Ethereum, the world’s most used blockchain, is inching toward eliminating 99% of its energy use by moving to a consensus mechanism called proof-of-stake from the current proof-of-work.
The shift is seen to boost the second-largest cryptocurrency Ether (ETH) while its more popular rival, leading cryptocurrency Bitcoin, faces criticism over its environmental impact.
Proof-of-work allows the decentralized Ethereum network to come to a consensus on matters like account balances and the order of transactions, preventing users from “double spending,” as well as ensuring that the Ethereum chain is difficult to attack or overwrite. While relatively easy to implement, the main drawback of this consensus mechanism is its environmental consequences.
Proof-of-stake, meanwhile, has the same objective but switches out the importance of computational power and energy-intensive mining for staked ETH. Instead of depending on miners, proof-of-stake relies on validators who stake their ETH. This allows for better energy efficiency, lower barriers to entry, and reduced hardware requirements.
Ethereum Foundation researcher Danny Ryan estimates that a proof-of-stake transition would use only 1/10,000 of the energy than the current Ethereum network. “You can verify a blockchain with a consumer laptop,” he said.
Ethereum co-founder Vitalik Buterin hopes the change, expected 2022 latest, will take place by year’s end. “I’m definitely very happy that one of the biggest problems of blockchain will go away when proof of stake is complete,” he said.
Ethereum’s massive transition requires the creation, testing, and implementation of a new method of securing their network—all while maintaining the existing blockchain. The Beacon Chain (which runs using proof-of-stake) will initially be shipped separately from the main net (secured by proof-of-work) before eventually merging.
“Imagine Ethereum is a spaceship that isn’t quite ready for an interstellar voyage,” the website visualizes. “With the Beacon Chain, the community has built a new engine and a hardened hull. When it’s time, the current ship will dock with this new system, merging into one ship, ready to put in some serious lightyears and take on the universe.”
Aside from being more environmentally friendly, the transition to proof-of-stake will significantly increase the speed of processing transactions. This will address a major criticism of cryptocurrencies regarding their relatively slow transactions compared to established intermediaries such as banks.
Moreover, proof-of-stake proponents and proof-of-work critics tend to value environmental, social, and governance (ESG) standards. Socially conscious investors will likely note the significantly smaller carbon footprint of this upcoming alternative, with an increase in the price of Ether expected as early as now.
Tesla CEO Elon Musk, citing energy usage data, even announced earlier this month that the company suspended vehicle purchases using Bitcoin over concerns about the increasing use of fossil fuels for cryptocurrency mining.
Presently, Ethereum’s proof-of-work mechanism uses 45,000 gigawatt hours per year, according to the Ethereum Foundation. This is comparable to the electricity consumption of Hong Kong in 2018, based on data from the United States Energy Information Administration.
Similarly, the Cambridge Center for Alternative Finance found that Bitcoin uses around 110 terawatt-hours per year. This accounts for 0.55% of global electricity production and is roughly equivalent to the energy consumption of Malaysia or Sweden.
Proof-of-stake is already in operation. Blockchain platform Cardano, for example, utilizes this consensus mechanism and boasts the fourth-largest cryptocurrency by market capitalization with ADA. Other cryptocurrencies that use proof-of-stake include EOS, Polkadot, Polygon, and Tezos.
Ethereum’s shift is already seen to positively impact the availability and price of GPUs since the current graphics card shortage has been partly attributed to cryptocurrency miners who depend on them. Decreased need for GPU power could mean less demand and thus a higher supply of graphics cards. (Read: GUIDE: Should you get a GPU upgrade right now?)
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