The world’s second-largest cryptocurrency is undergoing a major transformation, changing its technology to reduce its carbon emissions by more than 99%, according to platform Ethereum.
A migration known as a “merge” is coming to Ethereum, upgrading blockchain technology from the intensive energy consumption model used by rival Bitcoin.
Expectations for this move have seen the price of Ethereum’s token, Ether (ETH), double in the last two months, but not everyone is looking forward to the change.
Euronews Next examines what is changing and how the transformation will affect the crypto market.
What is an Ethereum “merge” and when does it happen?
The first part of the Merge upgrade started on September 6th with the Bellatrix upgrade. This marks a so-called “hard fork” that transforms Ethereum from Proof of Work (PoW) to Proof of Stake (PoS). ) base.
According to the Ethereum Foundation, the second part of the upgrade will take place between September 13th and September 15th.
With this switch, Ethereum will move from an energy-hungry PoW model to a PoS model. Both mechanisms are used to confirm transactions and add new blocks to the chain, but they work differently.
The PoW system works like a competitive numbers game, rewarding the first person to solve the puzzle with a set amount of cryptocurrency.
It takes a lot of energy because it requires a global network of computers to execute transactions as soon as they occur.
A PoS system does not require any energy-consuming hardware when acquiring coins. Coins are presented as collateral in the staking process and randomly selected through software.
No matter how powerful your machine is, it does not increase your chances of winning and creating the next block of the blockchain. The only way to increase your chances of winning is to earn more coins.
Can Ethereum Merge make crypto greener?
The switch to PoS is “a step in the right direction when it comes to sustainability,” economist Alex de Vries, who runs the website Digiconomist, told Euronews Next.
He estimates that the energy consumption of Ethereum mining is around 72 terawatt hours per year, which is equivalent to the carbon footprint of Switzerland.
De Vries says he’s researching how much energy the switch can save. At this point, he estimates it’s at least 99%.
“This is like a country like Portugal (a quarter of all data centers in the world combined) running out of electricity overnight,” he said.
But he added that PoS will not completely solve the energy problem of cryptocurrencies.
“Blockchain by design will never be a super-efficient technology,” he said.
Merge or split?
The choice of the name Merge is a bit deceptive, as Ethereum employs the Beacon Chain PoS system, but there will likely be more splits creating PoS and PoW chains.
This fork is not the first in the history of cryptocurrencies. Bitcoin was also split after the upgrade to create Bitcoin Gold and Bitcoin Cash.
According to tokennomics expert Eloisa Marchesoni, Merge will not have much of an impact for investors and the cryptocurrency startup scene.
“The worst impact will be on miners,” she told Euronews Next, explaining that older versions are likely to depreciate in value and the equipment used for mining will not work in the new PoS model. .
In the case of Ethereum, if the PoS version takes off and is priced higher, the PoW version may be priced lower, forcing the majority of miners to shut down.
Marchesoni, who mines Ether himself, said the expensive equipment isn’t a complete waste because he can find alternative coins to mine with a compatible PoS. This may take a month, but it shouldn’t cause any major problems.
According to her, the main complaints miners have is the centralization aspect and the feeling that Ethereum is “acting like Wall Street and banks.”
As big as bitcoin?
While it may be cleaner than Bitcoin for the environment, the upgraded Ethereum is unlikely to reach the top spot in the crypto market.
“Bitcoin has always been like electronic digital gold, and Ethereum is like fiat currency, two very different things,” said Marchesoni.
“And no one holds a bigger capital in Ethereum. I’m not really speculating on bitcoin that much.”
Marchesoni expects the price of Ethereum to rise slightly, but probably only for a few days or weeks.
Longer term, she believes Ethereum is laying the foundation for PoS. Unlike PoW, PoW cannot be used for metaverses or NFTs, but other cryptos will develop blockchains for new protocols and new governance models.
De Vries also doesn’t believe Merge will trigger the latest cryptocurrency bull market. He said that while it was a “step in the right direction” for cleaner crypto mining, it would not solve PoS problems, mainly scalability.
But Merge could possibly prompt policymakers to ban PoW in the years to come. They are trying to regulate cryptocurrencies and have raised concerns about their environmental impact.
“If Ethereum can move from Proof of Work to Proof of Stake, why aren’t they saying, ‘Bitcoin, do the same or don’t allow Bitcoin anymore?” Mr De said. freeze.
“If it (the merge) really succeeds, I think it’s a very real risk. I fully expect this to be back on the table again. Maybe not soon, but definitely soon. to”.