A big change is about to happen for the second most widely circulated cryptocurrency that could drastically reduce the amount of energy it uses.
In a move that has been dubbed “The Merger,” Ethereum will change the way it validates your transactions, from a “proof-of-work” system to a “proof-of-stake” system, which the ethereum team says It will reduce power consumption by 99.95 percent.
Currently, the amount of energy that Ethereum uses is about 112 terawatt hours per year. To put that in perspective, that’s more electricity than the entire country of Pakistan uses in a year.
This is how the cryptocurrency plans to go green:
TRENCH WORK TEST
All cryptocurrencies like Ethereum are decentralized, meaning that the ledger, or transaction records, are stored on multiple computers on a network.
Ethereum currently 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 in order to add it to the ledger, in a process called “mining.”
When a new transaction comes in, all the computers on the network try to solve the mathematical equation, and the computer that solves it first is rewarded with some currency as payment.
But this has incentivized Ethereum “miners” to invest in a lot of more powerful and power-hungry computing hardware to give them a better chance of making money through mining.
Miners are also pooling their hardware into what are known as “mining pools”. Just like an office lottery pool can give you a higher chance of winning the big prize, mining pools work on the same principle, dividing their winnings among their members.
But only three mining pools they account for more than half of the computing power on the Ethereum network, raising concerns that the cryptocurrency is becoming too centralized. If a single mining pool were to gain control of more than 50 percent of the computing power on the network, it could effectively take over the coin and have the ability to approve fake transactions. This is what is known as the “51 percent attack.”
HELLO PROOF OF SHARE
Cryptocurrencies such as Ethereum have come under fire from environmentalists, who point to high levels of energy consumption. But after the merger, Ethereum will transition to a proof-of-stake system, which is expected to use only 0.05 percent of the energy 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.
Under a proof of stake system, only one computer is selected to validate the transaction. To participate as a validator, a user must deposit or “stake” 32 ETH. If the transaction is successfully validated, the validator will receive the transaction fees as a reward.
While it may seem riskier to trust a single validator, the system has safeguards. Validations are verified by other computers on the network, and if a validator approves a fraudulent transaction, the validator loses a portion of their stake.
Theoretically, a 51 percent attack can still occur if one entity buys more than half of the entire Ethereum supply, but this is highly impractical as it would cost nearly $100 billion.
The Merger will go into effect around 1 am EDT early Thursday morning. It is unclear what long-term effect the Merger could have on the price of Ethereum. As of Wednesday night, the cryptocurrency is up around 4.00 percent from the start of the day.