If you type the phrase “union” into Google today, you will be treated with a countdown: it will arrive in just over two days, at the time of this writing. The countdown is ticking to one of the biggest changes the cryptocurrency world has ever seen.
The merger refers to the transition of the Ethereum network from a proof of work to a proof of stake mining system. The ether is the second largest cryptocurrency by market capitalization, coming behind Bitcoin. From January, 80% of the world’s NFTs were on the Ethereum network. When people talk about Web3 applications in cryptography, they often talk about development on the Ethereum blockchain or related protocols. This change could greatly reduce the greenhouse gas emissions of blockchain technology, but there are some thorny problems to address.
What is the difference between proof of work and proof of stake, from a climate point of view?
The enormous energy consumption of the world’s cryptocurrencies comes from a mining process known as proof of work, which requires significant computing power. In this proof-of-work system, miners use enormous energy-consuming machines to run to solve an equation; whoever solves the equation first has the privilege of creating the next block on the blockchain.
“I like to describe it as a huge game of guessing the number, where only the first to guess correctly can create the next block for the blockchain,” said Alex de Vries, the founder of Digiconomist, a website that tracks emissions. of carbon from cryptocurrencies. “The bitcoin network is currently generating 200 quintillion of those guesses every second of the day, or 200 with 18 zeros. What they’re basically doing is going, right 1? Are they 2? Are they 3? But they are doing it at a very high speed and hoping that at some point they find the one that meets the requirements. If you succeed, you are in luck: you create the next block in the blockchain and get the reward associated with it.
Proof of the stakes, meanwhile, works much more like a lottery. Instead of running numerous machines, miners send out a form of guarantee, such as buying a lottery ticket, to get in and have a chance to build the next block on the blockchain.
“In proof of stake, someone is simply pulled out of a hat at random, which does not require any energy,” said David Yermack, a professor of finance at New York University’s Stern School of Business.
By moving to the lottery system represented by the proof of stake, the network will no longer need the energy-sucking computers that work out equations for the proof of work systems. Some estimates foresee that, if completed successfully, the Merger could be eliminated over 99% carbon footprint of the network. Given that the Ethereum network currently has a carbon footprint roughly the size of that of Finlandthis is a pretty important update.
What exactly will happen this week?
Ethereum blockchain leadership said last week that the network will update its software between September 13-15. The update will affect what is known as the ethereum difficulty, the amount of time it takes a miner to solve a problem to create a new block on the blockchain. Crypto software usually updates itself to ensure that problems can be resolved in a reasonable amount of time. But this week, the Ethereum network will increase what is known as the currency difficulty, effectively making mining with the old proof of work system impossible.
“The difficulty will rise to an enormously increased level: the so-called ‘difficulty bomb’ will explode,” said Yermack. “People who mine proofs of work will have no choice considering how difficult it will be to mine with the old system. They will have to put down picks and shovels, stop mining the old way and move on to the new way. “
This shift, in theory, will usher in a new permanent way of undermining ethereum that doesn’t use all that energy. “Basically, all power consumption will go away,” Yermack said. “It is very cheap to pick someone at random by running a lottery. You compare this to people doing trillions of calculations per second, using extremely powerful computers that require a lot of energy – the point is to reduce energy consumption and that will make it disappear.
Will everything go smoothly?
It depends on several factors. Ethereum’s leadership, De Vries pointed out, has said many times in the past that they would move to Proof of Stake and didn’t. But that’s the furthest point they’ve gotten in the process and the first time they’ve given such a solid date for a change; as we get closer, it is always safer to assume it something it will happen this week.
Like any software changes, there may be bugs in the actual update material that could hinder the transition. But a bigger problem could come from the miners’ decision not to cooperate with the new way of working. The Proof of Work method has meant that Ethereum miners, like all cryptocurrency miners, have spent a lot of money investing in physical processors to solve equations, an investment they would be reluctant to give up with the move to proof of stake.
The miners could create what is known as a forkor a split from the main blockchain to create a separate version of the network. Both the Bitcoin and Ethereum networks have already experienced forks that have created different versions of the currencies, known as Bitcoin Cash and Ethereum Classic. If enough aether miners stick to the test of work, it could still keep many of the machines running that should have been retired after the merger and create emissions.
A team of these miners say they did already disassembled the bomb of difficulty and are preparing to creat a hard fork. If tThese miners run their machines proof of mining work, just on a different fork of Ethereum, or simply by switching to mining other cryptocurrencies, this could mean that many of these energy-hungry mining machines stay online, run, and absorb power, even as the rest of the network goes by..
“The miners have every reason to try,” De Vries said. “They will lose all their income, so why not give it a try?”
If the merger goes well, have all the environmental problems of cryptocurrencies been solved?
Not really. For starters, correcting Ethereum emissions ignores the real crypto elephant in the room: Bitcoin. Even after the cryptocurrency crash earlier this year, the Bitcoin network remained issues an estimate 71.5 megatonnes of CO2 per year, far less than that of Ethereum 46.8 megatons.
De Vries said there is a possibility that a successful transition of Ethereum towards proof of stake could initiate a similar process for Bitcoin, especially given a recent attempt by EU Parliament and the leadership of some countries prohibit dirty extraction. “I fully expect that, at least in Europe, a ban on proof of work will be back on the table very soon,” she said.
But Yermack is skeptical. He pointed out that unlike Ethereum, which has centralized leadership and recognizable public figures at the helm to help encourage a big transition like Merge, the Bitcoin network is run in a more decentralized way: its founder is notoriously anonymous and any changes to the proof of stake would have to convince the operators of the thousands of Bitcoin “nodes” to make the change.
“There was a political dimension [Ethereum] becoming environmentally friendly has never been a problem for the people who launched Bitcoin, “he said.” There will be a fantasy on the part of environmentalists like, okay, now Bitcoin can change, but it is a very difficult governance problem “.
If the Bitcoin network were to eventually switch, it would be huge for cryptocurrency issuance, but it’s still not a silver bullet. Cryptocurrency, as De Vries pointed out, is fundamentally built to provide stability across a decentralized network: the more machines are on it, whether they are running proof-of-stake or proof-of-work, the more secure the network is. This is the opposite of what will be needed when the world changes its systems to combat climate change.
“From a blockchain standpoint, you always want more machines, but from a climate and efficiency standpoint, less is more,” he said. “The thing is, if you add proof of work to it, you can make things worse ten thousand times. I wouldn’t say that going to the participation test completely solves all the sustainability challenges related to cryptocurrencies – I always tell people, if we didn’t have a proof of work and only had a test of participation today, we would probably be quite frustrated by the amount of inefficiency that introduces. But now we have blockchains that work on proof of work and make proof of proof look really good. “
However, De Vries said, any passage to the test of participation is more than welcome before discussing these other issues. “Let’s solve the biggest part of the problem first.”