a certain limit.

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