In a move dubbed “The Merge,” Ethereum is set to change the way it validates its transactions, from a “proof-of-work” system to a “proof-of-stake,” which its team Ethereum says it will reduce energy consumption by 99.95%. Currently, the amount of energy Ethereum uses is around 112 terawatt hours per year. To put that in perspective, that’s more electricity than the entire country of Pakistan uses in a year. Here’s how cryptocurrency plans to go green:
PROOF OF WORK
Cryptocurrencies like Ethereum are all decentralized, meaning that the ledger, or records of transactions, are stored on many computers on a network. Ethereum currently relies on a proof-of-work system to validate transactions and update the ledger. This means that each transaction requires advanced computers to solve a highly complex mathematical equation in order to add it to the ledger, in a process called “mining”. When a new transaction comes in, all computers on the network try to solve the mathematical equation, and whichever computer solves it first is rewarded with some currency as payment. But this has incentivized Ethereum “miners” to invest in large numbers of more powerful and energy-intensive computer hardware in order to give them a better chance of making money through mining. Miners also pool their material together in what are known as “mining pools”. Just like an office lottery pool can give you a greater chance of winning the big prize, mining pools work on the same principle, sharing their winnings with their members. But just three mining pools make up more than half of the computing power on the Ethereum network, leading to concerns that the cryptocurrency is becoming too centralized. If a single mining pool gained control of over 50 percent of the computing power on the network, it could effectively take over the currency and have the ability to authorize fake transactions. This is what is known as a “51 percent attack.”
HELLO FRIDAY PROOF
Cryptocurrencies such as Ethereum have come under fire from environmentalists, who point to high levels of energy consumption. However, after the merger, Ethereum will switch to a proof-of-stake system, which is expected to use only 0.05 percent of the energy that the cryptocurrency currently uses. The current system relies on having millions of high-powered computers trying to solve the same mathematical equations at the same time, and proof-of-stake proponents say this is a huge waste of energy. Under a proof-of-stake system, only one computer is selected to validate the transaction. To participate as a validator, a user must deposit or “stake” 32 ETH. If the transaction is successfully validated, the validator will receive the transaction fees as a reward. While it may seem more risky to rely on a single validator, the system has safeguards. Validations are verified by other computers on the network, and if a validator approves a fraudulent transaction, the validator loses a portion of his stake. Theoretically, a 51 percent attack could still happen if one entity buys more than half of the entire Ethereum supply, but this is highly unlikely as doing so would cost nearly $100 billion. The Merger is scheduled to take effect at approximately 1:00 a.m. EDT early Thursday morning. It is unclear what long-term effect the Merger could have on Ethereum’s price. As of Wednesday afternoon, the cryptocurrency is up about 4.00 percent since the start of the day.
