Ethereum’s “Merge” Is a Big Deal for Crypto—and the Planet

Cryptocurrencies are often criticized for being bad for the planet. Every year, bitcoin mining consumes more energy than Belgium, according to the University of Cambridge’s Bitcoin Electricity Consumption Index. Ethereum’s consumption is typically pegged at about a third of Bitcoin’s, although estimates vary. Although around 39 percent of the energy that goes into bitcoin mining comes from renewable sources, according to a 2020 Cambridge report, the industry’s carbon footprint is generally considered unacceptable. According to a 2019 study, bitcoin mining belches between 22 and 22.9 million tons of CO2₂ each year.

The problem is that specialized computers powered by eye-popping amounts of electricity are needed to process and verify transactions of cryptocurrencies like bitcoin or Ethereum’s ether on blockchains, via a process called proof-of-work mining. In this system, thousands of computers around the world (but mostly in the US, China, Kazakhstan, and Russia) compete with each other to solve a mathematical puzzle and gain the privilege of adding a group of transactions, or “blocks,” to the ledger. The miner who wins wins a crypto reward.

Most Bitcoin advocates will tell you that proof-of-work mining is essential to keeping the network secure, and would never dream of tampering with something first conceived by the currency’s pseudonymous creator, Satoshi Nakamoto. But Ethereum is on the verge of a monumental change that will significantly reduce its environmental impact.

Ethereum, launched in 2015 by a 21-year-old kid named Vitalik Buterin, is replacing proof-of-work mining with an alternative system known as proof of stake, which doesn’t require energy-guzzling computers. The Ethereum Foundation, a research nonprofit spearheading updates and improvements to the Ethereum blockchain, says the shift will reduce the network’s energy consumption by 99.5 percent. The big switcheroo is known as the merger – and it’s scheduled to take place on September 14.

What is the merger?

The merger hinges on merging Ethereum’s current proof-of-work blockchain with the Beacon Chain, a proof-of-stake blockchain that was launched in December 2020 but has so far not processed any transactions.

A couple of upgrades, scheduled to launch in the next few weeks, will lay the groundwork for a segue from one chain to the other. Justin Drake, a researcher at the Ethereum Foundation, says the way the process has been structured can be compared to a car switching from an internal combustion engine to an electric one. “How do we do it? Step one: We install an electric motor in parallel with the gasoline engine. And then – step two – we connect the wheels to the electric motor and turn off the petrol engine. That is exactly what will happen in the merger, says Drake. “We’ve had this parallel engine for the Beacon Chain for a year and a half – and now the old ‘gasoline’ proof engine is going to be shut down.”

After years of delays, the Ethereum community is optimistic that the long-awaited shift will finally happen, following a successful dry run on a test blockchain, called the Goerli chain, on August 10. The fact that Buterin has a book with the title Proof of effort coming out in September is probably a coincidence.

How will Ethereum’s Proof of Stake work?

Talking about proof of stake is a bit like talking about French cheese: there are countless varieties – with hundreds of cryptocurrencies claiming to use some version of the process. At its most basic, however, proof of stake is based on the idea of ​​securing a network through incentives rather than hardware.

In this scenario, you don’t need an expensive mining computer to participate in the network: you can use your laptop to put down a “stake” – a certain amount of cryptocurrency locked in the network. It gives you the chance to be chosen, usually via a random process, to validate a certain block and earn crypto rewards and fees. If you try to game the system, for example by taking a block, the network will penalize you and destroy, or “cut”, some or all of your stake.