One of the main objections to cryptocurrencies so far has been the huge energy consumption. To create new digital currencies, ‘mining’, groups of cooperating computers race against each other to perform and control calculations. In all sorts of places in the world, this happens through entire parks full of energy-hungry servers. Whoever uses the most computing power and has a little luck wins and gets a coin as a reward. The profit often goes to the biggest polluter.
This is what the creators of the Ethereum crypto platform, linked to the second most important cryptocurrency ether, are trying to change. After this week’s software update, dubbed “The Merge,” energy consumption should be more than 99 percent lower. Its success is critical to the future of the crypto industry. Programmers and investors are eagerly watching the rebuilding of Ethereum. On paper, the connected ether is now worth about $200 billion. Money that can evaporate if things go wrong.
Vitalik Buterin, one of the creators of Ethereum, compares the change to changing an airplane engine in flight. If successful, an energy consumption comparable to that of Finland will be lost.
After the software update, ‘The Merge’, energy consumption should be more than 99 percent lower
“A big moment,” says Alex de Vries, the creator of Digiconomist, a site that tracks the energy consumption of crypto-coins. If the operation succeeds, it will be a big boost for developers and investors who have crypto coins but also suffer from their conscience due to the huge energy consumption. Just the computers that ‘hunt’ with their calculations for new bitcoin, the largest and most well-known cryptocurrency, consume more than the entire Netherlands every year. Ethereum about half.
1. Why do cryptos use so much energy?
Ether and bitcoin are based on a technique to allow unrelated, non-centrally controlled computers to agree on something and then record it in an immutable way. With this, the creators of crypto wanted to create a form of trust for transactions in the anonymous and volatile online world.
The computers involved are constantly racing against each other to be the first to solve a sum and check the result and store it in the shared database (the blockchain). The information provided to the owners of these computers (the miners) you could see coins paid out as a reward for that work.
This verification will be proof of work named. Because so many computers count independently of each other and manage the database, it is very reliable, but there is also a lot of duplication of work and a lot of energy. Servers all over the world do the same. Possible outcomes of the amounts are tested by trillions of attempts per minute. Most do it for free, because only the fastest are waiting for the reward.
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2. What will change now?
Ethereum is now moving to another system. From proof of work ugly proof of effort. In addition, the owners of ether guarantee the correctness of the database or blockchain. They give their own ether as collateral for this and are paid for their work in (new) ether. A kind of lottery determines who gets the right to mine a new ether. An end to the race to be the fastest and to the many duplications of work. Thus, who gets more ether is no longer determined by the amount of computers you own, but by the amount of ether you already own and how you use it to verify transactions. You must have at least 32 ether’to strike‘, give as security, to participate. At the current exchange rate, that is more than 50,000 euros.
3. Is this the end of the decentralized model?
To a certain extent. There is still no boss or headquarters, but the new system gives those who already own a lot of ether a greater chance of being allowed to mine more ether and therefore a greater chance of more ownership and responsibility. It is a sensitive point because decentralized governance is very important for the belief in crypto-coins.
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4. Are there also losers?
Ethereum miners’ income is pretty much drying up because of this renovation. They have invested huge sums in servers with special graphics cards to perform the calculations. These are located around the world in places where energy is cheap or where it is cold so that servers can be cooled cheaply. These servers become almost worthless in one fell swoop because they can’t just be used for other purposes or coins.
The sharp drop in cryptocurrency prices since the spring (from 60,000 euros per bitcoin then to around 20,000 euros now) and increased energy prices have in any case ensured that cryptocurrency mining has become somewhat less profitable.
5. Can the update go wrong?
It is possible, as with any major software update. And there is a further complication. Because it is a decentralized system, with no head office, owner or central management, nothing can be imposed. Decisions must be made by consensus, which in practice happens in consultation between programmers who maintain the software.
Then there are always a few dissidents who choose, for example, to continue with the old technology and stand out. It is also happening now. However, after two years of testing and discussion, there is a high degree of consensus among Ethereum creators and holders that this is a wise and necessary move.
This is no longer the time to waste so much energy on guessing numbers
6. If Ethereum succeeds, will bitcoin follow?
Not immediately. Preparations for Ethereum took years. Additionally, the community behind bitcoin is much less likely to change. Yet it is also an important moment for bitcoin, says Alex de Vries. “We are in a climate and energy crisis. This is no longer the time to waste energy guessing at numbers.”
The crypto industry is under fire for that reason anyway. Many governments are considering regulation. “It can be expected that if this succeeds with Ethereum, the authorities will see little reason to continue to spare bitcoin.”