Today (Thursday, September 15), Ethereum merged its existing system with the new Ethereum 2.0 Beacon Chain system, in a move that is expected to decrease energy expenditure by 99.9 per cent.
After years of development and delay, it has finally moved the digital machinery at the core of the second-largest cryptocurrency by market value to a vastly more energy-efficient system.
Ethereum’s developers say the upgrade will make the network – which houses a $60 billion (£54 billion) ecosystem of cryptocurrency exchanges, lending companies, non-fungible token (NFT) marketplaces, and other apps – more secure and scalable, aside from more environmentally friendly.
When the merge officially kicked in at 6.43 am UTC, more than 41,000 people were tuned in on YouTube to an Ethereum Mainnet Merge Viewing Party. After about 15 minutes, the merge officially finalised, meaning it could be confirmed a success.
Over the past decade, the demand for cryptocurrencies has skyrocketed— the total cryptocurrency market cap is now more than $3 trillion (around £2.5 million).
But, as cryptocurrency’s popularity has grown, so has its environmental impact. According to Coinbase, in October 2019, mining “required 12 trillion times more computing power to mine one bitcoin than it did when the first first blocks were mined in January 2009.”
The industry has been under increasing pressure to be environmentally conscious, as soaring energy prices makes crypto mining more expensive.
Now, Ethereum will switch its method of validating cryptocurrency transactions from an energy-intensive system known as proof-of-work to a more energy-efficient system known as proof-of-stake.
But how does crypto mining work, and what is Ethereum’s new eco-friendly option?
What is crypto mining and how does it work?
In simple terms, crypto mining is the process that Bitcoin (and other cryptocurrencies) use to generate new coins and verify new transactions.
Under the proof-of-work system, vast, decentralised networks of computers around the world verify secure blockchains by performing calculations.
Once they solve the complex equations to verify that the blockchain is accurate, computers on the network are rewarded with new coins for contributing their processing power.
Under the proof-of-stake system, the miners will stake their own cryptocurrency in order to validate a new transacation and update the blockchain — and earn a reward as a result.
The users create nodes, and an algorithm selects one node that is responsible for checking or adding the block to the chain. Once other nodes verify that everything looks right, the node is rewarded with more coins.
Why is crypto mining bad for the environment?
Cryptocurrency’s main environmental impact comes from the energy-intensive activities used for each transaction and for mining new coins using the proof-of-work system.
For example, it is estimated that each Bitcoin transaction uses around 2,100 kilowatt hours (kWh). When this energy is supplied from non-renewable energy sources, cryptocurrencies like Bitcoin can generate greenhouse-gas emissions. Bitcoin’s annual carbon footprint is comparable to the release of 97.2 megatonnes of carbon dioxide.
In total, Bitcoin mining uses 91 terawatt-hours (TwH) of electricity each year, which is about 0.5 per cent of the world’s electricity consumption, more than the electricity consumed by all of Finland annually and seven times more than Google consumes each year.
How is proof-of-stake more efficient?
The proof-of-work mechanism uses a significant amount of energy to verify transactions because it requires a number of specifically constructed computers from around the world to participate in the blockchain-verification process.
On the other hand, the proof-of-stake consensus mechanism is considered to be much more efficient because it can be run from a laptop and only uses a marginal amount of energy. Researchers believe that using a proof-of-stake system will drastically reduce energy expenditure.