Making Cryptocurrencies More Sustainable: Follow Ethereum’s Lead

Making Cryptocurrencies More Sustainable

Making Cryptocurrencies More Sustainable: Follow Ethereum’s Lead

Due to the significant energy consumption of bitcoin mining, there is a problem with carbon emissions. In fact, since it was recently discovered that the manufacturing of cryptocurrencies generates as much annual carbon dioxide as a small country, cryptomining restrictions have appeared all over the world. Making Cryptocurrencies Notably, Ethereum, the main rival of Bitcoin, Making Cryptocurrencies

has altered its production process to cut the amount of electricity it needs by at least 99.84%. In a perspective piece that will be released today (December 6) in the journal Patterns, crypto economist Alex De Vries discusses how Ethereum made the adjustment and how consumers and governments should assist the move to more sustainable models for other cryptocurrencies.

On September 15, 2022, Ethereum implemented a transition that they refer to as The Merge. The process of creating the data blocks that make up the cryptocurrency’s foundation was altered by this update. According to De Vries, a data science and economics researcher at Vrije Universiteit Amsterdam in the Netherlands, “Before The Merge,

Ethereum was exactly the same as Bitcoin in the way it functioned, and the way it was using energy, because they were both running on an energy-intensive mechanism called proof of work.” “But Ethereum is now operating quite effectively because it moved away from this mechanism.”

A computer is needed to create the blocks that make up a blockchain.

Bitcoin’s proof-of-work algorithm employs computers to generate crypto hashes at random until one of the participating devices discovers an output that satisfies the necessary conditions to finish a new block. “With proof of work, all you can do is wait for a fortuitous break. It’s nearly like playing a numerical guessing game, just faster. When you correctly predict the winning number, you get to build the following blockchain block, according to De Vries.

The only factor restricting production with this method is the computer bandwidth miners have available to them because it operates entirely arbitrarily. In other words, your chances of winning the guessing game increase with the number of machines crunching numbers.

This is what has motivated miners to erect enormous warehouses filled with computers that run continuously, frequently using energy produced from fossil fuels.

Ethereum’s proof-of-stake mechanism replaced its proof-of-work system following The Merge. The core blockchain is mostly unaffected by this, but it changes how new blocks are generated. Before and after The Merge, there was still a “literal chain of blocks of transactions,” according to De Vries. Even that has not changed, since you are still paid for building bricks.

“The portion of the system where everyone is just fighting with one another,

trying to guess as quickly as they can, and expecting to be the first one has been deleted. They still have a lottery element, but with proof of stake, you actually have to get wealthy and put up at least 32 ether as collateral to become a validator who produces blocks.

The next block for the blockchain is then created by one of these stakeholders who is selected at random by the software. According to De Vries, there is no incentive for participants to compete for hardware.

Making Cryptocurrencies

Of course, when Ethereum switched to proof of stake, the rooms full of computers that were being utilized for mining didn’t suddenly vanish. Many of these units may have changed to mining different proof-of-work currencies or been put to use for other energy-demanding jobs unrelated to cryptomining. Even worse,

it’s possible that previously unutilized Bitcoin miners have taken over Ethereum miners’ previously occupied data center space, limiting the overall energy savings.

The energy savings from a global viewpoint won’t be in line with the energy savings on the same network itself, according to De Vries, if those machines don’t shut down permanently.

He contends that policy,

such as carbon disclosure laws, environmental fees, or trading restrictions on cryptocurrencies using proof of work, is essential for getting the crypto industry away from extremely energy-intensive mining techniques. Public education has not shown to be sufficient.

According to De Vries, if those devices don’t completely shut down, the energy savings from a global perspective won’t be in line with the energy savings on the same network itself.

For the crypto sector to move away from excessively energy-intensive mining techniques, he argues that policy, such as carbon disclosure requirements, environmental taxes, or trading limits on coins using proof of work, is crucial. The results of public education have not been adequate.

According to De Vries, this is being discussed at the highest levels of government. “Regulation could influence the community to reevaluate its current position.

The Bitcoin community has historically been very resistant to change, but the Ethereum community has demonstrated that despite worries and opposition, it is possible to make the required changes on a live blockchain. As a result, the Bitcoin community may need some outside assistance to actually get things done.

Citation: Alex De Vries, “Cryptocurrencies on the road to sustainability: Ethereum paving the way for Bitcoin,” Patterns, 6 December 2022. DOI: 10.1016/j.patter.2022.100633

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