If you type the phrase “the Merge” into Google today, you’ll be treated with a countdown: It’s coming in a little over two days, as of this writing. The countdown is ticking off the time until one of the biggest shifts the crypto world has ever seen.
The Merge refers to the transition of the Ethereum network from a proof of work mining system to a proof of stake one. Ether is the second-biggest cryptocurrency by market cap, coming in behind Bitcoin. As of January, 80% of the world’s NFTs were on the Ethereum network. When people talk about Web3 applications in crypto, they’re often talking about developing on the Ethereum blockchain or related protocols. This shift could majorly reduce the greenhouse gas emissions from blockchain technology, but there are some thorny problems ahead.
The huge energy consumption from the world’s cryptocurrencies comes from a mining process known as proof of work, which requires significant computing power. In this proof of work system, miners use machines that eat up enormous energy to race to solve an equation; whoever solves the equation first is given the privilege of creating the next block on the blockchain.
“I like to describe it as a massive game of guess-the-number, where only the first one to guess correctly gets to create the next block for the blockchain,” said Alex de Vries, the founder of Digiconomist, a website that tracks carbon emissions from cryptocurrencies. “The bitcoin network is currently generating 200 quintillion of those guesses every second of the day—that’s 200 with 18 zeroes. What they’re doing is basically going, is it 1? Is it 2? Is it 3? But they’re doing it at a very high speed, and hoping at some point they find the one that fits the requirements. If you succeed, lucky you: you get to create the next block in the blockchain, and you get the reward associated with it.”
Proof of stake, meanwhile, functions much more like a lottery. Instead of putting numerous machines to work, miners submit a form of collateral—like buying a raffle ticket—to enter for a chance to build the next block on the blockchain.
Smart home blinds
Shop Blinds.com’s premium smart home blinds, the very good EZ-A and the impressive Eve MotionBlinds.
“In proof of stake, somebody is just picked out of a hat at random, which takes no energy at all,” said David Yermack, a professor of finance at New York University’s Stern School of Business.
By switching to the lottery system represented by proof of stake, the network will no longer need the energy-sucking computers that grind out equations for proof of work systems. Some estimates predict that, if pulled off successfully, the Merge could eliminate more than 99% of the network’s carbon footprint. Given that the Ethereum network currently has a carbon footprint roughly the size of Finland’s, that’s a pretty major upgrade.
The leadership of the Ethereum blockchain said last week that the network would update its software between September 13 and 15. The update will affect what’s known as the difficulty of ethereum—the amount of time it takes for a miner to solve a problem to create a new block on the blockchain. Crypto software usually updates to ensure that problems are able be solved in a reasonable amount of time. But this week, the Ethereum network will up what’s known as the currency’s difficulty—making it effectively impossible to mine under the old proof of work system.
“The difficulty will set to an enormously increased level—the so-called ‘difficulty bomb’ will go off,” Yermack said. “The people doing proof of work mining, they will have no choice considering how difficult it will become to mine under the old system. They will have to put down their picks and shovels, stop mining the old way, and come over to the new way.”
That change will, theoretically, usher in a permanent new way of mining ethereum that doesn’t use all that energy. “Basically, all the energy use will go away,” Yermack said. “It’s very cheap to pick someone at random by running a lottery. You compare that to people who are doing trillions of calculations per second, running enormously powerful computers that take a lot of energy—the whole point is to dial down the energy consumption, and this will make it all but disappear.”
That depends on several factors. Ethereum leadership, De Vries pointed out, has said many times in the past that they were going to switch to proof of stake, and have not made the switch. But this is the farthest they’ve gotten in the process and the first time that they have given such a concrete date for a switch; as we get closer, it’s safer and safer to assume that something will happen this week.
Like any software change, there could be bugs in the actual material of the update that could hamper the transition. But a larger issue could come from miners deciding not to cooperate with the new mode of working. The proof of work method has meant that Ethereum miners, like all cryptocurrency miners, have spent a lot of money investing in physical processors to solve equations—an investment they’d be loath to give up on with the switch to proof of stake.
Miners could create what’s known as a fork, or a split away from the main blockchain to create a separate version of the network. Both the Bitcoin and Ethereum networks have already experienced forks that created different versions of the currencies, known as Bitcoin Cash and Ethereum Classic. If enough ether miners stick with proof of work, it could keep many of the machines that were supposed to be retired after the Merge still active and creating emissions.
One team of these miners say they have already dismantled the difficulty bomb and are readying to create a hard fork. If these miners keep their machines doing proof of work mining, just on a different Ethereum fork—or by simply moving to mining other cryptocurrencies—that could mean many of these energy-hungry mining machines remain online, working and sucking up energy, even as the rest of the network transitions.
“The miners have all the reason to try,” De Vries said. “They’re going to lose all their income, so why not give it a shot?”
Not quite. For starters, fixing Ethereum’s emissions ignores the real crypto elephant in the room: Bitcoin. Even after the crypto crash earlier this year, the Bitcoin network still emits an estimated 71.5 megatonnes of CO2 per year, far dwarfing Ethereum’s 46.8 megatonnes.
De Vries said there’s a chance that a successful Ethereum transition to proof of stake could jumpstart a similar process for Bitcoin, especially given a recent attempt by the EU Parliament and the leadership of some countries to ban dirty mining. “I fully expect that, at least in Europe, pretty soon a ban on proof of work is going to be back on the table,” he said.
But Yermack is skeptical. He pointed out that, unlike Ethereum, which has a centralized leadership and recognizable public figures at the helm to help encourage a big transition like the Merge, the Bitcoin network is run in a more decentralized fashion: Its founder is famously anonymous, and any switch to proof of stake would have to persuade the operators of the thousands of Bitcoin “nodes” to make the change.
“There was a political dimension to [Ethereum] becoming environmentally friendly that was never an issue with the people who put Bitcoin out there,” he said. “There’s going to be a fantasy on the part of environmentalists like, okay, now Bitcoin can switch, but it’s a very difficult governance problem.”
If the Bitcoin network does eventually transition, that would be huge for crypto’s emissions—but still not quite a silver bullet. Cryptocurrency, as De Vries pointed out, is at its core constructed to provide stability through a decentralized network—the more machines on it, whether they be running proof-of-stake or proof-of-work, the more secure that network is. That’s the opposite of what is going to be needed as the world shifts its systems to combat climate change.
“From a blockchain perspective, you always want more machines, but from a climate and efficiency perspective, less is more,” he said. “The thing is, if you add proof of work on top of it, you can make things ten thousand times worse. I wouldn’t say moving to proof of stake completely solves all sustainability challenges related to crypto—I always say to people, if we didn’t have proof of work and we just had proof of stake today, we would probably be pretty frustrated about the amount of inefficiency that it introduces. But now we have blockchains that run on proof of work and they make proof of stake look really good.”
Still, De Vries said, any switches to proof of stake are more than welcome before discussing these other issues. “Let’s first fix the biggest part of the problem.”
Author
Administraroot
Related Posts
