Ethereum, the blockchain network behind the world’s second-largest crypto token Ether, has just completed a major software upgrade that could revolutionize the world of cryptocurrencies, some experts say. say.
Dubbed “Merge” by crypto enthusiasts, the upgrade promises to reduce Ethereum’s energy consumption and attract more users. Climate activists have long criticized digital assets due to the enormous amount of electricity used in their production and the large amount of CO2 emissions they produce. The University of Cambridge and Digiconomist estimate that the two largest crypto assets, Bitcoin and Ethereum, together use about twice as much electricity as Sweden as a whole in a year.
The high energy consumption of crypto production is due to “proof of work”, the way transactions are verified and more digital assets are produced. By upgrading its software, Ethereum will change the process to “proof of stake,” reducing energy consumption, attracting more users and speeding up transactions, experts say.
“A merger could be one of the most significant events in history,” for digital assets, says Jacky, CEO and founder of Rewards Bunny, a platform that offers shoppers cashback in cryptocurrencies or US dollars. Mr Goh said. “Ethereum will become more usable and scalable, leading to better adoption.”
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What is Proof of Work (PoW)?
Confirming transactions on a blockchain requires solving complex mathematical puzzles using powerful computational power. Once the puzzle is solved, the transaction is added to the blockchain ledger and the first person or miner to solve the puzzle is rewarded with cryptocurrency. This is also how new cryptocurrencies are released.
What is Proof of Stake (PoS)?
This method replaces miners with “validators” that create new blocks with cryptocurrencies as collateral. Instead of competing to be the first to solve the same mathematical puzzle and create a new block, people are randomly chosen by an algorithm that validates or confirms transactions.
Your chances of being selected as a validator depend on how much you pledge or “bet”, so many people pool their digital coins to increase their chances of being selected. , divided along the amount that each person contributed.
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What are the advantages of PoS?
Not everyone is trying to solve the same math puzzles at once, so it doesn’t require massive computing power and is more energy efficient than PoW.
It also has a lower barrier to entry as it does not require as much computing power. Expensive special hardware that can compute complex equations at the speed of light is no longer needed.
BestBrokers analyst Alan Goldberg said: “Electricity consumption is expected to drop by a whopping 99.95%, especially in the context of the current energy crisis.”
And its lower energy consumption could be key to “making Ethereum more acceptable to policymakers and regulators,” said Teunis Brosens, head economist for digital finance and regulation at ING. wrote in the report. “This removes one obstacle for traditional financial institutions and other companies to offer his Ethereum-based services.”
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What are the disadvantages of PoS?
Some say the adoption of Ethereum by policy makers, regulators, and financial institutions speaks to PoS as a major downside.
Cory Klippsten, CEO of SwanBitcoin.com, has published an article on the World Economic Forum (WEF) homepage praising the merger as a “major shift towards sustainability among cryptocurrencies.” .
Klippsten said that if an entity like the WEF decides to hold large amounts of cryptocurrency, it can do so without barriers and exert influence over Ethereum.
Ethereum has never been truly decentralized like Bitcoin, he argues. “Ethereum is started by a group of people like a company, funded like a company, and run like a company,” he said.
Medora Lee is a money, markets and personal finance reporter for USA TODAY. You can contact her at [email protected] and subscribe to her free Daily Her Money newsletter where you can get personal her finance tips and news about her business every Monday through Friday morning.