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London (AFP) – The world’s second-largest cryptocurrency after bitcoin, Ethereum, will soon overhaul its blockchain technology to limit the network’s much-criticized environmental impact.
Ethereum, whose digital unit ether fell in a crypto crash earlier this year, will undergo a major technical revolution in September.
So what is the backdrop for the impending reset – known as the meltdown – and how will it calm prices and reduce electricity consumption?
Why does crypto consume so much energy?
Bitcoin, Ethereum and other such currencies are “mined” by solving complex puzzles using powerful computers that consume huge amounts of energy in vast warehouses, often near sources cheap electricity.
A blockchain is the decentralized and secure ledger to record these transactions, which occur when encrypted codes are transmitted over a computer network.
Users validate their success via a so-called “proof of work” mechanism that rewards them with cyber-currency – but only after proving their participation in such energy-intensive mining.
The lucrative crypto industry is worth around $1.0 trillion, despite collapsing in the first half of 2022.
However, Ethereum is still down 55% in value so far this year.
Why is Ethereum popular?
Ethereum is nevertheless considered vital because it is where most virtual assets, including the headline-grabbing non-fungible tokens (NFTs), are bought and sold.
This is partly because users can create “smart contracts” or algorithmic computer code, which perform custom transactions for different functions.
“The Ethereum blockchain is the base layer infrastructure for the majority of the entire crypto ecosystem,” summarized Lennart Ante, CEO and co-founder of the Blockchain Research Lab.
“It’s all about Ethereum,” he told AFP.
“Over the past few years, there have been other similar platforms such as Solana or Cadano, but none of them have this huge network and this huge amount of developers and projects, and historical success .”
Why does it change?
The widespread adoption of Ethereum makes it even more important to address environmental concerns and change course, as these concerns had triggered a partial boycott.
“Proof-of-work mining is environmentally destructive, expensive and inefficient,” summarized digital currency specialist Eswar Prasad, a professor at Cornell University.
However, the carbon footprint of a decentralized blockchain system is difficult to assess because the sources of electricity are not always identified.
What is the switch?
Ethereum creator Vitalik Buterin plans to move to a so-called “proof-of-stake” mechanism from mid-September.
This means that participation no longer requires proof of electricity use and instead relies on staking ether blocks.
Users will then validate, or actually bet their currency, in an attempt to earn more Ether.
Ethereum currently consumes around 45 terawatt hours of energy per year.
It is estimated that Bitcoin, on the other hand, uses 95 terawatt hours of energy per year, which is equivalent to the annual consumption of Pakistan.
What are the advantages and disadvantages ?
Experts estimate that the upgrade will use 99% less energy than the current configuration.
This would therefore allow users to execute faster and more efficient transactions.
“The energy consumption would be close to zero,” Ante told AFP.
“You no longer need hardware, only software.”
At the same time, the new approach is not without risks.
Some users might decide to switch to rival networks where they can still use huge amounts of power to mine currency.
Prasad also warned that the proof-of-stake method was “not perfect” due to liquidity and governance issues.
© 2022 AFP