Despite a rather successful transition of the Ethereum blockchain, its future remains fraught with pitfalls according to the researchers.
Ethereum, the second most important “blockchain” in the world of cryptocurrencies after the one used for bitcoin, has managed to transform itself to drastically reduce its environmental impact, but according to specialists this change could have serious consequences.
Launched in 2015, Ethereum now hosts billions of dollars in transactions, notably thanks to the ether cryptocurrency, and also acts as a support for many assets such as NFTs, tamper-proof digital certificates of authenticity.
A big change from September 15th
After months of preparation, this “blockchain” – a term referring to a vast computer ledger – successfully completed one of the largest software updates in industry history on September 15.
Dubbed “The Merge”, this dangerous operation consisted of changing one of the pillars of Ethereum’s operation – its way of validating operations – to a lower power consumption system. Since it operates without a central authority, it is up to some Ethereum users to validate the trades 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 that required a great deal of computing power. The exercise, called “proof of work” in English (PoW or “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” (PoS or “proof of stake” in French) that allows you to get rid of heavy infrastructure for just needing software.
Almost a month later, this change had the effect of canceling over 99% of the electricity consumption of the blockchain, which until then was roughly equivalent to the consumption of a country like New Zealand, according to Alex de Vries, a economist at the Free University of Amsterdam.
The estimate of a 99% drop in energy consumption is realistic and represents a positive step towards “the sustainability of cryptocurrencies,” says Moritz Platt, a cryptocurrency researcher at King’s College London. The long-awaited passage of him, however, caused a real earthquake for the “miners”, these subjects in charge of validating the operations that had invested in high-performance IT equipment.
Before “The Merge”, this industry could gross about $ 22 million a day from Ethereum alone, according to Alex de Vries. However, the new method of validating transactions has made them obsolete.
“You can’t magically resell all of this infrastructure and get your capital back,” complained a cryptocurrency miner known only as “J”, who operates between Singapore and Hong Kong.
Another undesirable consequence of the “The Merge” operation, the greater centralization of Ethereum.
Anyone who can commit a certain amount of Aether can now validate. The greater the sum committed, the greater the possibility of validating it, and therefore of making a profit. The system therefore offers an advantage to the largest players and three companies currently represent more than half of the “validators”, according to a study by the company Dune Analytics.
Too bad for cryptocurrencies, originally created as a decentralized alternative to banks and governments after the 2008 crisis. In the United States, Market Regulation Authority (SEC) President Gary Gensler has already suggested that the “proof of stake” system could equate cryptocurrencies to a securities market, thus leading to stronger regulation.
The disastrous scenario for Ethereum would therefore be that a sufficient number of disgruntled users would prefer alternatives that still use “proof of work”, especially the main one called Ethereum Classic. According to Alex de Vries, miners could potentially make significant profits if the market were to turn in their direction. A climb from the greener blockchain to the more energy-intensive one would therefore be “completely conceivable,” he added.