A major change is about to be made to the second most widely circulated cryptocurrency that could dramatically reduce the amount of energy it uses.
In a move dubbed “Consolidation,” Ethereum is set to change the way its transactions are validated, from a “proof of work” system to a “proof of stake” system, which the team Ethereum claims to reduce energy consumption by 99.95%.
Currently, the amount of energy that Ethereum uses is about 112 terawatt-hours annually. In a word, that’s more electricity than the entire country of Pakistan uses in a year.
Here’s how the cryptocurrency plans to go green:
CERTIFICATE OF WORK
Cryptocurrencies like Ethereum are all decentralized, which means that ledgers, or records of transactions, are stored across multiple computers in a network.
Currently, Ethereum relies on a proof-of-work system to validate transactions and update the ledger. This means that each transaction requires advanced computers to solve an extremely complex mathematical equation to add it to the ledger, in a process known as “mining”.
When a new transaction occurs, all the computers on the solving network attempt to solve the mathematical equation, and the computer that solves it first is rewarded with some currency as a payment.
But this has incentivized Ethereum “miners” to invest in larger amounts of more powerful and energy-intensive computing hardware to give them a better chance of making money through mining.
Miners are also pooling their hardware together in what is known as a “mining pool”. Just as an office lottery pool can give you a higher chance of winning the big prize, mining pools operate on a similar principle, dividing the profits among their members.
But only three mining pools account for 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 gains control of more than 50% of the computing power on the network, they can effectively take over the currency and potentially approve fake transactions. This is what is known as a “51% attack.”
Cryptocurrencies like Ethereum have been the target of criticism from environmentalists, who point to high energy consumption. But after the Consolidation, Ethereum will transition to a proof-of-stake system, which is expected to use only 0.05% 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 advocates say this is a huge waste of energy. great.
Under the proof-of-stake system, only one computer is chosen to validate the transaction. To participate as a validator, a user needs to deposit or “stake” 32 ETH. If the transaction is successfully validated, the validator will receive the transaction fee as a reward.
While it seems more risky to rely on only one validator, the system has safeguards. The validation is verified by other computers on the network, and if the validator approves a fraudulent transaction, the validator loses part of their stake.
Theoretically, a 51% attack is still possible if an entity buys more than half of the Ethereum supply, but this is highly impractical as doing so would cost almost $100 billion.
The consolidation will go into effect at approximately 1 a.m. EDT early Thursday. It is unclear what long-term impact Consolidation may have on Ethereum price. As of Wednesday night, the cryptocurrency is up around 4.00% since the start of the day.