MINING

Ethereum upgrade slashes energy use by 99%

Most ambitious change in crypto history eliminates power-hungry mining on the industry’s biggest blockchain

(Reuters File Photo)
(Reuters File Photo)

A major software upgrade to the Ethereum blockchain aimed at drastically reducing its energy usage has been completed, Vitalik Buterin, Ethereum inventor and co-founder said on Thursday.

The upgrade, known as the “Merge”, essentially eliminates the grossly wasteful practice of “mining” crypto tokens. The new system will use 99.95% less energy, according to the Ethereum Foundation. To its proponents, the upgrade represents a major advantage as Ethereum seeks to surpass rival bitcoin.

Most blockchains devour large amounts of energy and have come under fire from environmentalists and some investors. Before the Merge, a single transaction on Ethereum used as much power as an average US household uses in a week, according to the research group Digiconomist.

A new protocol will govern how transactions on the Ethereum blockchain occur and how ether tokens, the second-largest crypto coin after bitcoin, are created.

Ethereum will move from a “proof of work” system, in which energy-hungry computers validate transactions by solving complex mathematics problems, to a “proof of stake” system, where individuals and companies act as validators, using their ether as collateral, to win newly created tokens placed in so-called staking wallets. 

The Merge is the crypto world’s biggest and most ambitious software upgrade to date, according to Buterin.

Such an upheaval has never been attempted in crypto before, let alone on Ethereum, home to about 3,500 active decentralised apps, ranging from exchanges to games and handling billions of dollars worth of crypto.

In the works for years, the Merge doesn’t change the end-user experience on Ethereum, but it is a key stepping stone to more upgrades that will make the network faster and cheaper, and should further increase its stature and usage.

The Merge has also changed properties of Ether, making it more akin to yield-bearing securities. So-called “staked ether” will generate a return, expected to be around 5.2% after the Merge, according to the tracker Staking Rewards. Coupled with an expected net decrease in Ether token supply soon after the update, that should make the coin more attractive to investors.

Ether surged more than fivefold in 2021, outperforming Bitcoin by a wide margin, in part on optimism over the Merge. Both tokens have struggled since hitting record highs in November, with Ether down more than 50% this year.  

The software upgrade is called the Merge because the existing Ethereum blockchain will combine with a parallel network that has been running for almost two years to test the proof-of-stake concept. Overall, the upgrade has been under consideration for over seven years. 

Even though it has been completed, the Merge could be followed by days or even weeks of hiccups, based on what happened after some prior Ethereum software updates. Worried about bugs and hacks, crypto exchanges like Coinbase paused Ethereum-related withdrawals and deposits around the time of the software upgrade. The crypto lender Aave had suspended Ether borrowing in advance of the Merge.

Some disgruntled crypto miners, having invested millions in gear, are fighting back with a “fork” — a blockchain split of sorts — to try to continue operating a proof-of-work chain to retain their livelihood.

These forks, such as EthereumPOW, create their own copies of Ether coins given to all holders of mainstream Ether.

The tokens may have some value. But the existence of several versions of Ether — each running on a different chain — could create confusion and give rise to attacks and scams. So can copies of other tokens running on forked chains.

While all apps and wallets currently on Ethereum have been replicated on the forked chains, most apps are likely to be broken, as key players — the USDC stablecoin issuer Circle and oracle provider Chainlink among them  — have said they won’t support the forked versions. Whether the forked chains can stay viable in the long run remains to be seen.

Large teams of Ethereum developers from all over the world have worked on the Merge for years. In late 2020, they debuted Beacon Chain, a parallel network that was testing the ordering transactions via staked coins, or a system called proof of stake. In the Merge, Beacon was merged with the main Ethereum network, using miners, and made Beacon Ethereum’s way of testing the ordering of network transactions.


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Traciwininger
Author: Traciwininger

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