Is the time right for more cryptocurrencies to make the merge?
While the world of cryptocurrencies went on a rollercoaster in 2022, with price crashes, explosive bankruptcies, and ever more lucrative hacks, one currency finally pulled the lever on a change that has made it the most ecologically friendly of them all. Ethereum went through with its massively complicated “merge” in 2022, and in the process, cut at least 99.87% of the energy expended in mining its crypto-assets.
Given that other cryptocurrencies are still requiring whole country-equivalent amounts of energy to mine them, and also given that none of the nightmare scenarios that had been posited about the merge have come to pass, analysts and ecologists alike are now looking at those other cryptocurrencies and asking whether it would not be possible for them to take the plunge and change the way they operate too.
When we say that mining for cryptocurrency takes country-equivalent amounts of energy, we’re not just spinning a colorful hyperbole. Data science journal Patterns has estimated the amount of energy Ethereum has saved by changing the way it works is equivalent to that used by Ireland, or even Austria, in an equivalent time.
These are truly colossal amounts of energy, and the power-guzzling nature of cryptomining has long put it on the blacklist of environmental organizations.
Arguably then, switching to a method that significantly reduces the amount of energy expended could bring other cryptocurrencies in from the cold glare of ecological opprobrium. And buying more general acceptability might also be useful for the whole cryptofinance industry right now, while it either works on its stability and security or waits for governments to enforce regulation on it to make it safer for users and investors.
A new approach
Before we all launch into a spirited Kumbayah though, there are important caveats to make.
Ethereum made its colossal energy savings by changing the way people mine for its assets. Before the merge, Ethereum was maintained and “verified” by a common system, known as Proof of Work. That required companies or volunteers to use often-specialized, energy-thirsty computers to run, constantly, to create or mine new cryptocoins.
The fact that the reward structure in Proof of Work was based on doing more work meant businesses could set up huge, power-drinking warehouses full of computers, running around the clock, just to service the currency and find more of it.
Hence the energy-draining model of most of the popular cryptocurrencies. Bitcoin, the most successful cryptocurrency of all, still uses this model. Which is why, for instance, the amount of energy invested in mining Bitcoin is estimated to be equivalent to that of Finland. Yes, the whole country.
Put another way, the energy it currently takes to mine Bitcoin every year could well be equivalent to the energy savings made globally at this point by shifting to electric vehicles, according to the same Patterns article, by Alex De Vries, a data science and economics researcher at Vrije Universiteit, Amsterdam.
The human factor
The merge shifted Ethereum over to an entirely new mining method, known as Proof of Stake, which no longer equates the amount of computer work done with the chance of getting new assets. Boom – overnight, Ethereum saved 99.87% of the energy consumption required for its mining.
But there are human beings in the process of cryptomining, which explains why analysts believe that most of the computers that were switched off from their hunt for Ethereum cryptocoins… were probably immediately switched back on again, geared to search for other cryptocurrencies instead.
Ethereum may no longer be costing the planet its long-term energy future, but the other cryptocurrencies have rushed in to fill the energy-sucking vacuum, meaning the amount of fossil fuels being burnt to run cryptomining operations probably hasn’t changed by more than a flicker.
The drag anchors
So why don’t all the cryptocurrencies perform their own version of the merge and shift across to Proof of Stake, like Ethereum?
The first and second reasons are entirely straightforward. Firstly, it’s excruciatingly difficult to do. Ethereum executives, during the final stages of the move towards the merge, described it as “rebuilding a skyscraper’s foundations while it remains standing.”
The fact that it subsequently worked like a charm easily disguises the fact that it took eight long years of almost constant errors and setbacks to achieve.
Those are eight very significant years in the life of any of the major cryptocurrencies. It’s also important to remember the second reason – people were employed to do this for eight years. People that needed to be paid extremely well, because of the delicacy and difficulty of the task.
Granted, any of the other cryptocurrencies would now have a template to work from, which could reduce time, errors, and the inherent dangers of accidentally toppling major cryptocurrencies into the digital ocean, but those people would still have to paid for as long as it took to migrate to, for instance, a Bitcoin version of Proof of Stake.
And the combination of those two factors reveals the existence of the third and most intractable reason why none of the other big cryptocurrencies have so far followed in Ethereum’s footsteps: the lack of observable value.
Certainly, Ethereum’s move to Proof of Stake means it can lower its prices and expand its user base – in fact, Joe Lubin, a co-founder of Ethereum, explained to Time magazine in September, 2022 that the move would take Ethereum into an “infinite-transaction-per-second architecture.”
But if, for instance, you’re Bitcoin, you’re already the leading cryptocurrency on the market, and Ethereum’s advancement may be technologically interesting, but it’s not yet economically threatening – so why should you bother shifting your architecture to ape your competitor?
And while ecologists – and potentially millions of ecologically-concerned would-be cryptominers – might explain that it’s the right thing to do for the planet, a green footprint still counts as a “nice-to-have” item on the balance sheet, not a “must-have” item.
A flicker of hope?
That might be about to change, though. The White House Office of Science and Technology Policy released a fact sheet on the ecological impacts of cryptocurrency, also in September, 2022. While it made no direct commitment to enforcing regulations on the cryptomining industry, it did say that “legal limits on energy-intensive cryptocurrency mining should be considered.”
Admittedly, that’s unlikely to frighten the big players in the cryptomarket, which have largely been notoriously resistant to change what is from their point of view a highly successful business model.
But the cryptomarket is crying out for some regulation in any case – recent mega-hacks and bankruptcies have revealed how unstable, and how vulnerable, it is.
Should the Biden-Harris White House decide to follow in the footsteps of the European Union, which has cryptoregulation prepared to come into force in 2023, though, it might well consider wrapping legal limits on energy-intensive cryptomining into a wider package of measures.
This White House does have experience at promising reform for everybody’s benefit, and then attaching a fairly heavy price tag onto businesses in the sector – the CHIPS Act offered financial incentives to companies developing semiconductors in the States, only to later add in a ban on selling high-level chips to China for any companies that wanted to get their hands on the cash.
So while as yet there’s insufficient incentive for many other cryptocurrencies to follow Ethereum and shift to a Proof of Stake model, the overall instability of the cryptomarket in 2022 might yet have a positive outcome if it persuades the White House it can win some easy green credentials by creating a legal requirement for cryptocurrencies to go ecologically friendly.
After all, Ethereum has proved it can be done. All that needs to happen now to reap the benefits of mass adoption is for it to be worth the while of the other leading cryptocurrencies.
27 January 2023
27 January 2023
27 January 2023