Cryptos: Ethereum is moving to Proof of Stake, and that will change everything

Cryptos: Ethereum is moving to Proof of Stake, and that will change everything

By completely changing its model by September 20, the world’s second-largest cryptocurrency could very well launch a major paradigm shift.

The world of cryptocurrencies is about to experience a major generational change. Ethereum, the second cryptocurrency in the world behind the essential Bitcoin, is preparing to completely change its technological model to switch to Proof of Stake (PoS), a transition that should greatly reduce its environmental impact and that could well mark the beginning of a large-scale transition in this entire industry.

In fact, the main criticism leveled at these digital-only currencies concerns their catastrophic contribution to global warming. According to a study published by the prestigious Columbia University in May 2022, Bitcoin would consume the equivalent of 150 terawatt-hours of electricity per year… more than all of Argentina with its 45 million inhabitants.

And all this electricity has to be produced somewhere; Although some observers believe that 40-75% of this energy would come from renewable sources, the carbon impact of bitcoin remains globally very significant. The observation is essentially the same for most other cryptocurrencies, each on its own scale.

The Proof of Work model, an energetic abyss

This energy consumption is directly related to the main interest of cryptocurrencies, namely the decentralized structure on which they rest, the famous block chain. In practice, it is a transaction log. Let’s take the example of Bitcoin ; every time a user wants to transfer something, the transaction is verified by the other users before being registered in the blockchain in the form of a new block.

However, to add this famous block, you must first have a key which can be obtained by solve a mathematical equation. And the first member of the block chain that manages to authenticate a transaction and record it in this virtual ledger is rewarded for your contribution directly in Bitcoins.

With a very powerful system, we can solve these equations in industrial quantities with the hope of earning the bitcoins in question; So we talk about mining. The problem is that this principle, dubbed Proof of Work, has gradually led to the emergence of a real race on a planetary scale.

Since only the first computer to solve the problem can win this much sought-after lot, miners have gradually equipped themselves with more and more powerful machines; Today there are lots of cryptocurrency “farms” where lots of graphics cards connected in series grind equations all day long.

These powerful machines are by definition very energy intensive, which is already exploiting the carbon impact of these technologies. The other concern is that all the electricity consumed by the other miners who lost this race has been absolutely useless, in addition to heating hundreds of computers. And in the current context, it becomes very important to find a new model that is more relevant to our environmental objectives.

The Proof of Stake, a model that looks to the future

And this is precisely what the Ethereum Foundation intends to do with its transition to proof of stake. Here, the process that allows the entire blockchain to reach a consensus is different. Participants must bet a certain number of chips (“bets“) for a chance to add blocks to the blockchain.

In practice, this sum serves as a deposit; If the user (we talk about “validator” in this specific case) gets involved in dubious manipulations, he can immediately lose his entire bet. he has then any interest in respecting the integrity of the blockchain.

This approach presents A lot of advantages Y some significant flaws that we will not detail here; the most important element of them is undoubtedly the immense energy savings that it allows to achieve.

With the proof-of-stake model, it is no longer necessary to put many overloaded machines in service of a process in which most of the energy is sacrificed; any user can aspire to snatch a token. Just drop a ” bet which, in the case of Ethereum, amounts to 32 ETH (which is still just over €50,000 at the current price).

Towards a complete transformation of the crypto ecosystem?

Ethereum is not the first virtual currency to start this great conversion; but knowing its status as the leader of the crypto ecosystem, it remains an important step in the history of this technology.

According to the Ethereum Foundation, this cryptocurrency consumes around 112 TWh per year. Or the equivalent of the Netherlands. Its carbon footprint is equivalent to that of Singapore at around 53 megatons per year. The transition to proof of stake, which should starts today and ends between September 10 and 20should make it possible to reduce the energy bill by over 99%!

Suffice to say, all eyes will be on ETH in the coming days and weeks. The transition promises to be extremely complex from a technological point of view; but if everything goes smoothly and proof of stake works as intended on a large scale, without any harmful side effects, it will be a big paradigm shift to which the entire industry will likely have to become as the carbon footprint of Proof-of-Work based cryptocurrencies will become almost indefensible.

We can also expect some regulatory changes. For example, last March, the European Parliament voted against a bill aimed at purely and simply banishing the PoW model; if successful, Ethereum may well force lawmakers to reconsider their position.

We could then move towards a global model that consumes less energy and is therefore much healthier and more sustainable. And this is precisely the main interest of this transition; Proof-of-stake could help cryptocurrencies integrate into the mainstream economy, while today they are mostly used for speculation. It will therefore be convenient to carefully observe this transition, but also and above all its repercussions, which will undoubtedly be significant.

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