With the help of Derek Robertson

Yesterday, the Ethereum network pulled off the latest step in its evolution with the successful completion of its “Shapella” upgrade.

The upgrade, which allows stakers — people who lock in their Ether to help ensure reliable functioning of the network — to unlock and potentially spend or sell their tokens for the first time, marks a milestone in the network’s transition to proof-of-stake governance. That method gives power over network functions to token holders, in a way roughly analogous to the voting power of a corporation’s shareholders, and is the leading alternative to proof-of-work, the method pioneered by Bitcoin in which network functioning is maintained by computers hunting 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-tinged rivalry between the proof-of-stake method and the energy-intensive proof-of-work, with backers of the two largest crypto networks each making the case that their chosen method is the better one on which to build next-generation monetary and financial systems.

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

Establishment institutions like the World Economic Forum, have 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 are prone to concentrating power over time in the hands of a few wealthy token-holders.

What does yesterday’s upgrade mean for this debate?

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

Now that stakers can leave, will the network continue to attract enough validators to maintain reliable network functioning? The smaller the pool of validators, the more vulnerable the network becomes to centralized control. So, what’s happening so far?

• Initial results have been encouraging, according to Thomas Mattimore, head of platform at Reserve Protocol, which builds stablecoin products on Ethereum. “I’m personally not concerned,” he told DFD, after reviewing on-chain data that showed most validators lining up for early withdrawals were only removing a portion of their staked Ether.

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

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

Controversy over Bitcoin mining continues to play out at the state level.

While broader debates over crypto mining often center on ideological and environmental concerns, at the state and local level they often come down to pragmatic considerations like tax revenue and mining facilities’ effects on the power grid.

Debates remain active in several state legislatures. Most recently:

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

• Yesterday, Texas’ Republican-controlled Senate voted overwhelmingly to pass a bill limiting the incentives for crypto miners participating in the state’s demand response program, which has rewarded Bitcoin miners that shut down during periods of heightened stress on the electric grid. The bill now goes to the Texas House.

Public opinion also remains a battlefield.

• Last week, the New York Times published an in-depth investigation of U.S. Bitcoin miners, which scrutinized Texas’s tax incentives, in addition to 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 cryptocurrency Ripple — by unveiling an 11-foot installation titled “Skull of Satoshi,” meant to convey Bitcoin’s environmental cost.

Public pressure could succeed in stigmatizing crypto mining and lead to more restrictions on the industry in some jurisdictions, but there is no indication 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 attached to the method lately: As DFD has noted, a Space Force major’s theory-heavy book arguing that the Pentagon should mine Bitcoin became a surprise hit on Amazon after its February publication.

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 this fighting may actually lead to something productive.

Following that uproar, the artist behind the skull installation, Benjamin Von Wong, distanced himself from Greenpeace’s goal of ditching proof-of-work in a lengthy Twitter thread, and suggested another resolution to the fight.

He encouraged Bitcoin miners to live up to industry talking points about sustainability: “If BTC miners help to invest in renewables like wind & solar to move the world off a reliance on fossil fuels then the GP campaign will have nothing to run on.”

POLITICO’s Clothilde Goujard reported for Pro subscribers today that the European Data Protection Board, the body responsible for applying the European Union’s data privacy law, is setting up a task force to address how to enforce European laws on OpenAI.

This has become a pressing issue, given the company doesn’t have a European office. That means that any EU member state can investigate or enforce bans on its technology individually, as Italy did last week citing alleged privacy violations. OpenAI founder Sam Altman said on Twitter that “We of course defer to the Italian government and have ceased offering ChatGPT in Italy (though we think we are following 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 be able to use his own product sooner than he might think: As our European counterparts also reported yesterday, Italy’s data protection authority gave OpenAI until the end of April to meet various requirements and have access to ChatGPT in the country restored. — Derek Robertson

Sen. Majority Leader Chuck Schumer (D-N.Y.) announced today the Senate’s first concerted legislative effort to tackle AI, describing in a statement “a new regulatory regime that would prevent potentially catastrophic damage to our country while simultaneously making sure the U.S. advances 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, akin to the lengthy 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 several committees will 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 full, as first reported in Axios this morning. Schumer’s own statement lists “four guardrails” around AI deployment legislators will look at, describing how “The first three guardrails – Who, Where, and How – will inform users, give the government the data needed to properly regulate AI technology, and reduce potential harm,” and “The final guardrail – 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

• U.S. law enforcement has dealt some serious blows to crypto’s claims to anonymity.
• Amazon is getting into the generative AI game.
• What are AI tools already doing to pop culture?
• Oxford philosopher Nick Bostrom: AI sentience could be a matter of degree.
• Bots haven’t quite yet mastered the art of closing a sale like humans.

Stay in touch with the whole team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Mohar Chatterjee ([email protected]); Steve Heuser ([email protected]); and Benton Ives ([email protected]). Follow us @DigitalFuture on Twitter.

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