An army of computer programmers scattered around the world is set to attempt one of the biggest software upgrades the cryptocurrency sector has ever seen this week to reduce environmentally unfriendly energy consumption. Developers have spent years working on a more energy-efficient version of the Ethereum blockchain, a digital ledger that underpins a multibillion-dollar ecosystem of cryptocurrencies, digital tokens (NFTs), games and apps. Ethereum, the second most important blockchain after Bitcoin, consumes more energy each year than New Zealand. Experts say the switch, expected to take place between Tuesday and Thursday, will reduce energy consumption by more than 99%. Enthusiasts hope that a greener Ethereum will spur wider adoption, particularly as a way to allow banks to automate transactions and other processes. But so far the technology has largely been used to create speculative financial products. ING Bank said in a recent note that the transition may help Ethereum gain acceptance from policymakers and regulators. “This in turn may boost the willingness of traditional financial institutions to develop ethereum-based services,” the bank said. –
“Technological Milestone”
The transition, called “the merger,” will change the way transactions are recorded. Currently, so-called crypto miners use energy-consuming computing devices to solve puzzles that reward them with new coins, a system known as “proof of work.” The new system will get rid of these miners and their computer stacks overnight. Instead, “validators” will have to put in 32 Ether (worth $55,000), Ethereum’s cryptocurrency, to participate in the new “proof of stake” system where they earn rewards for their work. But the merger process will be risky. Blockchain firm Consensys called it a “monumental technological milestone” and Ethereum’s biggest update since it launched in 2015. Critics questioned whether such an upgrade would go off without incident, given the industry’s history of volatility. Ethereum was taken offline in May for three hours when a new NFT project sparked a surge of buyers flooding the network. Several crypto exchanges and firms have said they will cease trading during the merger process.
“Decentralized and complex”
The upgrade also faces a potential revolt from cryptocurrency mining companies whose business would be severely damaged. They can try to hack the process or create a “fork”, basically a smaller blockchain that will continue with the old mechanism. And even if the “merger” is successful, Ethereum will still face major hurdles before it can be widely adopted. For example, it is expensive to use and updating will not reduce fees. The broader crypto sector has been plagued by wild price fluctuations, security flaws and a host of scams. Crypto lawyer Charles Kerrigan from CMS said Ethereum was “decentralized and complex” and hadn’t been tested enough for governments and banks to use it. “There were questions about how easily it could handle upgrades of the type that traditional software vendors provide to customers,” he said. “A successful merger will answer these questions.”
