Ethereum Goes Green
The long-awaited change for cryptocurrency Ethereum has finally happened. Known as The Merge, the process has been updated from proof-of-work to proof-of-stake. This has come with great applause from environmentalists as it comes with a much lower energy consumption.
Ethereum has changed from the established proof-of-work system and moved over to the proof-of-stake model. They’re both systems that use algorithms to keep blockchains secure to enable new transactions for users.
There is no central authority that manages the value of cryptocurrency, which is what makes it a decentralised system. Because of this, it needs to be verified by computers to make the transactions visible. The algorithms work by allowing participants to prove they have supplied a resource to the blockchain, such as energy, computing power or money.
Proof-of-work is heavily energy-intensive as it requires the use of competing miners. Trial and error problems are solved for authentication, adding the digital currency to the blockchain in return for compensation. It requires fast computers and large amounts of power. The bigger the network grows, the slower the transaction times become under this model.
Proof-of-stake, on the other hand, requires miners to pledge an investment in the digital currency before validating transactions. Weighted algorithms, based on the amount of stake and validation experience, randomly choose who validates each transaction.
Once a miner validates a block, it’s added to the chain and the miner receives cryptocurrency as well as their original stake. If not done so correctly, the stake could be lost. This secures the system by putting the miner’s stake at risk.
Ethereum claims that using proof-of-stake reduces energy consumption of the cryptocurrency by 99.95%. Transactions will be quicker as well, which uses less energy and is kinder to the planet.
To prove how environmentally-friendly proof-of-stake is compared to a proof-of-work system, studies from the University of Cambridge have looked at Bitcoin, which uses the established proof-of-work system. They estimate that Bitcoin mining consumes about 0.39% of the world’s annual electricity, which is more than the yearly demand of several countries, including Finland and Belgium.
Such a power-hungry system is enough to cover the consumption of all kettles in the UK for 21 years. If we take Ethereum’s statistic of a 99.95% reduction in electricity usage at face value, then the proof-of-stake system will only run kettles for just over a year.
While the long term effects of the proof-of-stake system are yet to be seen, could this be the start of a transition to greener means for all cryptocurrencies? Outmoded systems tend to be abandoned, and with Bitcoin now the largest cryptocurrency using the proof-of-work mechanism, it may only be a matter of time before they too move to green credentials.