The world’s second-largest cryptocurrency is undergoing a significant transformation that will change its technology to cut carbon emissions by more than 99 per cent, according to its platform Ethereum.
The transition known as “the Merge” is coming to Ethereum, which will upgrade its blockchain technology from the intensive energy-consuming model used by its rival Bitcoin.
While anticipation around the move has seen the price of Ethereum’s token, Ether (ETH), double in the last two months, not everyone is looking forward to the change.
Euronews Next looks at what is changing and how the transformation may affect the crypto market.
Ethereum’s Merge has a ‘successful’ final dress rehearsal for its climate-friendly upgrade What is the Ethereum ‘Merge’ and when is it happening? The first part of the Merge upgrade began on September 6 with the Bellatrix upgrade, which will mark a so-called “hard fork” which will convert Ethereum from a proof-of-work (PoW) to a proof-of-stake (PoS) base.
The second part of the upgrade will happen between September 13 and September 15, the Ethereum Foundation said.
The Ethereum development team Nethermind said on September 10 that it had completed the prerequisite shadow fork test, which stress-tests synchronisation assumptions to ensure network safety.The previous one was performed in April and this was the final one.
The switch will take Ethereum from the intensive energy-consuming PoW model to the PoS model.Both mechanisms are used to confirm transactions and add new blocks to the chain, but they work differently.
The PoW system works like a competitive numeric guessing game and the first person to solve the puzzle is awarded a fixed amount of cryptocurrency.
It requires a global network of computers to run at the same time when a transaction takes place and therefore a lot of energy.
Blockchain explained: Breaking down the technology that’s transforming the world of finance In the PoS system, you do not need the energy-consuming hardware as you acquire coins, which are put up as collateral in the staking process and there is then a random selection through the software.
How powerful your machine is does not increase your chance of winning and being able to create the next block for the blockchain.The only thing that increases your chance of winning is just getting more coins.
Can the Ethereum Merge make crypto greener? The switch to PoS is “a step in the right direction on sustainability,” Alex de Vries, an economist who runs the Digiconomist website, told Euronews Next.
He estimates the energy consumption of Ethereum mining is about 72 terawatt-hours a year, which is equivalent to the carbon footprint of Switzerland.
Bitcoin ban: These are the countries where crypto is restricted or illegal De Vries says he is working on figuring out how much the switch will save energy.At the moment, he estimates it’s at least 99 per cent.
“This translates to something like the electricity consumption of a country like Portugal (a quarter of all data centres in the world combined) vanishing overnight,” he said.
But he added that PoS won’t totally solve crypto’s energy problem.
“Blockchain by design is just never going to be super-efficient technology,” he said.
Europe must ban Bitcoin mining to hit the 1.5C Paris climate goal, say Swedish regulators A merge or a split? The Merge name choice is because Ethereum is adopting the Beacon Chain PoS system but it is a bit deceptive as there is likely to be more of a split, creating the PoS chain and a PoW chain.
This fork is not the first time to happen in crypto history.Bitcoin too has seen splits after upgrades and has created Bitcoin Gold and Bitcoin Cash.
For investors and the crypto start-up scene, Merge will not have that much of an impact, according to Eloisa Marchesoni, a tokenomics expert.
“The worst impact will be on the miners,” she told Euronews Next, explaining that the value of the old version is likely to decrease and the equipment used to mine will not work for the new PoS model.
A single change in Bitcoin’s coding could reduce its carbon footprint by 99%, say campaigners For Ethereum, if the PoS version takes off and the price is high, then the PoW version may have a low price, which will force the majority of miners to shut down.
Marchesoni, who mines Ether herself, said the costly equipment is not a total waste as you can find alternative coins to mine on PoS that are compatible.
Although it can take a month to do so, it does not cause massive issues.
The main point miners are upset about, she said, is the centralisation aspect and the feeling that Ethereum is “acting like Wall Street and the banks”.
Bitcoin mining is actually worse for the environment since China banned it, a new study says As big as Bitcoin? Though it may be cleaner for the environment than Bitcoin, it is unlikely that the upgraded Ethereum will reach the top spot in the crypto market.
If Ethereum can go from proof of work to proof of stake, why wouldn’t they just say, ‘Bitcoin, you’re either going to do the same thing or we’re not going to allow Bitcoin anymore’ Alex de Vries Founder, Digiconomist “Bitcoin will always be like electronic digital gold.
And Ethereum is like fiat money, it’s just two completely different things,” said Marchesoni.
“And no one holds their bigger capital in Ethereum, people will hold big capital in Bitcoin.
None of the OGs, as we call them, none of the originals in crypto actually speculate on Bitcoin that much”.
Marchesoni expects Ethereum to see a slight surge in price but only for perhaps a few days or weeks.
In the long term, she believes Ethereum is laying the groundwork for PoS, which unlike PoW cannot be used for the metaverse or NFTs, but that other cryptos will develop the blockchain for new protocols and new governance models.
De Vries also does not believe Merge will cause the latest crypto bull run.Although “it is a step in the right direction” for cleaner crypto mining, he said it does not solve the issues of PoS, mainly scalability.
Bitcoin drops below $20,000 as cryptos feel the heat over interest rate hawkishness However, Merge could perhaps prompt policymakers to ban PoW in the coming years as they try to regulate cryptos and have pointed to concerns about its environmental impact.
“If Ethereum can go from proof of work to proof of stake, why wouldn’t they just say, ‘Bitcoin, you’re either going to do the same thing or we’re not going to allow Bitcoin anymore,'” said de Vries.
“I think it’s a very real risk if it (Merge) is really successful.I would fully expect that this is going to be back on the table again, maybe not right away, but definitely soon”..
