Ethereum Blockchain Set for ‘Monumental’ Overhaul

This week, an army of computer programmers from around the world will attempt one of the largest software upgrades the crypto sector has ever seen in order to reduce its environmentally unfriendly energy consumption. Developers have been working for years on a more energy-efficient version of the Ethereum blockchain, a digital ledger that powers a multibillion-dollar ecosystem of cryptocurrencies, digital tokens (NFTs), games, and apps.

Ethereum, the second most important blockchain after Bitcoin, consumes more electricity per year than New Zealand. According to experts, the transition, which is expected to take place between Tuesday and Thursday, will reduce energy consumption by more than 99 percent.  Enthusiasts hope that a greener Ethereum will encourage wider adoption, particularly as a means for banks to automate transactions and other processes. However, so far, the technology has primarily been used to create speculative financial products.

According to ING Bank, the switchover may help Ethereum gain acceptance among policymakers and regulators. “This, in turn, may increase the willingness of traditional financial institutions to develop ethereum-based services,” the bank said.

 

Technological Landmark

The transition, dubbed “the merge,” will alter the way transactions are recorded. Currently, crypto miners use energy-guzzling computer rigs to solve puzzles that reward them with new coins, a system known as “proof of work.” The new system will eliminate those miners and their computer stacks in an instant. Instead, “validators” will have to put up 32 Ether (worth $55,000) to participate in the new “proof of stake” system, where they will be rewarded for their efforts. However, the merger process will be risky.

Consensys, a blockchain company, called it a “monumental technological milestone” and the most significant update to Ethereum since its inception in 2015. Given the sector’s history of instability, critics have questioned whether such an upgrade will go off without a hitch. In May, Ethereum went offline for three hours due to a surge in buyers that overwhelmed the network. Several exchanges and cryptocurrency companies have stated that they will halt transactions during the merger process.

Complicated And Decentralized

The upgrade may also face opposition from crypto mining companies, whose operations will be severely harmed. They can try to hijack the process or create a “fork,” which is essentially a smaller blockchain that uses the old mechanism. Even if the “merge” is successful, Ethereum will still face significant challenges before it can be widely adopted. It is, for example, costly to use, and the update will not reduce fees.

The crypto sector as a whole is plagued by wildly fluctuating prices, security flaws, and a slew of scams. According to CMS crypto lawyer Charles Kerrigan, Ethereum is “decentralized and complicated” and hasn’t been tested enough for governments and banks to get on board.

“There have been concerns about how easily it could handle upgrades of the type that traditional software vendors provide to customers,” he explained. “A successful merger will provide answers to those questions.”