Cut cryptocurrency

The data in a blockchain has no inherent meaning. Its sole purpose is to record difficult, but pointless, calculations which provide a basis for allocating new crypto coins. Cryptocurrency advocates have given a variety of excuses for the monstrous energy consumption, but none stand up to scrutiny. Some, for example, seek to justify cryptocurrency's carbon footprint by saying some miners use renewable energy.

That may be true, but in doing so they can displace other potential energy users — some of whom will have to use coal- or gas-fired power. But now, the most successful of Bitcoin's rivals, Ethereum, is changing tack. This month it promises to switch its computing technology to something far less polluting.

Elon Musk announced Tesla would no longer accept Bitcoin payment for its electric cars, due to the currency's carbon footprint. Retuers: Andy Clark What the switch is about Ethereum's project involves ditching the "proof of work" model for a new one called "proof of stake".

Under this model, crypto transactions are validated by users, who stake substantial quantities of blockchain tokens in this case, Ethereum coins as collateral. If the users act dishonestly, they lose their stake. Importantly, it will mean the vast network of supercomputers currently used to check transactions will no longer be required, because users themselves are doing the checking — a relatively easy task. Doing away with the computer "miners" will lead to an estimated 99 per cent drop in Ethereum's electricity use.

Some smaller cryptocurrencies — such as the Ada coin traded on the Cardano platform — use "proof of stake" but it's been confined to the margins to date. For the past year, Ethereum has been running the new model on experimental blockchains. But this month, the model will be merged into the main platform.

Nowhere for cryptocurrency to hide So what does all this mean? The Ethereum experiment could fail — if, say, some stakeholders find ways to manipulate the system. But if the switch does succeed, Bitcoin and other cryptocurrencies will be under pressure to abandon the proof-of-work model, or else shut down.

This pressure has already begun. Tesla founder Elon Musk's last year announced his company would no longer accept Bitcoin payment for its electric cars, due to the currency's carbon footprint. The New York state legislature in June passed a bill to ban some Bitcoin operations that use carbon-based power. However, the decision requires sign off from New York's governor and may be vetoed. And in March this year, the European parliament voted on a proposal to ban the proof-of-work model.

The proposal was defeated. But as Europe heads into the cooler months, and grapples with an energy crisis triggered by sanctions on Russian gas supplies, energy-guzzling cryptocurrencies will remain in the firing line. The so-called "Merge" was executed as the energy intensity of cryptocurrency protocols such as Bitcoin and Ethereum has become a hot issue in Washington, D. On Sept. President Joe Biden that detailed the energy impacts of crypto mining operations.

Bitcoin miners, who use a more energy-intensive consensus mechanism called proof of work, accounted for an estimated 0. That estimate rose to 0. The White House report called for further federal action to ensure the U. Bitcoin miners secure the network by expending significant amounts of capital to purchase and run high-powered computers that solve complex math puzzles, competing for the opportunity to produce new blocks in a distributed ledger of transactions.

In return, they receive transaction fees and new bitcoins from a diminishing supply that will eventually be capped at 21 million. Once the bitcoin supply reaches its hard cap, proof-of-work miners will only get paid through transaction fees. Until Sept. A consensus mechanism uses a decentralized network of users to propose, validate and order batches of transactions onto a blockchain.

With the transition to proof of stake, Ethereum's network security relies on validators who deposit ether as collateral into smart contracts, dubbed staked ether. In exchange, validators who have posted collateral earn block rewards by confirming and ordering transactions. Staked ether can be slashed, or confiscated, if validators propose or confirm fraudulent transactions.

As of Sept. Annual staking rewards, paid in ether, were roughly 4. Similar to bitcoin, the cryptocurrency could also become deflationary over time if demand for ether — required to make any transaction on Ethereum's primary public production blockchain called a mainnet — outpaces new issuance to validators.

Instead of using expensive GPUs, validators simply need a basic laptop and a stable internet connection.

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