To reduce the network’s much-criticized environmental impact, Ethereum, the second-largest cryptocurrency in the world after Bitcoin, will soon update its blockchain technology. In September, Ethereum is risking it all with a long-awaited technical overhaul, ETH 2.0, switching the network from a Proof of Work (PoW) system to a Proof of Stake system (PoS). This network upgrade aims to make Ethereum a more energy-efficient and eco-friendly blockchain that can scale.
The Ethereum Foundation and other news outlets have reported that the upgrade will reduce Ethereum’s energy consumption by 99%. Therefore, it would enable consumers to carry out transactions more quickly and effectively. According to Ante, “the energy consumption would be almost zero. and the software will be used only.” Meanwhile, other reports claim that Ethereum will remain the most energy inefficient layer one blockchain available.
What is the Merge?
Ethereum’s creator, Vitalik Buterin, announced that the “proof of stake” method would be implemented in the middle of September. As a result, participation will depend more on staking ether blocks than providing proof of electricity use. Users will then validate or stake their currency to earn more ether. Currently, the annual electricity consumption of Ethereum is about 45 terawatt hours. In contrast, the estimated yearly electricity use of Bitcoin is 95 terawatt hours. However, it is worth noting that sources of electricity are hard to track for a decentralized blockchain. Thus calculating a carbon footprint is all the more difficult.
Why is crypto so energy-intensive?
Bitcoin, Ethereum, and other Proof of Work (PoW) digital currencies are “mined” by utilizing powerful computers to solve intricate puzzles in enormous warehouses, frequently close to inexpensive electricity supplies. Users verify their success using a “proof of work” system, which rewards them with virtual money—but only after they have demonstrated their involvement in such energy-intensive mining. Professor Eswar Prasad, an expert in digital currencies, stated, “Proof-of-work mining is environmentally damaging, expensive, and inefficient.”
Risks of the Merge
The innovative approach is not without risks. Some users might switch to other networks where they can continue to mine cash with a lot of energy. In addition, some speculate that the proof-of-stake approach is still “not perfect” due to issues with governance and liquidity.
One study found that the magnitude of environmental consumption and the number of active network validators had the most significant interaction. Such findings would indicate that Ethereum 2.0 will continue to encounter ecological concerns.
Despite concerns, experts recommend and prefer proof of stake over proof of work consensus mechanisms for a blockchain. Dr. Paolo Tasca states, “The advantages of proof-of-stake are currently well known and understood in the blockchain sector. Investors and adopters need to look for this when choosing their preferred network. These results make it quite evident that we must continue looking for potential environmental effects.”
According to Ethereum 2.0 principal developer Vitalik Buterin, there will be a 12-second block delay between uploading transaction data blocks, giving Ethereum 2.0 a finality time of six to twelve minutes. That hardly qualifies as real-time payments.
Assumptions made about the environmentally friendly impacts of Ethereum 2.0 assume two things: one, that the volume of transactions on the blockchain will grow exponentially – and two, that those transactions will consume less energy than the previous consensus mechanism. Time will tell if the impending integration will preserve Ethereum’s position as the leading blockchain and propel it forward into a highly successful payments blockchain.