The world of cryptocurrency is no stranger to controversy, but one of the biggest controversies in recent years has been the rampant energy consumption of crypto networks. However, things could be changing – Ethereum has shown it is possible to reduce ethereum energy consumption by 99.99%, and here’s how they did it.
The Ethereum Merge Update
It’s been discussed as a possibility for quite a while, but on 15 September, it finally happened – the Merge update for Ethereum. But what exactly does this mean? Well, The Merge (capital M) is the name for the merge (lowercase m) from the original Ethereum blockchain to a separate blockchain known as the Beacon Chain.
Why is this such a big deal? Because the Beacon Chain works on a proof-of-stake basis, and the entire Ethereum network will become proof of stake following the move. Moving from the original proof-of-work model is a major step for the development of Ethereum.
From Proof of Work to Proof of Stake
The move is a significant one for Ethereum, and for the future of cryptocurrency networks as a whole. To understand this better, let’s take a look at what proof of work and proof of stake actually are.
Proof of Work (PoW)
Proof-of-work is a consensus mechanism in which network nodes compete for the opportunity to process a transaction and add it to the blockchain. Vast amounts of these nodes work to solve cryptographic equations, and the winner receives the reward for successfully ‘mining’ the block – i.e., adding it to the chain.
To be eligible for a reward, nodes must send a signal to prove they are working – hence, proof of work.
Proof of Stake (PoS)
Under the proof-of-stake consensus model, nodes must stake an amount of cryptocurrency – basically, the amount of cryptocurrency in the wallet associated with the node. The node that can stake the most is awarded the task of adding the transaction to the blockchain and receives the reward accordingly. Network nodes are not working simultaneously to verify the transaction.
Why Ethereum Energy Consumption Dropped by 99.9%
The move from proof of work to proof of stake has slashed the amount of energy used by the Ethereum network – reducing total consumption by 99.9%. The network was consuming 23 million megawatts of energy per year. With proof-of-stake, this falls to just 2,600. One of the primary criticisms of crypto, in general, is how unsustainable the mining process really is, so such a revolutionary move is going to be welcomed by most.
But how is this energy being saved, and why is proof of stake so much more energy-efficient? This is because of reductions in simultaneous work and wasted energy.
Only one node can mine a transaction, whether on a proof-of-work or a proof-of-stake-based network. However, with proof-of-work, plenty of nodes are going to try to be that ‘one’ , and the system essentially rewards the fastest nodes with the most powerful CPU. The winning node gets the reward, but what about those other nodes that have put in work? They get nothing, and all that processing energy is wasted.
With proof-of-stake, this ‘one’ node is already determined before the process begins. The network receives the staking signal and awards the verification task accordingly. With just a single node working on writing the transaction into the blockchain, energy wastage is reduced to an absolute minimum, achieving vastly better energy efficiency compared to the proof-of-work method.
A New Direction for Crypto Networks
Under the proof-of-work model, it was difficult to see crypto as sustainable. With so many machines competing to mine transactions, the amount of energy required to operate the network is vast. In this sense, Ethereum’s move towards proof-of-stake and such a vast decrease in energy usage is a massive development.
The move is not without its controversy. Some argue that proof-of-stake removes an element of the egalitarianism that was key to cryptocurrency at its inception, and such a move would not be possible with a wholly decentralised system like Bitcoin. Despite this, for the second-largest cryptocurrency network in the world to be leading the pack, future-proofing digital assets and transforming them into a sustainable framework of finance, is a huge leap forwards.
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This material is intended for illustrative purposes and general information only. It does not constitute financial advice nor does it take into account your investment objectives, financial situation or particular needs. You should consider the information in light of your objectives, financial situation and needs before making any decision about whether to acquire or dispose of any digital asset. Investments in digital assets can be risky and you may lose your investment. Past performance is no indication of future performance.
FAQs
What is the Merge update for Ethereum and why is it significant?
The Merge update for Ethereum, implemented on 15 September, transitioned Ethereum from its original blockchain to a separate blockchain known as the Beacon Chain. This is significant because the Beacon Chain operates on a Proof of Stake basis, and the entire Ethereum network will become Proof of Stake following the move. This transition from the original Proof of Work model is a major step in Ethereum’s development.
What is the difference between Proof of Work and Proof of Stake?
Proof of Work is a consensus mechanism where network nodes compete to process a transaction and add it to the blockchain. Nodes work to solve cryptographic equations, and the winner receives the reward for successfully ‘mining’ the block. In contrast, under the Proof of Stake model, nodes must stake an amount of cryptocurrency. The node that can stake the most is awarded the task of adding the transaction to the blockchain and receives the reward accordingly.
How has the transition to Proof of Stake reduced Ethereum’s energy consumption?
The transition from Proof of Work to Proof of Stake has drastically reduced the amount of energy used by the Ethereum network, decreasing total consumption by 99.9%. This is because only one node is needed to mine a transaction under the Proof of Stake model, reducing simultaneous work and wasted energy. With just a single node working on writing the transaction into the blockchain, energy wastage is minimized, resulting in vastly better energy efficiency compared to the Proof of Work method.
What are the implications of Ethereum’s reduced energy consumption for the future of cryptocurrency networks?
Ethereum’s move towards Proof of Stake and the resulting decrease in energy usage is a significant development for the future of cryptocurrency networks. It demonstrates that it is possible for crypto networks to operate more sustainably, addressing one of the primary criticisms of cryptocurrency – the unsustainability of the mining process.
What are the criticisms of the transition from Proof of Work to Proof of Stake?
Some critics argue that the transition to Proof of Stake removes an element of egalitarianism that was key to cryptocurrency at its inception. They contend that such a move would not be possible with a wholly decentralized system like Bitcoin. Despite these criticisms, the move by Ethereum, the second-largest cryptocurrency network in the world, to lead in transforming digital assets into a sustainable framework of finance, is seen as a significant advancement.
