No. 2 cryptocurrencies reduce energy consumption – bad news for bitcoin?

by James · September 15, 2022

By Diksha Madhok, CNN Business

Ethereum, the world’s second most valuable cryptocurrency, has completed a massive software upgrade that backers claim will reduce its carbon footprint.

The much-anticipated revamp, known as “The Merge,” will reduce ethereum’s energy consumption by nearly 99.95%, according to the Ethereum Foundation, a non-profit organization dedicated to supporting the cryptocurrency and its related technologies.

“The merge refers to the original Ethereum Mainnet merging with a separate … blockchain called the Beacon Chain,” it added.

Until now, both ethereum and bitcoin ran on a mechanism called “proof-of-work”, where powerful computers were needed to solve complex puzzles. The merger moves ethereum to a mechanism called “proof-of-stake”, which is much more energy efficient.

“Happily merge everyone together,” Vitalik Buterin, the 28-year-old Russian-Canadian programmer who helped create Ethereum said on Twitter. “This is a huge moment for the Ethereum ecosystem. Everyone who helped make the merger happen should feel very proud today,” he added.

The co-founder said the upgrade will “reduce worldwide power consumption by 0.2%.”

While cryptocurrencies have seen a phenomenal rise in recent years, observers say they are terrible for the environment. According to Digiconomist, a platform that tracks crypto energy usage, a single Ethereum transaction is equivalent to the weekly electricity consumption of an average American household.

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Earlier this month, said Digiconomist that the power saved as a result of the upgrade will “probably correspond to the electrical energy consumption of a country like Portugal.” It could also be the “final nail in the coffin” for bitcoin’s transaction mechanism.

Ethereum was down 0.7% on the news, trading at $1,592.78, but analysts say the upgrade could have a big impact on the crypto world in the long run. The world’s most valuable cryptocurrency, bitcoin, fell nearly 1%, trading at $20,174, according to CoinDesk.

“It’s been a long time coming, and the question on traders’ lips right now is whether it will be the next bullish catalyst for crypto or a ‘sell fact’ event,” Craig Erlam, senior market analyst at Oanda, wrote in a note on Thursday.