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"Ethereum's energy consumption drops by 99.5 percent"

15.9.2022

Translation: machine translated

The Ethereum crypto network is to become greener and more powerful. To this end, the so-called merge was completed this morning. In an interview, crypto expert Harry Büsser explains what this means.

This morning, a fundamental update was carried out on the second largest crypto network Ethereum - the "Merge". Among other things, it is supposed to reduce the previously high energy consumption of transactions. But what exactly happened? What does it mean for investors? What impact will it have on the graphics card market? That's what I ask Harry Büsser. He is a member of the Handelszeitung's editorial board and has long been involved with cryptocurrencies - especially Ethereum, where he himself is an investor.

What is the Ethereum merge?
Harry Büsser: The merge changes the mechanism of the blockchain of the cryptocurrency Ether. Blockchains work according to a simple principle that already existed in ancient Rome: a transaction takes place among witnesses. This can be compared to a notary who certifies a house purchase and is paid for it. Such a fee is also due in the crypto world.

Beim Merge wurde der Mechanismus von Ethereum von «Proof of Work» auf «Proof of Stake» umgestellt. Neu müssen Miner einen gewissen Betrag an Kapital an Ether binden, quasi als Pfand.

Now the question arises as to how a notary is selected in the blockchain world. Until now, this has worked according to the principle of "proof of work": put simply, all "notaries" in the network try to solve a difficult calculation problem. Whoever solves it first is allowed to validate the transaction and receives a reward in the form of ether. To be first, you have to invest a lot in the form of computing power and electricity.

Merge is a new way of doing things.

With the Merge, this system changes. It is no longer the notary who has the most computing power who wins. Instead, miners must commit a certain amount of capital in Ether, effectively as a pledge. This is called "Proof of Stake." Among all those who do so, someone is chosen at random - and only this notary needs computing power to validate the transaction at the end. Why this change?
The old system, which by the way Bitcoin still uses, has disadvantages: It consumes a lot of energy and tends to be slow.

Why this change?[[pullquote:Ich habe Schätzungen gesehen, dass die globalen Ether-Transaktionen bisher jährlich etwa halb so viel Strom verbrauchten wie die ganze Schweiz.]]How much energy are we talking about? I've seen estimates that global Ether transactions have so far consumed about half as much electricity annually as the whole of Switzerland. Estimates for Bitcoin's energy consumption are far higher than that. With the switch from "Proof of Work" to "Proof of Stake", Ethereum's energy consumption drops by 99.5 per cent.What does the merge mean for Ethereum holders like you? Ether owners won't notice anything directly. But with the new system, the amount of new Ether coming onto the market each year is reduced by 90 per cent. This tends to be good for the exchange rate. However, this fact has long been priced in and there was no jump in the price today. So, financially speaking, nothing changes for investors for the time being. Personally, I think the switch to proof of stake is a good thing because it makes Ethereum more efficient. Already today, most practical blockchain applications run on Ethereum. As the so-called gas fees - the transaction fees - are likely to be lower in the future, this trend will increase.[[pullquote: Ein Teil der Miner hat sich bereits mit dem diesjährigen Kurseinbruch von Ethereum abgewendet.]]Ether mining needs a lot of computing power. The boom of recent years has contributed to a shortage of graphics cards because they are particularly suited to mining. Now less computing needs to be done - will the prices for graphics cards fall now? . Some miners have already turned away from Etherum with this year's price collapse. The merge is also probably already priced into the market. Some miners have switched to other cryptocurrencies, others may have given up the business altogether. Demand for graphics cards has therefore probably been flagging for some time. However, it is not impossible that even more miners are now liquidating or converting their computers and selling their used graphics cards..Does "Proof of Stake" have disadvantages? "Proof of Work" is still considered the most trustworthy system, although opinions differ here as well. Currencies like "Cardano" or "Cosmos" already work according to "Proof of Stake", so it is not entirely untested. Nevertheless, with such an important currency as Ether, the question arises: does it all work as desired or is there a bug somewhere? That remains to be seen, but so far the new mechanism is running without problems.

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Samuel Buchmann

Senior Editor

Samuel.Buchmann@digitecgalaxus.ch

My fingerprint often changes so drastically that my MacBook doesn't recognise it anymore. The reason? If I'm not clinging to a monitor or camera, I'm probably clinging to a rockface by the tips of my fingers.

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