Ethereum is going eco now

Representing the entire crypto market, the climate debate continues to unload on Bitcoin. The network consumes as much electricity as Sweden and pumps as much CO₂ into the air as New Zealand: there is no shortage of dramatic comparisons. What often goes down: Ethereum is not a child of sadness either. The network currently devours 104 terawatt hours (TWh) per year and thus roughly as much as Kazakhstan. With an emission of almost 50 megatons (Mt) CO₂, Ethereum hurls as much carbon dioxide into the earth’s atmosphere as Bulgaria – still does. Because Ethereum’s transition to Proof of Stake throttles the energy requirement significantly.

Auslaufmodell: Proof of Work

As with Bitcoin, the high energy requirement is due to the Proof of Work (PoW) consensus procedure used. Miners bundle transactions in blocks, verify them and attach them to the blockchain. As an incentive, they receive two Ether rewards per block, in addition to tips that can be sent with transactions. Your use: computing power. Those who contribute more to the hash power of a network increase the chances of finding a valid block.

The advantage: a high hash rate impregnates networks against attacks. In order to rewrite the history of a blockchain or to execute double spends, more than half of the total computing power would have to be used. It is true that so-called 51 percent attacks have occurred time and again in the past. However, due to their high hash rate, Ethereum and Bitcoin are not targets of attack. The computing power required for an attack is too high.

The disadvantage, however, is that the mining mechanism leads to a global hardware arms race – with drastic effects on power consumption. In 2021 alone, the estimated energy demand for Ethereum rose from under 15 to over 100 terawatt hours (TWh) per year, according to data from Digiconomist show.

Nothing can be glossed over about that: the energy consumption gets out of hand. Self developers admit in a blog post, “That the current energy consumption of Ethereum is too high and unsustainable”. Ben Edgington, Lead Product Owner for quorum protocol development in the Ethereum software company ConsenSys, told BTC-ECHO that “many potential newcomers to cryptocurrencies, for example in the NFT ecosystem, are rightly shocked by the excessive energy consumption of Proof of Work are ”.

But Ethereum has an ace up its sleeve. Because proof of work was never designed as a permanent concept, rather as a temporary solution until the far less resource-intensive proof-of-stake process has been tested and implemented. “The Ethereum community has been working towards this for a long time,” says Ben Edgington, “and we are happy that it is this year”.

A question of consensus

In the second quarter, the time will finally come when the current main chain will merge with the PoS-based beacon chain. After the “merge”, proof of work is a thing of the past at Ethereum and the network is no longer secured by computing power, but by deposited ether deposits – the stake.

Since it is no longer miners and thus computing power, but validators that are responsible for block production, Ethereum significantly reduces its energy consumption. According to Ben Edgington, the new network architecture uses 99.95 percent less energy than before. In the future, the need will be reduced to the operation of nodes and will no longer be unleashed by mining systems in industrial halls.

More performance with less effort

Provided Ethereum has already introduced sharding, a scaling solution that increases the transaction throughput by dividing them into parallel networks, the performance of the current 15 transactions per second (TPS) will increase 64-fold in the future. With the help of the Shard Chains, which are planned for 2023, and which Ben Edgington says will “continue to support the future growth of the Layer 2 ecosystem”, Ethereum is expected to achieve a throughput of 25,000 TPS. Mind you, without scaling solutions such as layer 2 rollups. With them, Ethereum could get around 100,000 TPS.

Layer 2 rollups, which execute transactions outside of the Ethereum mainchain, play an important role not only for throughput. Also because the scaling solutions lower the transaction costs – gas fees -, Ben Edgington assumes an increasing usage: “More and more users are migrating to Layer 2 roll-ups, which enjoy all the advantages of the security and flexibility of Ethereum and at the same time lower ones Offer transaction fees. We are assuming that most users will in future handle the majority of their transactions on Layer 2 and no longer on the Base Chain ”.

Greener than Visa?

A calculation example shows how significant the energy savings are for a single transaction per second. The Beacon Chain currently already has 250,000 validators, but most of them run on the same nodes. There are currently between 3,000 and 4,000 individual nodes, with the daily consumption per node being around 1.44 kilowatt hours (kWh). Even if the number of nodes increased to 10,000 after the “merge”, ie when switching to Proof of Stake, the daily consumption would level off at 14,400 kWh per day. Calculated to the second, this results in a consumption of 0.1667 kWh, with 100,000 transactions 0.667 kWh.

For comparison: 100,000 Visa transactions use 149 kWh. So Ethereum only uses 0.4 percent of the energy it needs for the same amount of transactions. Compared to the current consumption of the Proof of Work Mainchain, the demand is reduced by a factor of 225. And that only if the sharding function is taken into account. Layer 2 rollups could increase throughput by a factor of four: Ethereum would only use 0.1 percent of Visa’s energy consumption and save 894 times its current consumption of resources.

Such comparisons naturally lag behind. With Ethereum, if only because the network, regardless of the transaction throughput, consumes the same amount of energy per block – regardless of whether one, a hundred or a thousand transactions are being carried out. But it is also a fact that the possibilities of the Ethereum Blockchain are not limited to processing transactions, as is the case with Visa. As by far the largest smart contract platform, Ethereum is the hub for a multi-layered ecosystem of decentralized applications, from decentralized exchanges and blockchain games to NFT marketplaces. The improved energy efficiency should not exactly slow this growth.

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Ethereum is going eco now