New Age New Problems
As we continue to frolic into the digital age, we are continually discovering great technologies along the way. However, with most new technologies the tremendous upside is usually paired with some downsides. Cryptocurrency is no exception to this rule. Cryptocurrency has immense upside owing to its ability to turn currency, mortgages, and many other contracts into infallible digital receipts. Thereby completely eliminating the need for a third party and thus another source of error. However, it has been no secret that the cryptocurrency space has a huge problem. Crypto’s need for high computer processing to keep these digital receipts up to date and free from error has made these mechanisms extremely energy abusive. They consume energy at a faster rate than makes ecological sense. Before The Merge took place Ethereum had an annual energy consumption rate of ~112 TWh/yr, which is as much energy consumed by the Netherlands and a carbon emissions equivalent to Singapore. Until we take measures to combat this excess energy usage, we will not be able to expand and adopt these digital ledgers into the mainstream.
Thankfully Ethereum has taken a stand and have engineered a method of checking this ledger in a way that has decreased Ethereum blockchain’s energy usage by ~99.95%! This event has been termed “The Merge” as the original Ethereum Mainnet continued to work uninterrupted a new mechanism was being tested alongside it until the it was ready to go live. This new mechanism has been termed the Ethereum Beacon Chain. Once the mechanism was ready for a full debut, they then merged the old Ethereum Mainnet with the new Ethereum Beacon Chain.
The Merge
The Merge occurred on September 15th, 2022, but what makes this new Ethereum mechanism better and so much more energy efficient than the original? It boils down to the methods each of them uses in order to verify and confirm the ledgers generated after each transaction on the blockchain. The original Ethereum Mainnet mechanism was a proof-of-work mechanism. Proof-of-work is a consensus mechanism that allowed the nodes of the Ethereum network to agree on the state of all information recorded (account balances, transaction details, and order of transactions) on the Ethereum blockchain while preventing certain types of attacks. Miners proved that they have the capital at risk by expending energy through computation. The new Ethereum Beacon Chain uses a proof-of-stake mechanism. Proof-of-stake is a system in which validators stake capital in the form of ETH into a smart contract on the Ethereum blockchain. This staked Ethereum then acts as collateral that can be destroyed if the validator behaves dishonestly. The validator is then responsible for checking that new blocks propagated over the network are valid while also creating and propagating blocks themselves.
What is Staked Ethereum
Thus, Ethereum Beacon Chain eliminates the need for energy intensive mining and now enables the network to be secured using staked ETH. This transition has increased scalability, security, and sustainability of the Ethereum blockchain. For this all to work there has to be a cohort of individuals/account holders that provide staked ETH (stETH). stETH is a type of cryptocurrency that represents an equivalent token of ETH that has been locked up for an extended period of time to support and secure a blockchain network. Staking allows you the right to participate in block proposals on the network and receive rewards (think of interest gained).
After The Merge occurred in mid-September 2022 the Ethereum blockchain now exists as a single blockchain, the Ethereum Beacon Chain. The original Mainnet has been overtaken by this new nearly 100% more energy efficient mechanism. As we grow alongside these emerging technologies and learn more intimately about cryptocurrencies, their blockchains, how people use and validate them, and how the environment is impacted by them, we will undoubtably come up with more ingenious ways to mitigate any downsides that arise in our journey. I, myself, am very excited about what the future holds and how crypto and blockchain technologies will revolutionize how we transact amongst each other all over this beautiful planet.
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