A long-awaited software upgrade to the Ethereum blockchain aimed at slashing its huge energy consumption is expected this week, a move proponents say may widen the technology’s use and support the price of the Ether token.
The upgrade, known as the “Merge,” will mark a radical change to how transactions on the Ethereum blockchain occur and Ether tokens are created.
The new system will consume 99.95 per cent less energy, according to the Ethereum Foundation, a body which acts as a representative for the network.
When will the Merge happen?
The exact timing for the Merge is unknown, but Google and other sites tracking the blockchain were on Monday predicting it would take place in the early hours of Thursday. The Ethereum Foundation has said it will take place between September10 and 20. The event has been delayed several times previously.
What does the Merge entail?
If successful, Ethereum will move from a “proof of work” system — in which energy-hungry computers validate transactions by solving complex mathematical problems — to a “proof of stake” protocol, in which people and companies act as validators, using their Ether as collateral, in a bid to win fresh tokens.
Ether is the second-largest cryptocurrency after Bitcoin, with a market capitalisation of about $200 billion, according to data site CoinGecko. There are about one million to 1.5 million transactions a day on the Ethereum blockchain, compared to Bitcoin’s 200,000 to 300,000, according to CoinMetrics data.
Cryptocurrency prices plunged earlier this year as a broader downturn in financial markets prompted investors to ditch risky assets. Ether has risen by about 65 per cent since the end of June while Bitcoin has had little change.
“This is a very material development in the overall evolution plan for Ethereum,” said James Malcolm, head of FX strategy at UBS. Still, he said, it may not necessarily affect the price of Ether as the Merge is already priced in.
Energy-saving step forward …
The high energy use of cryptocurrency and blockchain technology has drawn criticism from some investors and environmentalists.
A single transaction on Ethereum currently requires as much power as an average US household uses in a week, according to researcher Digiconomist.
To proponents, the energy-saving upgrade represents a major step forward in the race to become the world’s top blockchain.
“The energy expenditure of Ethereum will be roughly equal to the cost of running a modest laptop for each node on the network,” the Ethereum Foundation said.
Ethereum has become the blockchain of choice for various functions in the world of decentralised finance, including smart contracts and projects involving tokens representing traditional assets such as stocks and bonds.
Ethereum backers say the technology will form the basis of a new financial system, in which money and assets can be traded in the form of cryptocurrency tokens without the need for providers of traditional financial services.
Others see it as a cornerstone of Web3, a hyped but still unrealised iteration of the internet where blockchain and cryptocurrency assets take centre stage.
Still, Ether has, so far, had limited mainstream adoption as a means of payment, with trading by far the most popular use.
Updated: September 13, 2022, 8:14 AM