Will the Ethereum Merger Reduce Crypto Emissions?

If you type the phrase “the merger” into Google today, you’ll be treated to a countdown: It’s coming up in just over two days, as of this writing. The countdown is ticking to one of the biggest changes the crypto world has ever seen.

The merger refers to the transition of the Ethereum network from a proof-of-work mining system to a proof-of-stake. Ether is second largest cryptocurrency by market capitalization, coming in behind Bitcoin. From January, 80% of the world’s NFTs were on the Ethereum network. When people talk about Web3 applications in crypto, they often talk about development on the Ethereum blockchain or related protocols. This shift could significantly reduce greenhouse gas emissions from blockchain technology, but there are some difficult issues ahead.

What is the difference between proof of work and proof of effort, climate-wise?

The enormous energy consumption of the world’s cryptocurrencies comes from a mining process known as proof of work, which requires significant computing power. In this proof of work system, miners use machines that eat up enormous energy to race to solve an equation; Whoever solves the equation first gets the privilege of creating the next block on the blockchain.

“I like to describe it as a massive game of guess the number, where only the first guesser gets to make the next block for the blockchain,” said Alex de Vries, the founder of Digiconomist, a website that tracks the carbon emissions of cryptocurrencies. “The Bitcoin network currently generates 200 quintillion of these guesses every second of the day — that’s 200 with 18 zeros. What they’re doing is really going, is it 1? Is it 2? Is it 3? But they’re doing it at a very high rate , and hope at some point they find one that fits the bill. If you succeed, you’re lucky: you get to create the next block in the blockchain, and you get the reward associated with it.”

Proof of Stake, meanwhile, works much more like a lottery. Instead of putting lots of machines to work, miners send in some form of collateral – like buying a lottery ticket – for a chance to build the next block on the blockchain.

“As proof of effort, someone is just picked out of the hat at random, which takes no energy at all,” said David Yermack, a professor of finance at New York University’s Stern School of Business.

By switching to the lottery system represented by proof-of-stake, the network will no longer need the energy-sucking computers that grind out equations for proof-of-work systems. Some estimates predict that the merger could be eliminated if completed successfully more than 99% of the network’s carbon footprint. Given that the Ethereum network currently has a carbon footprint roughly the size of Finnishit’s a pretty big upgrade.

What will actually happen this week?

The leadership of the Ethereum blockchain said last week that the network would update its software between September 13 and 15. The update will affect what is known as the difficulty of ethereum – how long it takes for a miner to solve a problem to create a new block on the blockchain. Crypto software is usually updated to ensure that issues can be resolved within a reasonable amount of time. But this week, the Ethereum network will increase what’s known as the currency’s difficulty — making it effectively impossible to mine under the old proof-of-work system.

“The difficulty level will settle to a hugely increased level – the so-called ‘difficulty bomb’ will go off,” Yermack said. “The people who are doing proof of work mining, they will have no choice in terms of how difficult it will be to mine under the old system. They will have to put down their picks and shovels, stop mining the old way and move to the new way.”

This change would theoretically usher in a permanent new way of mining ethereum that doesn’t use all that energy. “Basically, all energy use will go away,” Yermack said. “It’s very cheap to pick someone at random by running a lottery. You compare it to people doing trillions of calculations per second and running hugely powerful computers that take a lot of energy – the whole point is to cut down on energy consumption, and this will make everything disappear.”

Will everything go smoothly?

It depends on several factors. Ethereum’s leadership, De Vries pointed out, has said many times in the past that they would switch to proof of stake, and has not made the switch. But this is the furthest they have come in the process and the first time they have given such a concrete date for switching; as we get closer, it’s safer and safer to assume that something will happen this week.

As with any software change, there may be errors in the actual material of the update that can hamper the transition. But a bigger problem could come from miners who decide not to cooperate with the new way of working. The proof of work method has meant that Ethereum miners, like all cryptocurrency miners, have spent a lot of money investing in physical processors to solve equations – an investment they will not give up with the move to proof of stake.

Miners could create what is known as a fork, or one split off from the main blockchain to create a separate version of the network. Both the Bitcoin and Ethereum networks have already experienced forks that created different versions of the currencies, known as Bitcoin Cash and Ethereum Classic. If enough ether miners adhere to proof of work, it could keep many of the machines that were to be retired after the merger still active and creating emissions.

A team of these miners say they have already dismantled the difficulty bomb and is ready to creat a hard fork. If tThese miners keep their machines running proof of work mining, just on another Ethereum fork – or by simply switching to mining other cryptocurrencies – which could mean many of these energy-hungry miners stay online, working and soaking up energy, even when the rest of the network goes down.

“The miners have every reason to try,” De Vries said. “They’re going to lose all their income, so why not try it?”

If the merger goes well, are all crypto’s environmental problems solved?

Not completely. First, fixing Ethereum’s emissions ignores the real crypto-elephant in the room: Bitcoin. Even after the crypto crash earlier this year, the Bitcoin network is still emits an estimated 71.5 megatons of CO2 per year, far dwarfing Ethereum’s 46.8 megatons.

De Vries said there is a chance that a successful Ethereum transition to proof-of-stake could start a similar process for Bitcoin, especially given a recent attempt by The EU Parliament and leadership in some countries to ban dirty mining. “I fully expect that, at least in Europe, pretty soon a ban on proof of work will be back on the table,” he said.

But Yermack is skeptical. He pointed out that, unlike Ethereum, which has a centralized leadership and recognizable public figures at the helm to help encourage a major transition like the merger, the Bitcoin network is run in a more decentralized way: The founder is known anonymously, and any switch. to prove the stake had to persuade the operators of the thousands of Bitcoin “nodes” to make the change.

– There was a political dimension [Ethereum] going green was never a problem for the people who put Bitcoin out there, he said. “It’s going to be a fantasy of environmentalists that, okay, now Bitcoin can exchange, but it’s a very difficult governance problem.”

If the Bitcoin network eventually goes over, it will be huge for crypto’s emissions — but still not a silver bullet. Cryptocurrency, as De Vries pointed out, is at its core designed to provide stability through a decentralized network — the more machines on it, whether running proof-of-stake or proof-of-work, the more secure the network. It is the opposite of what is going to be needed as the world changes its systems to combat climate change.

“From a blockchain perspective, you always want more machines, but from a climate and efficiency perspective, less is more,” he said. “The thing is, if you put proof-of-work on top of that, you can make things ten thousand times worse. I’m not going to say that moving to proof-of-stake completely solves all the sustainability challenges associated with crypto – I always tell people, if if we didn’t have proof of work and we only had proof of stake today, we’d probably be pretty frustrated with the amount of inefficiency it introduces. But now we have blockchains that run on proof of work, and they make proof of stake look very good.”

Still, De Vries said, any move to proof of stake is more than welcome before discussing these other issues. “Let’s fix the biggest part of the problem first.”