London (AFP) – the second largest cryptocurrencyThe world’s second currency after bitcoin, ethereum, will soon overhaul its blockchain technology to mitigate the network’s much-criticized environmental impact.
Ethereum, whose digital unit ether plunged into a cryptocurrency crash earlier this year, is set to experience a major tech revolution in September.
So what’s the background for the impending reset — known as the “meltdown” — and how will it calm prices and cut electricity consumption?
Why does crypto consume so much energy?
Bitcoin, Ethereum and other similar currencies are “mined” by solving complex puzzles using powerful computers that consume huge amounts of energy in huge warehouses, often near cheap electricity. Also see: Bitcoin: this is why the price of BTC is now falling (again).
A blockchain is the decentralized and secure ledger for recording these transactions, which take place when encrypted codes are sent over a computer network.
Users validate their success through a so-called “proof-of-work” mechanism that rewards them with cryptocurrency, but only after proving that they participate in this type of energy-intensive mining.
The lucrative cryptocurrency industry is estimated to be worth $1 trillion despite collapsing in the first half of 2022.
However, the value of Ethereum has fallen another 55% since the beginning of the year.
Why is Ethereum popular?
Ethereum is nevertheless considered essential because it is where most virtual assets, including the headline-grabbing non-fungible tokens (NFTs), are bought and sold. See the article: FTX announces entry into Web3 gaming and prioritizes “Big Games”..
This is partly because users can create “smart contracts” or algorithmic computer codes, which perform custom transactions for various functions.
“The ethereal blockchain is the base layer infrastructure for most 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.
“In recent years, other similar platforms have emerged, such as Solana or Cadano, but none of them have this huge network, this huge amount of developers and projects, nor any historical success. »
Why is this changing?
The widespread adoption of Ethereum makes it even more important to address environmental concerns and change course, as these concerns had led to a partial boycott. On the same topic: Top 2 cryptocurrencies to buy now and hold for the next decade.
“Proof-of-work mining is environmentally destructive, costly and inefficient,” sums up digital currency specialist Eswar Prasad, a professor at Cornell University.
However, the carbon footprint of a decentralized blockchain system is difficult to estimate 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 consumption, but is based on staking ether blocks.
Users will then validate or actually wager their currency in an attempt to earn more Ether.
Ethereum currently consumes about 45 terawatt hours of electricity per year.
By contrast, bitcoin consumes an estimated 95 terawatt hours of electricity per year, which is equivalent to Pakistan’s annual consumption.
What are the pros and cons?
Experts estimate that the modernization will consume 99% less energy than the current installation.
It would therefore enable users to transact faster and more efficiently.
“The energy consumption would be close to zero,” Ante told AFP.
“You no longer need the hardware, just the software. »
At the same time, this new approach is not without risks.
Some users may decide to switch to competing networks where they can still use huge amounts of energy to mine currencies.
Prasad also warned that the proof-of-stake method was “not perfect” due to liquidity and governance issues.
Be vigilant and consult your financial advisor before making any investment decision. Mirror-Mag cannot be held responsible in case of bad investments. Before using any third party service, do your own research.