A complex software modification to the Ethereum cryptocurrency was completed on Wednesday that has the potential to significantly reduce its energy consumption and resulting climate effects.
With the change enacted on Wednesday evening, ethereum — the world’s second most valuable cryptocurrency after bitcoin — has effectively eliminated the energy-intensive task of “mining” new coins on its blockchain. Mining requires huge computing power, which translates into huge energy consumption and, in many areas, higher greenhouse gas emissions in older power plants.
By itself, however, changing Ethereum will not eliminate the expected environmental impact of crypto, although it is expected to help a great deal. Bitcoin backers have so far shown little interest in getting rid of mining.
Cryptocurrency is a type of digital currency secured by encryption in a publicly visible and claimed to be unalterable manner. By using these currencies, people can conduct direct financial transactions without the need for a bank or other financial intermediaries.
They operate on constructs called blockchains, which consist of digitally signed transaction records that document each time cryptocurrency is transferred or spent. Blockchains are also known as distributed ledgers because synchronized copies are stored on computers around the world; these copies also make it extremely difficult to modify, insert or destroy blockchain records.
Researchers who have studied cryptocurrency are alarmed by its enormous energy consumption. A recent report from the White House Office of Science and Technology Policy cited research findings that as of August 2022, annual electricity consumption for cryptocurrency exceeded that of individual countries such as Argentina or Australia.
This problem, however, is not inherent to cryptocurrency. Most of this energy is used for mining, a computationally intensive process to verify blockchain transactions that also distributes new coins as rewards to competing miners. Crypto mining favors well-resourced groups that can assemble many specialized computers and supply them with electricity at the best possible price.
This can have unexpected external effects. Before cryptocurrency values plummeted earlier this year, demand for computer graphics cards soared, driving up prices and emptying store shelves – much to the chagrin of gamers. These cards have proven to be ideal for crypto mining rigs. Cities and states in the US have also pushed back on crypto firms’ plans to build mining sites in their jurisdictions, citing not only energy consumption but also noise.
Merger to reduce IT needs
Mainly, the software update eliminates the need for miners. Where ethereum previously pitted miners against each other to solve complex cryptographic puzzles and earn new coins as rewards, now it requires parties that want to help validate transactions to put some skin in the game by “staking”. a certain amount of ether, the ethereum coin.
The parties in this pool are chosen at random to validate a block of transactions; a larger group of ether holders will then verify their work. Successful validators receive an ether reward that is usually proportional to the size of their stake and the length of time they have held it.
Ethereum’s new validation setup is called a “proof of stake” system, while mining-based cryptocurrencies like bitcoin are supposed to use “proof of work.”
And we are done!
Happy merging everyone. This is a great moment for the Ethereum ecosystem. Everyone who helped make the merger happen should be very proud today.
The Ethereum merger doesn’t sound like much, but it could have dramatic effects. Alex de Vries, an economist and founder of the Digiconomist consultancy which focuses on the environmental impact of cryptocurrencies, calculates that the change will lead to energy savings of between 99% and 99.99% for Ethereum, although De Vries points out that his work has not yet been peer-reviewed.
“It’s a very small change to the code that is going to have a very big impact on environmental sustainability,” he said. Before the merger, Ethereum was performing up to 900 billion calculations per second that are no longer needed.
According to his calculations, Ethereum was responsible for around 44 million metric tons of carbon dioxide emissions per year. If he is correct, these will now be significantly reduced.
On the other hand, Bitcoin’s energy consumption and greenhouse gas emissions are significantly greater than Ethereum’s – and no bitcoin mining abandonment seems to have gained much ground.