Day 69:40With update to Ethereum, the world’s second-largest cryptocurrency claims it’s going greener
Cryptocurrency Ethereum has moved to a new operating system that relies on fewer computers to confirm transactions.
The Merge, as it’s been referred to, is said to reduce 99.9 per cent of the energy used by Ethereum’s previous proof-of-work system, according to the foundation that backs the cryptocurrency. The amount of energy used by Ethereum before Thursday’s update has been compared to powering a “medium-sized” country.
Vitalik Buterin invented Ethereum in 2013. It’s grown to be the world’s second biggest cryptocurrency. The new update will use what’s known as proof-of-stake consensus to validate transactions.
“And we finalized!” Buterin tweeted Thursday. “Happy merge all. This is a big moment for the Ethereum ecosystem. Everyone who helped make the merge happen should feel very proud today.”
Christine Kim is a researcher at Galaxy Digital and has been analyzing what the change means for cryptominers and the environment alike.
“Instead of relying on miners, you’re relying on these other network stakeholders called validators,” Kim said. “Validators are not engaging in this race trying to find the correct value, trying to solve this puzzle.”
Validators use their computers to uphold the integrity of the system, keeping continuous record of the crypto transactions. They are “randomly selected by the network” and to ensure reliability, validators are compensated with crypto, she added.
A report released Thursday by the Crypto Carbon Research Institute (CCRI) says, “The Merge reduces the electricity consumption and carbon footprint of the Ethereum network by over 99.988 per cent and 99.992 per cent respectively.”
CCRI estimated that Ethereum used 23 million megawatt hours (MWh) of electricity per year pre-Merge. Now, it’s estimated the cryptocurrency will use 2,600 MWh per year, comparable to the amount consumed by roughly 100 Canadian households.
Christine Kim spoke with CBC Radio’s Day 6, and here’s part of her conversation with host Saroja Coelho.
I want to get an idea of how Ethereum was operating before they made these commitments on their carbon footprint.
Ethereum, before the Merge, was operating under a proof-of-work consensus protocol. Basically a proof-of-work consensus protocol relies on miners. This energy-intensive process of mining is to produce new blocks on the network.
If I’m understanding this correctly, since in the world of Bitcoin or Ethereum, you can’t actually hold this product in your hand and say, ‘Here, this is money,’ this is a way of providing constant evidence that the funds one says they have actually exist?
That’s a great way to put it. It’s really how the network comes to consensus about the canonical version of the ledger.
It’s this transaction history that everybody needs to come to agreement on, because if you’re not able to come to agreement and not able to reach consensus, then there could be two versions of it.
So you’ve been speaking about crypto mining. Can you describe in the simplest terms what that actually looks like?
I think people think of it like going into the coal mine and digging up something different, like gold or silver. What it means is that there are these network stakeholders who are trying to solve a very computationally intensive puzzle, and they do this by guessing a lot of values.
One of those values is the correct value that you need in order to build a new block. And, when you find that value, you can broadcast it to the entire network, trying to be the first one to do that.
Once you have that value, the network then rewards you with a certain amount of network issuance on a theorem.
You’re basically talking about replacing lots of physical work to show some kind of evidence that this money exists with having people who are validating that money?
You can think about staking as similar to a bond. You lock up capital for a certain amount of time and you’re guaranteed a yield on what you’ve put down.
That makes it a very attractive, productive asset. But in order to be able to earn this passive reward you need to run this software to be a validator.
This process of creating a validator – where everybody has a stake in the currency, and there’s no more extra physical work and reducing the energy – I’m wondering what that means for the wider cryptocurrency world?
It’s a great question because Ethereum in the cryptocurrency world is actually one of the few major currencies that were still on proof-of-work. Once Ethereum transitions away from proof-of-work, the only major cryptocurrency that remains relying on that energy intensive process of mining will actually be Bitcoin.
This is really something that has not been done before.– Christine Kim, researcher, Galaxy Digital
There must have been a lot of people involved in providing that proof-of-work. What’s going to happen to them if you make this switch over? What will happen to the people who were doing the crypto mining?
Unfortunately, those miners that have stayed on with Ethereum, they don’t have many options in terms of where else to go.
I would imagine that a very small portion of miners move over to these other smaller networks, such as Ethereum Classic or Ravencoin.
I think the majority of Ethereum miners will actually be forced to sell their machines. They will be forced to halt all operations.
This is a show of faith in a new way of doing things. In that ecosystem of cryptocurrencies, you’ve got large and small investors around the world who have a lot to lose if this goes wrong.
This is a very fundamental shift for Ethereum.
This is a huge experiment for a blockchain Ethereum’s size to rip out its consensus protocol and replace it with something entirely new without major downtime of the network.
This is really something that has not been done before.
The idea that you could take a massive carbon footprint and reduce it by 99 per cent, that’s a huge claim. Do you think that that’s the kind of thing that might buy enough goodwill to bring skeptics around to cryptocurrencies, generally speaking?
I think in addition to the energy narrative around Ethereum, the supply reduction is also an interesting narrative that should intrigue investors and traders.
I think this really is a monumental shift that I think will do wonders for Ethereum’s narrative, especially as an investable asset.
Radio interview with Christine Kim produced by Ashley Fraser. Q&A edited for length and clarity.