What is the Terra Upgrade and Why Should We Care?

Rony Roy

Oct 30, 2021

If you keep up with blockchain and cryptocurrency news, you've probably heard about the Terra update, which occurred in September 2021. The upgrade has been covered by a slew of crypto-focused media outlets, and the value of the Luna token has risen by up to 600 percent as a result.

As the dust settles, some are still wondering about the update in question, why it matters, and what it means for the crypto sector as a whole.

What is the Terra Upgrade?

One of the first things to remember about the 'Terra upgrade' is that Terra is the name of the blockchain that was upgraded, not the upgrade itself. Terra is a layer-one blockchain created by Terraform Labs, a startup based in South Korea.

Terra, which was first released in 2018, is primarily focused on making payments easier for users and uses a delegated proof-of-stake consensus process.

The Columbus-5 upgrade was just completed, and it aimed to improve the blockchain's compatibility with a variety of other networks.

Why Was it Needed?

The Columbus 5 upgrade was necessary for a number of reasons. Terra's existing token burning protocol was first overhauled. The Terra ecosystem revolves around two tokens: UST, a stablecoin pegged to the US dollar, and LUNA, a utility token.

LUNA tokens are frequently destroyed to maintain UST's parity with the US dollar, and the burned tokens are distributed to a community pool. These tokens are burned forever with the Columbus update, resulting in a scarcity of LUNA on the market, driving up its price. This could be one of the reasons why LUNA's stock price has risen after the upgrading.

Integration with the Cosmos Inter-Blockchain Communication (IBC) protocol is another significant element of the upgrade. Terra is based on Cosmos, and as a result of this integration, many of Cosmo's decentralized apps (D'apps) are now Terra compatible.

This was especially crucial for Terra developers, as several apparently postponed the debut of their products until the patch was ready, citing the improved technical compatibility.

This upgrade essentially addresses two primary Terra issues: token supply and technological compatibility. Those who stake their LUNA tokens to validate the Terra network will also gain new benefits. This is due to the fact that fees paid by Terra Station wallet app users will be used to compensate validators.

How Did it Work?

The update occurred on September 30, 2021, and the market price of LUNA skyrocketed by almost 600%, setting a new all-time high. Terra users were likewise ecstatic about this new phase in the ecosystem, which brought with it a slew of additional benefits for users as well as the opportunity for network development.

What Will be the Effect?

The Terra upgrade had an immediate impact on the LUNA token's value, and some projects that had been delayed were ultimately given to the public. The broader and longer-term consequences, on the other hand, are yet to be determined.

Terra is one of the Ethereum killers, a collection of blockchains. The Ethereum killers are a group of blockchains that are thought to be formidable competitors to Ethereum. Ethereum is one of the most popular blockchains, although it has had problems with scalability.

Cardano, Polkadot, and Terra are among the blockchains being considered as potential competitors for Ethereum's position in the market, and this upgrade could be a step in that direction. When going on an industry giant like Ethereum, every bit counts, and LUNA's price increase makes it one of the top tokens among the Ethereum killers.

Its enhanced interoperability also implies that more applications can be created on top of it, potentially luring developers away from Ethereum.

Terra's upgrading is vital not only for the Terra ecosystem, but also for the wider crypto world, as it makes Ethereum a more viable competitor and connects it to the blockchain landscape.