Ethereum moves to Proof of Stake, and that will change everything

By completely changing its model by September 20, the world’s second-largest cryptocurrency could launch a major paradigm shift.

The world of cryptocurrencies is about to experience a major generational upheaval. Indeed, Ethereum, the second cryptocurrency in the world behind the essential Bitcoin, is preparing to completely change its technological model to switch to Proof of Stake (PoS) – a transition that should significantly reduce its environmental impact and could sign the beginning of a large-scale transition across this industry.

Indeed, the main criticism of these digital-only currencies concerns their catastrophic contribution to global warming. According to work published by the prestigious Columbia University in May 2022, Bitcoin would consume the equivalent of 150 terawatt hours of electricity per year… more than all of Argentina with its 45 million inhabitants.

And all that electricity has to be produced somewhere; although some observers believe that 40-75% of this energy would come from renewable sources, the carbon impact of bitcoin globally remains very significant. The observation is essentially the same for most other cryptocurrencies, each on its own scale.

The Proof of Work model, an energy abyss

This energy consumption is directly linked to the main importance of cryptocurrencies, which is the decentralized structure on which they rest – the famous blockchain. In practice, it is a trade repository. Let’s take the example of Bitcoin ; every time a user wants to transfer something, the transaction is verified by the other users before it is registered in the blockchain in the form of a new block.

However, to add this famous block you must first have a key which can be obtained by: solve a math equation. And the first member of the blockchain who manages to authenticate and record a transaction in this virtual ledger is rewarded for his contribution directly in Bitcoins.

With a very powerful system, we can therefore solve these equations in industrial quantities in the hope of winning the bitcoins in question; we are talking about mining. The problem is that this principle, called Proof-of-work, has gradually led to the emergence of a true race on a planetary scale.

Since only the first computer to solve the problem can win this much sought-after lottery ticket, the miners have gradually equipped themselves with increasingly powerful machines; Today, there are stacks of cryptocurrency “farms” where stacks of serially connected graphics cards grind equations all day long.

These powerful machines are: very energy-intensive by definition, which is already exploding the carbon impact of these technologies. The other concern is that any electricity consumed by the other miners who lost this race will be absolutely useless, apart from warming up hundreds of computers. And in the current context, it becomes very important to find a new model that is more relevant to our environmental goals.

The Proof of Stake, a model that looks to the future

And this is exactly what the Ethereum Foundation wants to do with its transition to Proof of stake. Here, the process that allows the entire blockchain to come to consensus is different. Participants must wager a certain number of tokens (“effort”“) for a chance to add blocks to the blockchain.

In practice, this amount serves as a deposit; if the user (we speak of “validator” in this particular case) is guilty of dubious manipulations, he can immediately lose his entire bet. He then has every interest in respecting the integrity of the blockchain.

This approach presents many advantages and some major flaws that we will not go into detail here; the most important element of this is undoubtedly the enormous energy savings it allows.

With the Proof-of-stake model, there is no longer a need to put many overpowered machines in the service of a process where most of the energy is sacrificed; any user can hope to get their hands on a token. Just leave a ” effort which in the case of Ethereum equates to 32 ETH (which is still just over $50,000 at the current price).

Towards a complete transformation of the crypto ecosystem?

Ethereum is not the first virtual currency to start this amazing conversion; but given its status as a leader of the crypto ecosystem, it is still an important step in the history of this technology.

According to the Ethereum Foundation, this cryptocurrency consumes about 112 TWh per year. Or the equivalent of the Netherlands. Its ecological footprint is equivalent to that of Singapore at about 53 megatons per year. The transition to Proof-of-stake, which should starts today and ends between 10 and 20 Septembershould make it possible to reduce the energy bill by over 99%!

Suffice it to say, all eyes will be on ETH for the next few days and weeks. The transition promises to be technologically very complex; but if it runs smoothly and the large-scale proof-of-stake works as intended, with no harmful side effects, it will be a huge paradigm shift to which the entire industry will likely have to move, as the carbon footprint of cryptocurrencies will be based on Proof-of-work almost indefensible.

We can also expect some regulatory changes. For example, last March the European Parliament voted against a bill aimed at banning the PoW model only; if successful, Ethereum could force lawmakers to reconsider their stance.

We could then evolve towards a global model that consumes less energy and is therefore much healthier and more sustainable. And this is indeed the main importance of this transition; Proof-of-stake can help integrate cryptocurrencies into the mainstream economy, while today they are mainly used for speculation. It is therefore advisable to closely observe this transition, but also and above all its consequences, which will undoubtedly be considerable.

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