A major transformation is about to happen for the second most popular cryptocurrency that could drastically reduce the amount of energy you use.
In a move dubbed “the 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 Ethereum team says It will reduce energy consumption by 99.95 percent.
Currently, the amount of energy that Ethereum uses is about 112 TWh per year. To put that into perspective, this is more electricity than the entire country of Pakistan uses in one year.
Here’s how the cryptocurrency plans to go green:
Withdrawal of proof of work
All cryptocurrencies like Ethereum are decentralized, which means that a ledger, or transaction records, are stored on multiple computers in the 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 a very complex mathematical equation to add to the ledger, in a process called “mining”.
When a new transaction comes in, all the computers on the network try to solve the math equation, and whichever computer solves it first is rewarded with some currency as a payment.
But this has motivated Ethereum “miners” to invest in large numbers of more powerful and more energy-intensive computers in order to give them a better chance of making money through mining.
Miners also pool their hardware together in what are known as “mining pools”. Just like an office lottery pool can give you a higher chance of winning the jackpot, mining pools work on the same principle, dividing their winnings among their members.
But Only three mining pools It makes up more than half of the computing power on the Ethereum network, leading to fears that the cryptocurrency will become too centralized. If a single mining group can control more than 50 percent of the computing power on the network, they can effectively seize the coin and have the ability to approve fake transactions. This is what is known as the “51 percent attack”.
Welcome to Risk Proof
Cryptocurrencies such as Ethereum have been the target of criticism from environmentalists, who point to high levels of energy consumption. But after the merger, Ethereum will move towards 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 math equations at the same time, and Proof of Stake proponents say this is a massive waste of energy.
Under the proof-of-stake systemOnly one computer is selected to validate the transaction. In order to participate as a validator, the user needs to deposit or “stake” 32 ETH. If the transaction is successfully validated, the validator will get the transaction fee as a reward.
While it may seem riskier to rely on just one validator, the system has guarantees. Authentication is verified by other computers on the network, and if the validator approves a fraudulent transaction, the validator loses part of its stake.
In theory, a 51 percent attack could still occur if one entity bought more than half of the total supply of Ethereum, but this is very impractical because doing so would cost close to $100 billion.
The merger is set to take effect around 1 a.m. ET early Thursday morning. It is unclear what long-term impact the merger could have on the price of Ethereum. As of Wednesday evening, the cryptocurrency is up about 4.00 percent since the start of the day.