Ethereum’s “merge” could help clean crypto’s dirty energy reputation

Cryptocurrency mining is basically verification that transactions on the blockchain are legitimate. One method to do that is “proof of work.”

Think of it like a horse race. Multiple supercomputers race each other to verify transactions. The fastest miner wins some crypto. But that takes a lot of electricity.

So soon, blockchain platform ethereum will shift to a different method: “proof of stake.” Instead of multiple horses/miners running and expending energy at the same time, one “validator” wins a lottery to verify the transaction.

Alex de Vries, founder of Digiconomist, a website that tracks cryptocurrency energy consumption, explained what the shift means to Kimberly Adams. The following is an edited transcript of their conversation.

Alex de Vries: That changes the block creation process in such a way that you no longer need the energy in terms of hardware anymore. In fact, in proof of stake, you do still need a device with an active internet connection. And you do need to run that device 24/7. But a big part of the energy consumption that’s needed to run the energy-intensive proof of work just gets eliminated essentially overnight.

Kimberly Adams: So what’s the significance of ethereum choosing to switch from one system to the other?

De Vries: The biggest implications will be in terms of environmental sustainability. What we see is that a proof-of-work mining-based cryptocurrency like bitcoin and ethereum, before the merge, can also be responsible for huge amounts of energy consumption. We see that the bitcoin and ethereum networks combined were consuming as much power as all data centers in the world together, roughly 1% of our total global electricity consumption just for these two networks. But if you move away from the energy-intensive mining and you replace it with proof of stake, you can reduce the power requirement to run such a system by at least 99%, and potentially even more than that.

Adams: What would this transition mean for the miners, and especially those in companies that have invested so much money in building up this computing capacity to compete for those blocks under the proof-of-work model?

De Vries: Well, simply said, the miners are going to be out of business. There will be nothing to mine. It’s just a process that’s no longer required when you make this switch.

Adams: Bitcoin is still going to operate on the proof-of-work model. Can miners who are losing out in this ethereum merge just switch over to mining bitcoin?

De Vries: It’s not that simple, because the bitcoin and ethereum systems use different types of mining algorithms. I will not go into the technical details, but what it comes down to is that you can’t use bitcoin mining devices to mine ethereum and vice versa. You’re not going to have any success mining bitcoin with ethereum mining devices.

Adams: What are the chances that bitcoin, which is bigger than ethereum and also has this huge environmental impact, might also switch over to proof of stake rather than proof of work?

De Vries: I think that’s a very complicated question, to be honest, because if you ask the community directly, the bitcoin community directly, they will say, “We’ll never switch.” And they have made the lack of change in bitcoin part of their marketing. They’re saying, “OK, bitcoin is the safest cryptocurrency you can invest in because it will never change.” Whereas in ethereum, from the very beginning, there has always been this plan to move from proof of work to proof of stake. And we’ve seen over the past year, the energy use of the bitcoin network in particular has managed to draw a lot of attention from regulators around the world. Any talk about a potential ban might be back on the table in no time. And if that happens, of course, the environment can rapidly turn against the bitcoin community. But that’s all speculative, and we’ll first have to see whether this merge is going to be successful and whether that success is going to last.

Related links: More insight from Kimberly Adams

CoinDesk has a great piece outlining the difference between proof of stake and proof of work.

The ethereum merge is set to take place later this month. But the software to make the merge happen has already started its work. Programmers have nicknamed that software switch Bellatrix.

And Alex De Vries’ site, Digiconomist, has a new publicly accessible platform where developers can download carbon footprint data for the bitcoin, ethereum, and dogecoin networks. So you can follow along to see how ethereum’s carbon footprint changes when the merge happens.

At least if it all runs smoothly.