The massive software upgrade for Ethereum has just been carried out today, marking a momentous development for the world’s second largest cryptocurrency as well as blockchain technologies in the years ahead.
The Ethereum Merge, as the event is called, has been happening for days and has just concluded today.
Watched by thousands of crypto and blockchain enthusiasts online, the change came with the promise of a 99.95 per cent cut in the electricity used to process transactions on the blockchain.
The Ethereum Merge would bring an end to many crypto mining farms that had been set up in recent years to enable cryptocurrencies such as Ether, the blockchain’s flagship crypto coin.
Each year, cryptocurrencies use an estimated 78 terawatt hours of electricity, or what the entire country of Chile consumes.
That has led to questions of sustainability for blockchain technology, the basic foundation of not just cryptocurrencies but also other decentralised Web3 services in future.
Without a centralised structure like a bank, these technologies rely on a large number of people to confirm, via consensus, that, say, a transaction has indeed taken place and place it on record.
Before today, on the Ethereum blockchain, this was done through something called proof of work.
To verify a transaction, crypto miners are asked to solve a difficult mathematical puzzle that requires a significant amount of computing power, in return for new units of the cryptocurrency.
However, this requires a good amount of energy as more people got into the game. On the plus side, a transaction is hard to falsify and reverse since it would take an unthinkable amount of computing power to do so.
What Ethereum has now switched to is called proof of stake. You no longer need to set up crypto mining farms and solve puzzles to validate a transaction going through on the blockchain.
Instead, those who validate a transaction would be trusted based on their holdings of, say, a cryptocurrency, which are believed to deter them from doing harm to the network.
This way, if you have a large-enough stake in the cryptocurrency, you can use something as simple as your PC to validate transactions that happen on the network.
Ethereum isn’t the first to use proof of stake, but it is the largest cryptocurrency to switch over, which is why there is now renewed optimism, as reflected in hedge funds racing to bet on Ether.
If the greener blockchain can take off, other cryptocurrencies could follow and move to this sustainable way of doing things. Crypto prices that have taken a beating of late might also rebound.
Clearly, there are possible bugs that could still happen with the Ethereum Merge. As with any software switchover, including your Windows or Mac OS upgrade, there’s always a concern that some things might stop working or apps might run unexpectedly.
Another big worry that experts have pointed out is security. What happens if enough large stakeholders gang up together to mount what is called a 51-per-cent attack?
As some have pointed out, crypto institutions such as as Coinbase and Binance also control a large proportion of staked Ether coin.
Theoretically, they can abuse their control of the distributed ledger, though this could also mean destabilising and potentially damaging the entire network and its crypto coin, for which they have the most to lose.
A related question is decentralisation. For small investors with a small stake in a crypto coin, it has become difficult to become a validator for future transactions.
In other words, how decentralised will such a blockchain be if a handful of big “whales” can concentrate their control over a network?
Don’t forget, more institutional investors are expected to jump in, including ones that were previously concerned about sustainability and are now ready to hop on the “greener” bandwagon.
Yet another issue is the fees involved. Though there has been optimism for lower fees, given that you don’t need to spend so much energy and compute power to process a transaction, it remains to be seen if it this would happen.
It’s no wonder there are already forked versions of Ethereum, which carry on some of the older characteristics and support crypto tokens still using proof of work to validate transactions. There are some who would prefer things don’t change.
In the end, a cautious optimism is what a blockchain technology watcher might hold. For it to move forward, it needed to tackle the idea of sustainability, and today is a big step towards that goal.