(AFP / INA FASSBENDER)
By eliminating “blockchain miners,” we could reduce Ethereum’s electricity consumption by “99%,” estimates Lennart Ante, a researcher at the Blockchain Research Lab: “There was no infrastructure left, only software,” he explains. In addition, this process can increase the speed of transactions.
The challenge is to drastically reduce energy consumption. Ethereum, the second largest cryptocurrency, is planning to change the operation of its “blockchain” in mid-September to drastically reduce energy consumption. This is a revolution for the network on which the majority of NFTs (Non-Fungible Digital Tokens) or other crypto assets depend.
How can this technical change, which allowed Ethereum to stop the fall in cryptocurrency prices, lead to a sharp drop in demand for electricity, and why is it controversial?
Bitcoin, the first of the cryptocurrencies, was conceived in 2008, after the financial crisis, to be able to do without banks. To verify transactions, bitcoin passes through a “blockchain”, a decentralized ledger.
Network players prove their participation through “mining,” a mechanism called Proof-of-Work or PoW: “They try to guess a random number” and are rewarded in bitcoin, explains Lennart Ante, a researcher at the Blockchain Research Lab.
With the growth of cryptocurrencies – despite falling since the beginning of the year, the entire sector is still $1,000 billion – the activity becomes profitable and is carried out from warehouses filled with servers around the world, often near cheap sources of electricity.
Bitcoin’s electricity balance: about 95 terawatt-hours (TWh) per year, according to the Cambridge University index, which is almost equivalent to Pakistan’s annual consumption. According to the figures given by the creators of Ethereum, the second cryptocurrency consumes about 45 TWh per year.
Ethereum: towards evolution
With a decentralized system, it is difficult to estimate the carbon footprint of various blockchains because the sources of electricity are not always identified, but such a mode of operation is “destructive for the environment, expensive and inefficient,” says Cornell’s Eswar Prasad. University. Ethereum is different from Bitcoin: its blockchain allows you to confirm transactions in ether, its cryptocurrency, as well as to issue “smart contracts”, that is, lines of code.
This allows some “stablecoins”, these dollar-pegged cryptocurrencies, to use the Ethereum blockchain, as do most NFT issuers, these digital tokens, which are, for example, works of art.
In addition to Bitcoin, in the world of cryptocurrencies, “everything is based on Ethereum,” Lennart Ante summarizes: “There are other similar platforms, but none with so many projects and developers.” However, blockchain’s carbon footprint is pushing some artists and industrialists to boycott it.
Therefore, the creator of Ethereum Vitalik Buterin and his community defend the evolution of cryptocurrency towards the Proof of Stake (PoS or Proof of Stake) system: participation in the network is no longer confirmed by the use of electricity, but by placing a bet on ether. .
99% less electricity consumption
By eliminating “blockchain miners,” we could reduce Ethereum’s power consumption by “99%,” says Lennart Ante: “There is no infrastructure left, only software,” he explains. In addition, this process can increase the speed of transactions.
“Proof-of-stake is also not perfect,” notes Eswar Prasad: “Liquidity in the market is declining as some users choose to use their assets as a stake rather than sell them.” But above all, “there may be a management problem with a small number of users who will bet big to change the rules in their favor,” he warns.
The project is well received by investors
The transition to Ethereum began in December 2020 with trial blockchains. This is why market participants are talking about the “Merger”: the main Ethereum network is due to be included in the test version on September 15th. Such an upgrade, which requires decentralized users to keep up with the times without stopping transactions, is not without risk: some observers liken the exercise to replacing a diesel engine with an electric motor in a walking vehicle.
Investors, at least for now, welcome the project: the price of ether resists the shock that shakes the cryptocurrency market better than bitcoin. At $1,650/Ether and with a capitalization of over $200 billion, Ethereum represents almost 20% of the cryptocurrency market, still half that of Bitcoin.