Ethereum’s team of developers shares far-reaching intentions to improve the blockchain world, which has long been condemned for the strain put on the environment. Prior to the Merge, one of the most ambitious undertakings for Ethereum, it would consume an amount of energy equivalent to that of a small country. However, the set of updates it underwent that were completed with the Shanghai upgrade we’re going to discuss turned things around. It set an example for other blockchains that are yet to address persistent environmental concerns.
Ethereum, the world’s second-largest digital coin by market capitalization, has undergone several significant updates aimed at reducing the network’s reliance on energy after an unprecedented experiment to take on a new approach that would remove mining from the question. Throughout time and given the repercussions of some disturbing events in the crypto market of last year, the Ethereum price climbed and dropped, experiencing unforeseeable fluctuations together with other digital coins. Many cryptocurrency owners rushed to sell their digital money, uncertain of the future that lies ahead for their assets. But seasoned investors knew that bear runs are nothing out of the norm in the financial markets and held on to their holdings, knowing this storm too shall pass. Today, they have a reason to rejoice as Ethereum’s price has been on an ascendant path, raising hopes that the bull market will occur sooner than expected.
To grasp more about Ethereum’s big plans, we’ll examine its journey so far, as well as the implications of its most recent significant achievement – the Shanghai upgrade.
Ethereum transitioned from the power-hungry Proof-of-Work mechanism to Proof-of-Stake
Like Bitcoin, the Ethereum network relied on a Proof-of-Work system, which required vast amounts of energy to secure the network and verify new blocks added to the blockchain. To confirm transactions and generate new currencies, computers needed to undertake numerous calculations, a process that would request alarmingly massive energy amounts.
Cryptocurrencies have received a judgment from environmentalists owing to the unsustainability they imply. However, in September 2022, the team behind Ethereum’s network announced the switch to the Proof-of-Stake system, resulting from undergoing the Merge update.
Comprehensive data on Bitcoin’s electricity consumption has been made public over the past years, and now, research and educational institutions like the Cambridge Centre for Alternative Finance are making efforts to provide similar data for Ethereum.
With the newest features in place, there’s no need to use high amounts of computational power to mine currencies anymore to be rewarded with tokens—validators on the network deposit funds in exchange for the right to gain rewards by validating transactions.
Ethereum cut down on its energy usage by 99.99%
Ethereum has finally slashed its electricity consumption by an impressive 99.99%. This isn’t an achievement that happened overnight; this project has been discussed for quite some time, but it wasn’t until the 15th of September that Ethereum’s upgrade, the Merge, was completed. To understand why this move is the catalyst for greener practices in the cryptocurrency sphere and how it paves the way to a more sustainable future, let’s take a few steps back to understand what the update was all about.
The Merge refers to the merger of the Beacon Chain with the original Ethereum, both representing two separate blockchains. Given that the Beacon Chain employs a Proof-of-Stake system, the whole Ethereum network transitioned to a Proof-of-Stake model. Moving away from its original system is an event that both developers and validators on the blockchain were looking forward to. It is a critical step for Ethereum’s development, setting an example that will hopefully lead to other significant, similar moves.
To understand how the event impacts Ethereum and the whole crypto sphere, let’s shed light on how these two systems work.
Proof-of-Work vs Proof-of-Stake
Proof-of-Work is a consensus mechanism that permits adding transactions to the blockchain. Cryptocurrencies built on top of these systems use amounts of energy so high that they could equal that of a small nation. Blockchains that have yet to transfer to the Proof-of-Stake system have been gathering criticism from several investors and institutions, given their negative impact on the environment.
This was also the case for Ethereum’s system before the Merge. A large number of nodes are used to compete to solve cryptographic equations. As a result, the winner was rewarded for successfully adding the block to the chain.
Under the proof-of-stake consensus model that Ethereum adopted, nodes must stake a certain amount of cryptocurrency – essentially, the amount of cryptocurrency in the node’s wallet. The node with the highest stake adds transactions to the blockchain, being rewarded accordingly. Validators lock 32ETH into a smart contract on the blockchain and become responsible for confirming the validity of the new blocks added to the network, sometimes creating blocks themselves. However, since owning 32ETH would cost a fortune, other methods to contribute to the network and gain rewards have been developed, like staking services provided by centralised exchanges.
Ethereum Shanghai Upgrade marks a quantum leap in its history
The Shanghai Upgrade, also known as Shapella, represents a change in Ethereum’s protocol. The most significant achievement is allowing validators who staked their coins into the network to withdraw them. Investors would lock some or all of their ETH on the network to gain incentives for their investment. As experts believe, this upgrade may prove beneficial for the blockchain’s progress in the long run, making staking Ethereum more appealing to a broader category of crypto-savvy individuals. As more people stake ETH, the blockchain’s security improves. And as this profitable venture becomes safer and more accessible for the average user, ETH staking becomes more popular, probably bringing more investors to the table.
Ethereum’s performance
Besides some volatility surrounding the price, the event didn’t impact Ethereum holders who hadn’t staked ETH. The coin’s value around that time surged over 6% and surpassed its $2.000 mark for the first time in 2023.
