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Bitcoin won’t turn green anytime soon

There was some big news in the crypto world earlier this month: On September 15, the Ethereum community successfully achieved what is known as The Merge, moving the Ethereum blockchain validation mechanism away from the proof of work that consumes a lot of energy. From now on, Ethereum will use the significantly greener and less resource-intensive proof-of-stake method.

According to an analysis by the Crypto Carbon Ratings Institute, the transition should reduce Ethereum’s electricity use by 99.988 percent, significantly reducing its effect on the environment. But Ethereum is only the second most popular cryptocurrency: Bitcoin still uses the energy-intensive proof-of-work system and is highly unlikely to change in the near future. This is why.

it was hard to do

First, what the core team behind Ethereum achieved is technically very impressive. christian catalini, the founder of the MIT Cryptoeconomics Lab, points out that even simple updates to an app or operating system can go wrong. That the Ethereum community has completed a “major upgrade” without anything going wrong is a testament to the level of planning and preparation, he says. Crucially, he shows that these types of upgrades are possible, even for a cryptocurrency as large as Bitcoin.

However, since The Merge, the value of Ethereum has fallen by around 15 percent. This is very likely due to external market forces, rather than anything to do with the technicalities of transitioning to proof of stake. Still, it shows that a greener cryptocurrency is not automatically more valuable, especially since Ethereum still has incredibly high transaction fees (or “gas”).

Proof-of-work, unlike proof-of-stake, is basically a high-stakes mathematical lottery. Computers from around the world compete to be the first to guess the answer to an exceptionally difficult cryptographic equation. Whoever does it first adds the next block to the blockchain and gets paid in crypto for their trouble. The problem is that for every winner, there are thousands of losers who had their computers running at full speed, burning vast amounts of electricity, trying to guess the answers. It’s a huge waste, and the big reason why cryptocurrencies are considered an environmental problem.

Proof of stake, on the other hand, has no such waste. The computer that adds the next block (and gets paid) is randomly chosen from a pool in which the operator of each machine has staked a sizeable portion of the relevant cryptocurrency. If they misbehave or do not add the block correctly, they can be penalized with the confiscation of their participation.

While Bitcoin has used proof-of-work to secure its blockchain for 15 years, proof-of-stake has never been tested on the scale it is now. After the merger, Catalini says, “The long-term viability and security of proof-of-stake will be an ongoing experiment.” If the Ethereum blockchain remains as secure as it was under proof of work, it will be a huge win for the community. One drawback is that it is, at least theoretically, more vulnerable to a number of different attacks.

divergent philosophies

There are also other problems with proof of stake. US Securities and Exchange Commission Chairman Gary Gensler said last week that cryptocurrencies wagered may be subject to federal securities regulationswhich is something he The cryptocurrency community has been widely against from its conception.

And so It remains to be seen what former Ethereum miners will do with their power-intensive GPU rigs. that are no longer needed under proof of stake. Some may go on to mine other proof-of-work currencies (including Bitcoin) or expand into other fields such as 3D modeling and graphics rendering. Either way, the massive server farms that had toiled under the old Ethereum mechanisms are unlikely to sit idle.

Furthermore, Catalini says that Bitcoin is “extremely conservative” and “much more risk-averse” compared to Ethereum, which is much more prepared to take major risks, such as transitioning to proof-of-stake.

He also points out that the two major cryptocurrencies do not actually compete, which is yet another reason why Bitcoin seems unlikely to do the same. Ethereum was launched with significantly greater programmability (which is why it is used in NFTs) than Bitcoin, as part of an attempt to correct what was seen as a deficiency with Bitcoin. In response, the Bitcoin community continued to do its thing. As a result, he says that Bitcoin’s change in its consensus method is not “credible for the foreseeable future.” Ethereum doing it is not a big push.

Still, Catalini says there are ways the Bitcoin community could reduce the network’s environmental impact. (currently using almost as much electricity as Pakistan annually.) He thinks “Bitcoin’s evolution and sustainability will be much more driven by miners targeting renewables and energy sources that can make Bitcoin greener in the long run,” rather than one big transition to the proof of participation.

First, miners could use more renewable energy sources, and even “carbon negatives” sources like flare gas released from oil and natural gas extraction. This would allow Bitcoin mining to make use of electricity that would be “stranded” or otherwise unable to be used for other applications. Catalini says, “As long as you have a satellite dish or a Starlink connection, you can mine in the middle of nowhere.”

Second, mining could absorb the maximum capacity. According to Catalini, miners can “go off the network or connect to the network instantly.” As a result, miners could go off-grid when power is needed elsewhere or go off-grid when excess electricity is generated that would otherwise go to waste, such as when solar power produces more power than people need. . Still, the environmental claims of cryptocurrency miners have been greatly exaggerated in the past. The methods suggested by Catalini are unlikely to significantly reduce Bitcoin’s environmental impact to the extent that switching to proof-of-stake, especially as miners are generally motivated by potential profit.


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