Bitcoin’s Main Competitor Has Revolutionized Energy Consumption

The Ethereum network was transferred to stacking during the update of The Merge

A large—scale update called The Merge took place on the network of Bitcoin’s main competitor, Ethereum. On the morning of September 15, its creator Vitalik Buterin wrote about this on his Twitter. The motive for the reform was concern for the planet and the need to reduce the company’s carbon footprint — the new algorithm will allow the second largest cryptocurrency to significantly reduce electricity consumption.

The update is that the cryptocurrency has switched from the Proof-of-Work (PoW) algorithm to Proof-of-Stake (PoS). Proof-of-Work is a consensus algorithm that involves performing complex mathematical calculations to maintain the operation of the blockchain and perform transactions. It is these calculations that powerful computers of cryptocurrency miners (miners) are engaged in. In the crypto industry, mining is called only this method of producing digital assets, for other mechanisms this term is not used.

Eco—activists often blame the crypto community for the huge damage to the environment – according to calculations by scientists from Cambridge, bitcoin mining alone accounts for about 0.5 percent of global energy consumption. In this regard, the Ethereum developers decided to transfer the network to a more secure algorithm for the planet — Proof-of-Stake (or stacking), which does not require large computing power and energy volumes. In such a network, the operability of the blockchain is ensured by holders of digital coins and are rewarded for their storage. 

by 99%

reduced power consumption for maintaining the operation of the Ethereum network

According to the CryptoQuant service, the complexity and hashrate of Ethereum — the main characteristics of classical mining — have fallen to zero, the cryptocurrency can no longer be mined using calculations. According to the developers, there were no failures or errors during the update process. The largest crypto exchange Binance, as well as a number of other large platforms, earlier on its website promised to charge users with ETH and WETH new network tokens in a ratio of 1:1.

Ethereum developers have announced plans to completely abandon the Proof-of-Work algorithm and switch the network to Proof-of-Stake in early 2021. Before the Ethereum reform, networks of only two major cryptocurrencies were built on PoS — Cardano and Solana, which occupy the eighth and ninth place in capitalization, respectively.

Second life

One of the creators of Ethereum and the founder of the ConsenSys project, Joseph Lubin, called the update the third largest event in the industry after the appearance of bitcoin and the creation of Ethereum, the Forklog portal reports. Senior Analyst of the Russian aggregator of crypto exchanges Bestchange.ru Nikita Zuborev told the “Tape.” about the most significant consequence of the update for the Ethereum project.

“In fact, miners will stop selling large volumes of tokens to ensure the mining process itself, now validators will massively freeze assets, and there will be no need for the prompt sale of earned tokens,” the expert explained. As a result, the supply of this cryptocurrency on the market will gradually decrease, which will have a positive effect on its price.

Zuborev also noted that the PoS algorithm can be considered more secure from potential hacking than PoW. “There is such a thing as a “51 percent attack” in the crypto world. In simple words, anyone who owns more than half of the computing power can violate the rules with impunity,” he said. Such an attack is dangerous for a network running on mining. And if an attacker decides to hack the network on PoS, he needs to take possession of 51 percent of validators: this means freezing a huge amount for at least six months, during which the compromised cryptocurrency will depreciate, and the attacker will lose more than he will gain, the expert explained.

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The Ethereum exchange rate did not give the expected positive dynamics — as of 16:28 Moscow time, the cryptocurrency fell by 1.4 percent, to $ 1,584, according to CoinMarketCap data. Vladislav Antonov, a financial analyst at BitRiver, explained this dynamic by the continuing pressure on the market after the publication of US inflation data for August.

After their appearance on September 13, the collapse occurred not only in the financial, but also in the cryptocurrency market. “Cryptocurrency belongs to risky assets, so the future of Ethereum and other tokens will directly depend on the dynamics of stock indices and American statistics. The main enemy of risky assets is the rate hike by central banks and the dollar rally,” the expert concluded.

Nikita Zuborev from Bestchange.ru he also said that the effect of the introduction of the new mechanism has already been incorporated into the current price of Ethereum — the update was expected for several months, investors understood its significance and bought the currency at an inflated price. Zuborev believes that the global crypto market is unlikely to react immediately to the Ethereum reform, however, the long-term effect of the redistribution of cash flows may affect some trading pairs and, in a positive scenario, contribute to the growth of capitalization of the entire market.

BestaAdept