Ethereum crypto overhaul targets environmental impact
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London (AFP) – The world’s second-largest cryptocurrency after bitcoin, ethereum, will soon overhaul its blockchain technology to curb the network’s much-criticized environmental impact.
Ethereum, whose digital unit ether fell in a crypto crash earlier this year, will undergo a major technical revolution in September.
So what’s behind the looming reset – known as the merger – and how will it calm prices and cut power consumption?
Why does crypto use so much energy?
Bitcoin, ethereum and other such currencies are “mined” by solving complex puzzles using powerful computers that consume vast amounts of energy in huge warehouses, often near cheap power sources.
A blockchain is the decentralized and secure ledger for recording these transactions that occur when encrypted codes are sent over a computer network.
Users validate their success via a so-called “proof of work” mechanism that rewards them with cyber currency – but only after they have proven their participation in such energy-intensive mining.
The lucrative crypto industry is worth around $1.0 trillion, despite crashing in the first half of 2022.
However, Ethereum is still down a whopping 55 percent in value so far this year.
Why is ethereum popular?
Nevertheless, Ethereum is considered important because it is where most virtual assets, including headline-grabbing non-fungible tokens (NFTs), are bought and sold.
That’s partly because users can create “smart contracts,” or algorithmic computer code, that perform custom transactions for different functions.
“The Ethereum blockchain is the base layer infrastructure of the majority of the entire crypto ecosystem,” summarized Lennart Ante, CEO and co-founder of the Blockchain Research Lab.
“Everything depends on ethereum,” he told AFP.
“In the last years, there have been other similar platforms like Solana or Cadano, but none of them have this huge network and this huge amount of developers and projects, and historical success.”
Why does it change?
Ethereum’s widespread use makes it even more important to address environmental concerns and change tactics, as those concerns had sparked a partial boycott.
“Proof-of-work mining is environmentally destructive, expensive and inefficient,” summarized digital currency specialist Eswar Prasad, a professor at Cornell University.
Nevertheless, the carbon footprint of a decentralized blockchain system is difficult to assess because electricity sources are not always identified.
What is the switch?
Ethereum creator Vitalik Buterin has planned a switch to a so-called “proof of stake” mechanism from mid-September.
This means that participation no longer requires proof of power usage, and instead relies on staking blocks of ether.
Users will then validate, or effectively stake their currency, to try and win more ether.
Ethereum currently uses around 45 terawatt hours of electricity per year.
Bitcoin in contrast is estimated to use 95 terawatt hours of electricity per year, equivalent to Pakistan’s annual consumption.
What are the advantages and disadvantages?
Experts estimate that the upgrade will use 99 percent less energy than the current setup.
It will therefore allow users to perform faster and more efficient transactions.
– Energy consumption will be close to zero, Ante told AFP.
“You don’t need any of the hardware anymore, just the software.”
At the same time, the new approach is not without risk.
Some users may decide to switch to rival networks where they can still use huge amounts of energy to mine currency.
Prasad also warned that the proof-of-stake method was “not perfect” due to liquidity and governance issues.
© 2022 AFP
