Ethereum blockchain set for ‘monumental’ overhaul

An army of computer programmers spread across the globe will try out one of the biggest software upgrades the crypto sector has ever seen this week to reduce environmentally friendly energy consumption.

Developers have spent years working on a more energy-efficient version of the ethereum blockchain, a digital ledger that underpins a multibillion-dollar ecosystem of cryptocurrencies, digital tokens (NFTs), games and apps.

Ethereum – the second most important blockchain after bitcoin – burns more power every year than New Zealand.

Experts say the transition, which is expected to take place between Tuesday and Thursday, will reduce energy consumption by more than 99 percent.

Enthusiasts hope a greener ethereum will spur wider use, particularly as a way to enable banks to automate transactions and other processes.

But so far the technology has largely been used to create speculative financial products.

ING bank said in a recent note that the transition could help ethereum gain acceptance among policymakers and regulators.

“This in turn could give a boost to traditional financial institutions’ willingness to develop ethereum-based services,” the bank said.

“Technological Milestone”

The transition, called the “merger,” will change the way transactions are logged.

Currently, so-called cryptominers use energy-guzzling rigs of computers to solve puzzles that reward them with new coins – a system known as “proof of work”.

The new system will get rid of these miners and their computer stacks overnight.

Instead, “validators” must put up 32 ether (worth $55,000) – ethereum’s cryptocurrency – to participate in the new “proof of stake” system where they earn rewards for their work.

But the merger process will be risky.

Blockchain company Consensys called it a “monumental technological milestone” and the biggest update to ethereum since it launched in 2015.

Critics have questioned whether such an upgrade would go off without incident, given the sector’s history of instability.

Ethereum went offline in May for three hours when a new NFT project triggered a surge in buyers that overwhelmed the network.

Several exchanges and crypto companies said they would halt transactions during the merger process.

“Decentralized and complicated”

The upgrade also faces a possible revolt from crypto mining companies whose operations would be severely damaged.

They could try to hijack the process or create a “fork”, basically a smaller blockchain that would continue with the old mechanism.

And even if the “merger” is successful, ethereum will still face major hurdles before it can be more widely adopted.

For example, it is expensive to use and the update will not reduce the fees.

And the broader crypto sector is plagued by wildly fluctuating prices, security flaws and a host of scams.

Crypto lawyer Charles Kerrigan of the firm CMS told AFP that ethereum was “decentralized and complicated” and had not yet been tested enough for governments and banks to get on board.

“There have been questions about how easily it can handle upgrades of the kind that traditional software vendors provide to customers,” he said.

“A successful merger will answer these questions.”

© 2022 AFP