LONDON (AFP) — Ethereum, the world’s second-largest cryptocurrency after Bitcoin, will soon overhaul its blockchain technology to limit the network’s much-criticized environmental impact.
Ethereum, whose digital unit of Ether crashed earlier this year, will experience a major technical revolution in September.
So what is the backdrop for the impending reset – known as the “crisis” – and how will it calm prices and reduce electricity consumption?
Why does cryptocurrency consume so much energy?
Bitcoin, Ethereum and other similar currencies are “mined” by solving complex puzzles using powerful computers that consume huge amounts of energy in huge warehouses, often near sources of cheap electricity. See also: Bitcoin: Here’s why the price of BTC is (again) falling at the moment.
The blockchain is a decentralized and secure ledger for recording these transactions that take place as encrypted codes are transmitted over a computer network.
Users validate their success through a so-called “proof of work” mechanism that rewards them with cryptocurrencies, but only after they prove their participation in this type of energy-intensive mining.
The lucrative cryptocurrency industry is valued at around $1 trillion despite the crash in the first half of 2022.
However, since the beginning of the year, the value of Ethereum has fallen by another 55%.
Why is Ethereum popular?
However, Ethereum is considered vital because it is where most virtual assets are bought and sold, including the popular non-fungible tokens (NFTs). See article: FTX Announces Web3 Gaming Entry and Prioritizes ‘Big Games’.
This is partly because users can create “smart contracts” or algorithmic computer codes that execute user transactions for various functions.
“The Ethereum blockchain is the base layer infrastructure for much of the entire crypto ecosystem,” summed up Lennart Ante, CEO and co-founder of the Blockchain Research Lab.
“It’s all about ethereum,” he told AFP.
“Other similar platforms have emerged in recent years, such as Solana or Cadano, but none of them has such a huge network, such a huge number of developers and projects, or historical success. »
Why is it changing?
The widespread adoption of Ethereum makes it even more important to address environmental issues and change course, as these concerns have prompted a partial boycott. Related: 2 best cryptocurrencies to buy now and hold for the next decade.
“Proof-of-work mining is bad for the environment, expensive, and inefficient,” sums up digital currency specialist Eswar Prasad, a professor at Cornell University.
However, the carbon footprint of a decentralized blockchain system is difficult to assess because the sources of electricity are not always identified.
What is a switch?
The creator of Ethereum, Vitalik Buterin, plans to switch to the so-called “proof of stake” mechanism from mid-September.
This means that participation no longer requires confirmation of electricity usage, but is based on the allocation of blocks of Ether.
Users will then check or actually wager in their currency in an attempt to earn more Ether.
Currently, Ethereum consumes about 45 terawatt-hours of electricity per year.
By contrast, bitcoin is estimated to use 95 terawatt-hours of electricity per year, equivalent to Pakistan’s annual consumption.
What are the advantages and disadvantages?
Experts estimate that the upgrade will consume 99% less energy than the current plant.
Thus, it will allow users to perform faster and more efficient transactions.
“Energy consumption will be close to zero,” Ante told AFP.
“You no longer need hardware, only software. »
At the same time, this new approach is not without risks.
Some users may decide to switch to competing networks where they can still use massive amounts of power to mine the currency.
Prasad also warned that the Proof-of-Stake method is “not perfect” due to liquidity and governance issues.
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Passionate about cryptocurrencies and DeFI, Thomas brings international news on the subject!