To mine or not to mine? Crypto rivalry heats up.

With help from Derek Robertson

Yesterday the Ethereum network pulled off the final step in development with the successful completion of the “Shapella” upgrade.

The upgrade, which allows stakers – people who lock their Ether to ensure reliable operation of the network – to unlock and potentially use or sell their tokens for the first time, marks a milestone in the network’s transition to proof-of-stake governance. This method gives power over network functions to token holders, in a way roughly analogous to the voting power of a company’s shareholders, and is the leading alternative to proof-of-work, the method pioneered by Bitcoin where network function is maintained by computers. looking for the solution to a puzzle.

The results of yesterday’s upgrade will be closely watched. As crypto markets have seen a resurgence in recent weeks, so has the politically charged rivalry between the proof-of-stake method and the energy-intensive proof-of-work, with backers of the two biggest crypto networks making the case that their method of choice is the best to build the next generation monetary and financial systems on.

At the macro level, political battles over proof-of-work versus proof-of-effort tend to fall along establishment-versus-populist fault lines.

Establishment institutions such as World Economic Forumhave endorsed proof-of-stake as a greener alternative to Bitcoin mining, while anti-establishment Bitcoiners argue that proof-of-stake systems offer a less reliable security guarantee and tend to concentrate power over time in the hands of a few wealthy token holders.

What does yesterday’s upgrade mean for this debate?

The upgrade raises concerns that stakers’ Ether will remain locked up indefinitely, but it also poses a new set of tests for the proof-of-stake system.

Now that actors can leave, will the network continue to attract enough validators to maintain reliable network function? The smaller the pool of validators, the more vulnerable the network becomes to centralized control. So, what has happened so far?

• Initial results have been encouraging, according to Thomas Mattimore, platform manager at Reserve Protocol, which builds stablecoin products on Ethereum. “I’m personally not worried,” he told DFD, after review data on the chain which showed that most validators who lined up for early withdrawals only removed part of their stake Ether.

• The other major source of withdrawals, he said, was Kraken, the world’s third-largest crypto exchange, which in February agreed to end its staking service after the SEC found it constituted an unregistered securities offering.

Further regulatory action against centralized staking services has the potential to shake up Ethereum’s network governance, but it is Bitcoin’s proof-of-work system that faces greater external political pressure.

The Bitcoin mining controversy continues to play out at the state level.

While broader debates about cryptomining often center on ideological and environmental considerations, at the state and local level they often come down to pragmatic considerations such as tax revenue and mining facilities’ effects on the power grid.

Debates remain active in several state legislatures. Recently:

• On Friday, Arkansas’ Republican-controlled legislature adopted a bill that prohibits local governments from measures that treat crypto mining facilities differently than other types of data centers, sending it to Governor Sarah Huckabee Sanders’ desk.

• Yesterday, Texas’ Republican-controlled Senate voted overwhelmingly in favor pass a bill limit the incentives for crypto miners participating in the government’s demand response program, which has rewarded Bitcoin miners who shut down during periods of increased stress on the electrical grid. The bill now goes to the Texas House.

Public opinion also remains a battleground.

• Last week, the New York Times published a in depth survey of US Bitcoin miners, which examined Texas’ tax incentives, as well as the industry’s effects on carbon emissions and energy prices.

• Last month, Greenpeace renewed its campaign against proof-of-work – launched in conjunction with a co-founder of the cryptocurrency Ripple – by unveiling an 11-foot installation titled “Skull of Satoshi”, meant to convey Bitcoin’s environmental costs.

Public pressure can be successful in stigmatizing cryptomining and leading to more restrictions on the industry in some jurisdictions, but there is no indication that the Bitcoin network is going to abandon proof-of-work, the stated goal of the Greenpeace campaign.

If anything, proof-of-work backers are growing more linked to the method lately: As DFD has noted, a space force major’s theory-heavy book that argued for the Pentagon to mine Bitcoin became. a surprise hit on Amazon after publication in February.

And in response to the latest Greenpeace salvo, Bitcoiners appropriated the Skull of Satoshi for their own pro-Bitcoin propaganda as part of their noisy retort to the pressure campaign.

Who knows? All of these struggles can actually lead to something productive.

After that uproar, the artist behind the skull installation, Benjamin Von Wong, distanced himself from Greenpeace’s goal of dropping proof of work in a long Twitter threadand proposed another solution to the struggle.

He urged Bitcoin miners to live up to the industry’s sustainability talk: “If BTC miners help invest in renewable energy sources like wind and solar to move the world away from relying on fossil fuels, the GP campaign will have nothing to drive on.”

POLITICO’s Clothilde Goujard reported for Pro subscribers today that the European Data Protection Board, the body responsible for applying EU data protection legislation, is setting up a working group to address how to enforce European laws on OpenAI.

This has become an urgent question, since the company does not have a European office. That means any EU member state can investigate or enforce bans on its technology individually, which Italy did last week citing alleged privacy violations. OpenAI founder Sam Altman said on Twitter that “We are of course addressing the Italian government and have stopped offering ChatGPT in Italy (although we believe we comply with all privacy laws),” and that

“Italy is one of my favorite countries and I look forward to visiting again soon!”

And if he does, he might use his own product sooner than he might think: Like our European counterparts also reported yesterday, Italy’s data protection authority gave OpenAI until the end of April to meet various requirements and get access to ChatGPT in the country restored. — Derek Robertson

Sen. Majority Leader Chuck Schumer (DN.Y.) today announced the Senate’s first concerted legislative effort to tackle AI, describing in a statement “a new regulatory regime that will prevent potentially catastrophic damage to our country while ensuring that the United States moves forward and leads in this transformative technology.”

As POLITICO’s Brendan Bordelon reported just this afternoon for Pro subscribers, the plan is light on details, but it’s just the beginning of a broader effort, similar to the long process of shepherding last year’s CHIPS and Science Act through Congress. Schumer spokesperson Alex Nguyen suggested to Brendan that the plans are still in the “fact-finding stage” and could continue through the next Congress or even beyond, and that multiple committees would be involved, particularly the Senate Commerce Committee.

Still, the effort is being “treated as urgent and time-sensitive,” according to someone briefed on the proposal in its entirety, as first reported in Axios this morning. Schumer’s own statement lists “four railings” around AI deployment lawmakers will look at, describing how “The first three railings — who, where and how — will inform users, give governments the data needed to properly regulate AI technology , and reduce the potential. harm,” and “The final railing—Protect—will focus on aligning these systems with American values ​​and ensuring that AI developers deliver on their promise to create a better world.” -Derek Robertson