The Ethereum blockchain has undergone a major software upgrade, which has drastically reduced energy use, the inventor and co-founder tweeted on Thursday.
The new system will use 99.95 percent less energy, according to the Ethereum Foundation. The upgrade, which changes how transactions happen and how ether tokens are created, could give Ethereum a big advantage as it tries to outpace rival blockchain bitcoin.
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“We believe this is an important moment that will see ETH outperform the broader crypto market for some time,” said Richard Usher, head of over-the-counter trading at London-based crypto firm BCB Group.
Most blockchains consume large amounts of energy and have come under fire from environmentalists and some investors.
Before the software upgrade, which is known as the merge, a single transaction on Ethereum used as much electricity as the average American household uses in a week, according to researcher Digiconomist.
With the software upgrade, Ethereum has moved from a “proof of work” system, where energy-intensive computers validate transactions by solving complex mathematical problems, to a “proof of stake” system, where individuals and companies act as validators using their ether as security, to win newly created tokens.
“Happy merging everyone,” inventor Vitalik Buterin said in a tweet. “This is a huge moment for the Ethereum ecosystem.”
Ethereum was born in 2013. Supporters say it will form the backbone of much of the much-hyped but still unrealized “Web3” vision of an internet where crypto-technology is central to applications and commerce.
It operates platforms involving crypto offshoots such as decentralized finance and non-fungible tokens, and is used in so-called “smart contracts” – blockchain-based agreements considered to have uses in traditional finance and other industries.
The cryptocurrency ether was little changed at $1,608 as of 0857 GMT.
Investors are betting ahead of Merge that the upgrade will strengthen the price of the ether token. Ether is up around 85 percent from its June lows, outpacing bigger rival bitcoin’s gain of 15 percent. Overall, however, cryptocurrencies have suffered this year, with both bitcoin and ether down around 55 percent.
Ether took market share from bitcoin ahead of the merger, and now accounts for about a fifth of the $1 trillion crypto market. Bitcoin’s share has fallen to 39.1 percent from this year’s peak of 47.5 percent in mid-June.
In addition to energy consumption, high costs and slow transaction times are key issues facing the Ethereum network. Merge will not immediately address these issues, although some analysts say it lays the groundwork for Ethereum’s expansion.
The strengthening of Ethereum’s environmental, social and corporate governance (ESG) credentials “would be good for regulatory institutions that want to start exploring the Ethereum ecosystem,” said Marc Arjoon, ethereum research analyst at digital asset manager CoinShares.
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