London (AFP) – The second largest cryptoThe world’s second currency after bitcoin, ethereum, will soon overhaul its blockchain technology to limit the network’s much-criticized environmental impact.
Ethereum, whose digital unit ether tumbled in a cryptocurrency crash earlier this year, will experience a major technical revolution in September.
So what is the backdrop for the impending reset – known as the “meltdown” – and how will it calm prices and reduce electricity consumption?
Why does crypto use so much energy?
Bitcoin, Ethereum and other such currencies are “mined” by solving complex puzzles using powerful computers that consume huge amounts of energy in vast warehouses, often near sources of power. cheap electricity. See also: Bitcoin: Here’s why the price of BTC is (again) falling right now.
A blockchain is the decentralized and secure ledger for recording these transactions, which occur when encrypted codes are transmitted over a computer network.
Users validate their success through a so-called “proof-of-work” mechanism that rewards them with cryptocurrency, but only after proving their participation in this type of energy-intensive mining.
The lucrative cryptocurrency industry is worth an estimated $1 trillion, despite collapsing in the first half of 2022.
However, the value of Ethereum has fallen another 55% since the start of the year.
Why is Ethereum popular?
Ethereum is nevertheless considered vital because it is where most virtual assets, including the headline-grabbing non-fungible tokens (NFTs), are bought and sold. See the article: FTX Announces Entry into Web3 Gaming and Prioritizes “Big Games”..
This is partly because users can create “smart contracts” or algorithmic computer codes, which perform custom transactions for different functions.
“The ethereum blockchain is the base layer infrastructure for the majority of the entire crypto ecosystem,” summarized Lennart Ante, CEO and co-founder of the Blockchain Research Lab.
“It’s all about ethereum,” he told AFP.
“In recent years, other similar platforms have emerged, such as Solana or Cadano, but none of them have this huge network and this huge amount of developers and projects, nor a historical success. »
Why is this changing?
The widespread adoption of Ethereum makes it even more important to address environmental concerns and change course, as these concerns had prompted a partial boycott. On the same subject : Top 2 Cryptocurrencies to Buy Now and Hold for the Next Decade.
“Proof-of-work mining is environmentally destructive, costly and inefficient,” summarizes 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 the switch?
Ethereum creator Vitalik Buterin plans to move to a so-called “proof-of-stake” mechanism from mid-September.
This means that participation no longer requires proof of electricity use, but is based on staking ether blocks.
Users will then validate, or actually wager their currency, in an attempt to earn more Ether.
Ethereum currently consumes around 45 terawatt hours of electricity per year.
In 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 modernization will consume 99% less energy than the current installation.
It would therefore allow users to perform faster and more efficient transactions.
“The energy consumption would be close to zero,” Ante told AFP.
“You no longer need the hardware, only the software. »
At the same time, this new approach is not without risks.
Some users might decide to switch to rival networks where they can still use huge amounts of energy to mine currencies.
Prasad also warned that the proof-of-stake method was “not perfect” due to liquidity and governance issues.
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