Cryptocurrency experts say a transition between Tuesday and Thursday would reduce power consumption by more than 99%.
This week, an entire army of computer programmers around the world is set to make one of the biggest software updates ever seen in the crypto space to reduce energy consumption in an environmentally friendly way. Developers have spent years building an energy-efficient version of the Ethereum blockchain, the digital ledger that underpins the multibillion-dollar cryptocurrency, digital token (NFT), game and app ecosystem.
Ethereum, the second most important blockchain after Bitcoin, consumes more energy than New Zealand every year.
According to experts, a transition between Tuesday and Thursday will reduce energy consumption by more than 99%. Enthusiasts hope that green Ethereum will spur more adoption, particularly as a way for banks to automate transactions and other processes.
But until now, the technology has mainly been used to create speculative financial instruments. ING Bank said in a recent note that this transition will help policymakers and regulators embrace Ethereum more. “This, in turn, could increase the willingness of traditional financial institutions to develop Ether-based services,” the bank said.
A turning point in the development of technologies
A switch called “merge” changes the way transactions are recorded.
Now, so-called cryptominers are using powerful computer tools to solve a new currency puzzle called “proof of work.” The new system will remove these miners and their stacks of computers overnight.
Instead, “validators” will have to offer 32 Ether (worth $55,000), Ethereum’s digital currency, to participate in a new “proof” system that rewards them for their work. But the process of integration can be dangerous.
Blockchain company Consensys called it a “monumental technological milestone” and the biggest update to Ethereum since its launch in 2015. Given the shaky history of the sector, critics doubt whether such an upgrade will happen without incident.
Ethereum was offline for three hours in May when a new NFT project sparked a wave of buyers flooding the network. Several cryptocurrency exchanges and companies have announced that they will halt transactions during the merge process.
Distributed and complex
The update also faces a possible uprising from cryptocurrency companies whose business is severely damaged. They can try to hijack the process or create a “fork”, basically a smaller blockchain that would continue with the old mechanism.
And even if the “merge” is successful, Ethereum will still face major obstacles before it can be adopted more widely. For example, it is expensive to perform and the upgrade does not reduce costs.
The crypto industry as a whole suffers from wild price fluctuations, security flaws and some scams.
Charles Kerrigan, a crypto lawyer at the CMS firm, said Ethereum is “decentralized and complex” and hasn’t been tested enough for governments and banks to get involved. The question is whether it’s easy to manage the kinds of updates that traditional software vendors provide to their customers, he said. A successful merge will answer these questions.
