Ethereum has just set the merge in motion – and the stakes are huge for the planet. The merger is arguably one of the most anticipated events in cryptocurrency history, as the Ethereum blockchain transitions from a power-hungry strategy of validating transactions to a new strategy that consumes a fraction of the electricity as the network grows.
This transition should reduce Ethereum’s energy consumption by 99.95 percent. This is a big deal, as the cryptocurrency network is estimated to consume as much electricity annually as the country of Bangladesh. All that energy comes with a lot of carbon dioxide pollution, which exacerbates climate change. Ethereum’s native token, Ether, is the world’s second largest cryptocurrency by market capitalization after Bitcoin.
How is it that almost all the pollution that Ethereum was sending before has virtually disappeared? It’s complicated, so let’s break it down as simply as we can.
What is Merger?
This will lead to a dramatic change in how transactions are recorded on the Ethereum blockchain. A blockchain is a record of transactions held communally rather than by a single entity like a bank (check out to the edgeA handy blockchain explainer here). “Blocks” of transaction records are added to the chain by many different players, which is why blockchains are often described as “distributed ledgers.”
With so many players — also known as nodes — involved, blockchains need a security system to ensure that no one screws with or takes over the ledger. The old version of Ethereum’s security system is intentionally weak, so the network is switching to the new one through The Merge.
What made Ethereum so polluted in the first place?
Energy inefficiency was built into the network from the start, thanks to that old “security system” called Ethereum’s Proof of Work. With proof of work, “miners” validate new blocks of transactions by solving computational puzzles. This avoids double spending and miners earn new tokens in return. To prevent too many new tokens from flooding the market, puzzle solving becomes harder over time – requiring more energy.
The cost of solving those puzzles in equipment and power bills is meant to make it difficult for any one organization to gain much leverage on the ledger. If that were the case, it would defeat the purpose of having a decentralized economy in the first place. Additionally, it runs the risk of a bully coming along and altering the ledger for their own gain.
With proof of work, energy consumption and pollution balloon because miners can earn more tokens by adding more powerful computers to their operations. Crypto “mines” are giant data farms filled with hardware running around the clock to solve puzzles. When miners set up shop in a new location, they usually raise electricity bills for nearby communities. Additionally, they leave behind e-waste from the hardware used to solve those puzzles.
Apart from Ethereum, the other major cryptocurrency known for problems related to proof of work is Bitcoin. Dying fossil fuel power plants have been given new life as Bitcoin miners search for abundant, affordable energy to power their operations. Those plants spew more pollution into the air.
Policy makers are grappling with how to manage all the consequences arising from proof of work. New York, the epicenter of cryptomining after China cracked down on cryptomining in 2021, passed a temporary ban this year on cryptocurrency mining operations that use proof-of-work. Nationally, Democratic lawmakers have questioned crypto mining companies about their energy use and asked federal regulators to establish new regulations for crypto mining in the US.
There’s also the Change the Code, Not the Climate campaign, led by the nonprofit Greenpeace USA and the Environmental Working Group, which is pushing the Bitcoin network to follow Ethereum’s move.
Is the Merger Going to Solve Ethereum’s Environmental Problems?
The merger, if all goes well, is expected to significantly reduce Ethereum’s environmental footprint. To leave proof of work behind, Ethereum is moving to a new process for verifying transactions called proof of stake. This method completely eliminates those pesky puzzle solutions – eliminating the need for powerful hardware and huge amounts of electricity to maintain the blockchain.
Instead of using enormous energy costs as a deterrent to bad behavior, crypto tokens need to be locked as collateral for proof of stake. That way, validators have a stake in keeping the ledger accurate. If anyone else on the network discovers that the wrong blocks have been added to the chain, the culprit loses the tokens they staked. In case of Ethereum, you need to have 32 ETH tokens to start as a validator. With each token worth around $1,600 today — bad actors risk losing huge amounts of cash.
Validators are still rewarded with new tokens for doing the right thing. Staking tokens enter them into a new kind of lottery to validate blocks of transactions and receive that reward. An algorithm randomly selects which validators, among those holding the tokens, to create the next block in the chain. To increase the odds of being the one chosen to add a block, you need more tokens — No More computing power.
As a result, a successful transition to proof of stake is expected to reduce Ethereum’s energy consumption by at least 99 percent. The Ethereum Foundation puts the figure at around 99.95 percent. There is a percentage of wiggle room based on how much power is used after the merger by computers to store data and verify transactions. Validators still want to keep the computers running 24/7, but they don’t use much juice to solve those pesky puzzles.
Overall, we are talking about serious energy savings. According to Alex de Vries, a researcher who runs the Digieconomist website, which tracks Bitcoin and Ethereum’s energy use, this is equivalent to the electricity used annually by a quarter of the world’s data centers. De Vries estimates that if the merger is successful, the dramatic reduction in energy consumption could reduce carbon dioxide emissions by 30 to 35 million metric tons per year.
How does it all go down?
In short, all computers running blockchain software must update that software to the latest version that uses proof of stake. Of course, this is easier said than done when you’ve got hundreds of thousands of nodes in the network. But we’ll get back to that later.
To get to this point, researchers have developed a new “beacon chain” that uses proof of stake running parallel to Ethereum’s main proof-of-work blockchain. The old blockchain should eventually merge with the beacon chain, eliminating proof of work. The merger will take place in two phases and the first one has been launched after a few years of delay. The Bellatrix upgrade went live today, preparing the beacon chain for the final change over the next few weeks. In the second phase, the Paris upgrade, crypto mining for Ethereum that uses proof of work, should finally stop.
What could go wrong?
The bigger concern is that many miners will rebel and decide to stick with proof of work. They have already invested in setting up their crypto mining farms and many will struggle to give up their hardware. There are two distinct paths to this rebellion.
If enough of them decide to forgo a software update, they could keep Ethereum’s old proof-of-work blockchain alive. Some miners are already pushing to do this. If that blockchain continues, so will the pollution it produces. How much pollution again depends on how many miners revolt, and how much value the tokens on that zombie chain, called a “fork,” hold. They can only continue mining as much as the value of the token allows so that they can pay their electricity bills and make a profit.
Or, miners may choose to found another, more established proof-of-work blockchain. The Ethereum network was previously split in two in response to a hack in 2016, which created two blockchains: Ethereum and Ethereum Classic (both use proof of work). Now it looks like some Ethereum miners are sticking to their power-hungry ways and already going Classic in response to The Merge.
Ethereum also has security risks if not enough validators ultimately participate in the new proof of stake blockchain. “If you have too few validators, it’s very easy to attack the network. So we want to see a participation rate of hundreds of thousands of validators close to 99 percent,” said Leonardo Bautista Gomez, founder of blockchain research group Mega Labs, who worked with the Ethereum Foundation to help develop Beacon. chain
For Bautista Gómez, The Merge shows that “although it is technically difficult to implement, we make an effort to do it because we are aware of our environmental responsibilities.”
Even if everything goes smoothly with The Merge, blockchains are still inherently inefficient, says De Vries, who also works as a data scientist for De Nederlandsche Bank. By the nature of a distributed database, data is replicated across multiple devices and thus consumes more power. However, De Vries concedes that proof of stake is orders of magnitude less wasteful than proof of work.
The merger is expected to be temporary By the end of the month. We will then see how successful the transition has been and what new challenges have arisen.