PARIS: Ethereum, the second most important “blockchain” in the world of cryptocurrencies following that used for bitcoins, has managed to transform itself to drastically reduce its environmental impact, but according to specialists, this change might have serious consequences.
Launched in 2015, Ethereum now hosts billions of dollars in transactions, in particular thanks to the Ether cryptocurrency, and also serves as a support for many assets such as NFTs, tamper-proof digital certificates of authenticity.
After months of preparation, this “block chain” – a term that refers to a vast computer registry – successfully completed on September 15 one of the largest software updates in the history of the sector.
Dubbed “The Merge” (“the merger”, in English), this perilous operation consisted in changing one of the pillars of the functioning of Ethereum – its mode of validation of operations – to move towards a less energy-consuming system. .
As it operates without a central authority, it is up to some of Ethereum’s users to validate the operations that take place on this vast ledger.
Until mid-September, to belong to this circle of “validators”, it was necessary to solve a very complex calculation requiring a great computing power. The exercise, called “Proof of Work” in English (“Proof of work”), consumes a large amount of electricity.
From now on, its “validators” must place an Ether bet to have the right to validate. A method called “Proof of Stake” which allows you to get rid of heavy infrastructure to only need software.
Nearly a month later, this change has indeed had the effect of erasing more than 99% of the electricity consumption of the blockchain, which until then was equivalent more or less to the consumption of a country like New Zealand, according to Alex de Vries, an economist at the Free University of Amsterdam.
The 99% estimate is realistic and represents a positive step towards “cryptocurrency sustainability”, argues Moritz Platt, a crypto researcher at King’s College London.
Its long-awaited transition, on the other hand, caused a real earthquake for the “miners”, these individuals responsible for validating the operations which had invested in high-performance computer equipment.
Before “The Merge”, this sector might rake in some $22 million a day from Ethereum alone, according to Alex de Vries. However, the new transaction validation method has made them obsolete.
“You can’t magically resell all that infrastructure and get your invested capital back,” complained a crypto miner known only as “J,” who operates between Singapore and Hong Kong.
Centralisation
Another undesirable consequence of the operation “The Merge”, the stronger centralization of Ethereum.
Anyone who can pledge a certain amount of Ether can now validate. The higher the sum pledged, the greater the possibility of validating it, and therefore of making a profit.
The system thus gives an advantage to the biggest players and three companies currently represent more than half of the “validators”, according to a study by the firm Dune Analytics.
A shame for cryptocurrencies, originally created as a decentralized alternative to banks and governments following the 2008 crisis.
In the United States, SEC Chairman Gary Gensler has previously suggested that the “proof of stake” system might equate cryptos to a securities market, effectively leading to a greater strong regulation.
The disaster scenario for Ethereum would then be that enough disgruntled users prefer alternatives that still use “proof of work”, in particular the main one called Ethereum Classic.
According to Alex de Vries, miners might potentially make significant profits if the market were to turn in their direction.
A scramble from the greenest blockchain to the most energy-intensive would then be “fully conceivable,” he added.
