Ethereum Merger: Software Upgrade Could Reduce Power Consumption

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New Delhi
CNN Business

Ethereum, the world’s second most valuable cryptocurrency, has completed a massive software upgrade that its backers say will reduce its carbon footprint.

The long-awaited overhaul, known as “The Merge,” will reduce Ethereum’s power consumption by nearly 99.95%, according to the Ethereum Foundation, a nonprofit organization dedicated to supporting crypto- currency and its associated technologies.

“The merger refers to the merging of the original Ethereum mainnet with a separate blockchain called Beacon Chain,” he added.

Until now, Ethereum and Bitcoin operated on a mechanism called “proof of work”, whereby powerful computers were needed to solve complex puzzles. The merger moves Ethereum to a mechanism called “proof-of-stake,” which is much more energy-efficient because it removes the need to compete with computers. Instead, users are depositing their ether to participate in the race for more currencies.

With this change, Ethereum hopes it will “improve security, reduce energy consumption, increase the number of users on the network and increase its market capitalization”, wrote Marion Laboure, research analyst at Deutsche Bank, in a note this week.

“Happy merging everyone,” Vitalik Buterin, the 28-year-old Russian-Canadian programmer who helped create Ethereum said on Twitter. “This is a great moment for the Ethereum ecosystem. Everyone who helped make the merger happen should be very proud today,” he added.

The co-founder said the upgrade “will reduce global electricity consumption by 0.2%.”

While cryptocurrencies have seen a phenomenal rise in recent years, observers say they are terrible for the environment. According to Digiconomist, a platform that tracks crypto energy usage, a single Ethereum transaction is equivalent to the weekly energy consumption of an average US household.

Earlier this month, Digiconomist said that the power checked in following the upgrade would be “probably equivalent to the electrical energy consumption of a country like Portugal”. It could also become the “final nail in the coffin” of Bitcoin’s transaction mechanism.

Ethereum was down 0.7% after the news, trading at $1,592.78, but analysts say the upgrade could have a big impact on the crypto world in the long run. The world’s most valuable cryptocurrency, bitcoin, fell nearly 1%, trading at $20,174, according to CoinDesk.

“It’s been a while and the question on traders’ lips right now is whether this will be the next bullish catalyst for cryptos or a ‘sell the fact’ event,” wrote Craig Erlam, senior market analyst at Oanda, in a note on Thursday.



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