Earlier this month there were major news in the world of cryptocurrencies: on September 15, the Ethereum community successfully completed what is known as The Merge, moving the Ethereum blockchain validation mechanism from the proof method. -of work with high energy intensity. From now on, Ethereum will use the significantly greener and less resource-intensive proof-of-stake method.
According to an analysis by the Crypto Carbon Ratings Institute, the transition is expected to reduce Ethereum’s electricity consumption by 99.988%, significantly reducing its effect on the environment. But Ethereum is only the second most popular cryptocurrency: Bitcoin still uses the energy-intensive proof-of-work system and is highly unlikely to change in the near future. Here because.
It was hard to do
First, what the core team behind Ethereum has accomplished is technically very impressive. Cristiano Catalini, the founder of the MIT Cryptoeconomics Lab, points out that even simple updates to an app or operating system can go wrong. The fact that the Ethereum community has completed such a “major upgrade” without anything going wrong is a testament to the level of planning and preparation, he says. Basically, he shows that these types of upgrades are possible, even for a large cryptocurrency like Bitcoin.
Since The Merge, however, Ethereum’s value has dropped by around 15%. This is very likely due to external market forcesrather than dealing with the technical aspects of moving to proof-of-stake. However, it shows that a greener cryptocurrency isn’t automatically more valuable, especially like Ethereum still has incredibly high transaction (or “gas”) fees.
Proof-of-work, unlike proof-of-stake, is basically a high-risk math lottery. Computers around the world compete to be the first to guess the answer to an exceptionally difficult cryptographic equation. The first to do so adds the next block to the blockchain and gets paid in cryptocurrency for their troubles. The problem is that for every winner, there are thousands of losers who had their computers running at full speed, burning copious amounts of electricity, trying to guess the answers. It’s a huge waste and the big reason cryptocurrencies are considered an environmental issue.
Proof-of-stake, on the other hand, has no such waste. The computer that adds the next block (and gets paid) is chosen at random from a pool in which the operator of each machine has wagered a substantial portion of the relevant cryptocurrency. If they misbehave or fail to add the block correctly, they can be penalized with the confiscation of their share.
While Bitcoin has used proof-of-work to secure its blockchain for 15 years, proof-of-stake has never been tested on the scale it is now. After the merger, Catalini says, “The long-term feasibility and safety of proof-of-stake will be an ongoing experiment.” If the Ethereum blockchain remains as secure as it was during the proof-of-work, this will be a big win for the community. A disadvantage is that, at least in theory, more vulnerable to a number of different attacks.
There are other problems with proof-of-stake as well. The president of the US Securities and Exchange Commission Gary Gensler said last week Staking cryptocurrencies may be subject to federal securities regulationswhich is something that the The cryptocurrency community has been largely against it from its inception.
And also it remains to be seen what former Ethereum miners will do with their energy-intensive GPU rigs which are no longer needed for proof-of-stake. Some may move into mining other proof-of-work currencies (including Bitcoin) or branch into other fields, such as 3D modeling and graphics processing. Either way, the huge server farms that had worked hard with Ethereum’s old mechanics are unlikely to go dormant.
Additionally, Catalini says Bitcoin is “extremely conservative” and “far more risk averse” than Ethereum, which is far more prepared to take major risks such as moving to proof-of-stake.
It also points out that the two major cryptocurrencies aren’t really competing, which is another reason why Bitcoin seems unlikely to follow suit. Ethereum launched with significantly greater programmability (hence why it is used in NFTs) than Bitcoin, part of an attempt to correct what was considered a loophole with Bitcoin. In response, the Bitcoin community continued to do their own thing. As a result, he claims that Bitcoin’s change of consent method is not “credible in the foreseeable future”. Ethereum doing this isn’t a big push.
Even so, Catalini says there are ways the Bitcoin community could reduce the network’s environmental impact. (Currently uses about the same electricity as Pakistan annually.) He believes that “Bitcoin’s evolution and sustainability will be much more driven by miners targeting renewable energy and energy sources that can make Bitcoin greener in the long run,” rather than a major transition to proof-of. -stake.
First, miners could simply use more renewable energy sources and even “negative carbon“sources like flare gas released from oil and natural gas extraction. This would allow Bitcoin mining to use electricity that would be “blocked” or otherwise unable to be used for other applications. Catalini says, “As long as you have a satellite dish or a Starlink connection, you could mine in the middle of nowhere.”
Second, mining could absorb the peak in capacity. According to Catalini, miners can “exit the grid or enter the grid instantly”. As a result, miners could disconnect from the grid when energy is needed elsewhere or connect to the grid when there is an excess of electricity generated that would otherwise be wasted, such as when solar energy produces more energy than people have. need. However, the environmental claims of cryptocurrency miners have been hugely overrated in the past. The methods suggested by Catalini are unlikely to significantly reduce Bitcoin’s environmental impact to the extent that the move to proof-of-stake would reduce, especially as miners are generally motivated by potential profits.