Cryptocurrencies can also be more energy efficient, Ethereum proves

This transition is not without risk. By changing the back end of the entire system, all crypto projects built on top of the Ethereum system should go along with this transition without any problems. In theory, therefore, the lack of certainty about a smooth transition was the main reason for the postponement of the implementation in recent months.

More scalable

The change is more than just a measure to save energy. According to Ethereum founder Vitalik Buterin, the new system forms the basis for future improvements to the system that will allow handling many more transactions. However, the disadvantage – according to critics – is that the system is largely centralized, which makes it easier for governments to intervene. One of the much-touted benefits of blockchain is its decentralized structure.

A consequence of the upcoming Ethereum transition is also that the dynamics of the graphics card market will change. In recent years, it has been lucrative for individuals to invest heavily in high-end hardware and especially graphics cards to ‘mine’ Ethereum crypto-coins themselves. In the new situation (based on proof-of-stake) such heavy hardware is no longer needed – hence the decrease in energy consumption – and this may have an effect on prices and availability of video cards.

The role of computing power

With a blockchain, a minimum number of participants in the blockchain must validate the new addition of a block. Therein lies the danger that a malicious person will bring enough frontmen into the system to manipulate the system. This manipulation can undermine overall reliability.

For a long time, this risk was mitigated by giving those with the most computing power—enough to calculate SHA-256 hashes—the most influence as new blocks were added to the chain. As long as ‘honest’ participants together have more computing power than the ‘evil’ ones, there is no problem. As the value of cryptocurrencies increased, it became attractive for people to invest in more hardware and thus energy consumption increased enormously.

New balance of power

Ethereum has so far worked according to the principle: a hash gives a vote in the process (proof of work). In the system that is now being switched to, it is important how many coins someone already owns. Each coin provides a vote (proof of stake) in the process. In the new system, a pseudorandom number generator is active that selects a number of stakes every 12 seconds, which together as validators decide whether the next block should be added.

One of the stakers can choose an addition, and the others validate the block by checking that all the conditions are met. If two-thirds of the validators approve the block, it officially becomes part of the blockchain. Validators are rewarded for their actions if they act honestly. However, if a validator is found to choose, for example, two incompatible blocks for the same blockchain lock, a financial penalty follows. If it turns out that it was premeditated, the validator is sidelined and the person who provided the evidence gets a reward.

A risky transition period is approaching

Ars Technica predicts an exciting time after the switch, as many will try to discover weaknesses in the new system and possibly abuse it. In addition, Ethereum’s development team must ensure that the transition takes place without downtime. Critics have compared it to replacing an airplane engine in flight.

A new network of validators has already been created and will be merged with the existing network during the transition. The old network then becomes the executing network, while the new network becomes the consensus network and takes over the role of the miners.

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