Ethereum, the ‘green’ cryptocurrency, receives acclaim in Brussels and Washington.
Crypto’s voracious thirst for power has enraged critics on both sides of the Atlantic. But that might change shortly.
Cryptocurrencies are being scrutinised by legislators on both sides of the Atlantic. However, lawmakers applaud a move by one of the major crypto networks, Ethereum, to more environmentally friendly processing procedures.
While most cryptocurrencies use energy-intensive “mining” to authenticate transactions, Ethereum, the second-most valued cryptocurrency behind Bitcoin, completed a move to a less demanding technique on Thursday.
To power its software to execute and record crypto transactions on a public online bookkeeping ledger known as a blockchain, Ethereum used as much electricity as Chile spent in a year under its previous system. Creating this much power has a significant carbon footprint. Bitcoin, the most popular cryptocurrency, is even hungrier.
Legislators in Europe and the United States are concerned about cryptocurrencies’ large carbon footprints and energy needs at a time when energy costs are soaring.
The merger, which is anticipated to reduce Ethereum’s energy consumption by 99.95%, might act as a stimulus for other cryptocurrencies to follow suit, earning cautious approval from officials.
“At a moment when we’re talking about energy, energy, energy and cutting consumption and concerns about blockchain, this is excellent,” said Mairead McGuinness, the European Commission’s financial policy leader, to HUFPOST. “Anything that reduces usage in this area is helpful, because the estimated cost is high.”
Legislators dislike so-called proof-of-work methods for certifying blockchain transactions, so much so that a group of MPs in the European Parliament attempted to pass an EU ban on the software earlier this year.
That endeavour was a failure. However, politicians in Brussels have continued to seek methods to reduce cryptocurrency’s ecological impact, agreeing that crypto businesses must publish how much energy they use as part of the EU’s unified regulation for the industry, which takes effect in 2024.
As they consider new laws and potential rules addressing crypto’s energy use, policymakers in the United States are also keeping a close eye on Ethereum’s shift to a new verification method known as “proof-of-stake.”
On Thursday, senators will hold a hearing on legislation that would grant the Commodity Futures Trading Commission unprecedented authority over the Bitcoin and Ethereum markets. The bill requires the CFTC to publish monthly data on energy use in digital commodities exchanges
Let our endeavour serve as proof that the newer crypto currency firms have better, more responsible choices available to them, and that expanding our electric infrastructure is a priority. “a good thing”and worsening the climate crisis is “This is neither acceptable nor necessary,” New Jersey Democratic Representative Frank Pallone, who chairs the House Committee on Energy and Commerce, said in a statement Tuesday.
The White House has also spoken out.
without established guidelines or rules. According to a recent analysis from the Office of Science and Technology Policy, the sector may stymie the nation’s efforts to reduce emissions and enhance grid stability if it continues to develop unfettered in the absence of clear rules or restrictions.
“Depending on the underlying intricacy of the approach presented, crypto-assets may block larger endeavours to attain zero carbon emissions commensurate with US climate goals and objectives,” according to the study
A mining disaster
Inside the crypto world, where individuals made a lot of money mining under the previous system, Ethereum’s move to proof-of-stake is being criticised.
People used to be rewarded for authenticating crypto transactions on the blockchain, a process known as mining, which is energy-intensive and necessitates the use of specialised computers to crunch equations.
The miner who finds the correct solution is rewarded with a small number of digital coins, which are now worth roughly $1,500 each in the case of Ethereum. The more computers a miner has, the more likely he or she will achieve the correct conclusion – and a large payoff.
This approach fosters widespread participation on the blockchain, hence decentralising the system. It did, however, spark an arms race between large-scale mining companies to fill warehouses with computer servers adjacent to inexpensive energy supplies. While industry experts believe this will increase demand for renewable energy, several operators have brought ageing coal and gas-fired power plants back online to power their rigs.
The massive energy requirements of these facilities have enraged politicians. Top Democrats, such as Pallone and Massachusetts’ Democratic Senator Elizabeth Warren, have initiated investigations into the amount of electricity used by mining companies, with a special focus on firms that use antiquated fossil plants to fuel their activities.
Ethereum’s new proof-of-stake blockchain requires substantially simpler software on a standard computer and so consumes significantly less power.
The incentive mechanism for operating the software is based on a quasi-lottery model that compensates people or corporations according to how much Ether, the platform’s native cryptocurrency, they own.
That won’t assist Ethereum’s proof-of-work veterans, whose computer gear is now obsolete and mining firms are no longer viable.
“It’s practically the apocalypse,” said BitPro CEO Mark D’Aria, whose company in the United States specialises in reselling secondhand computer equipment used by ether miners. “With the current state of affairs, I can’t see how it won’t be disastrous.”
Ethereum miners may be nursing their wounds after the merge, but banks see an opportunity.
During the epidemic, crypto’s popularity rose as people huddled at home with little to do, loaded with cash from government handouts.
It wasn’t long before some mainstream money managers, bankers, and online exchanges joined the fray, while most remained away due to worries about the cryptocurrency’s energy use and uncontrolled marketplaces.
According to Teunis Brosens, head economist at ING Bank in the Netherlands, Ethereum’s eco-friendly move might soon entice traditional investors to reconsider cryptocurrencies.
Policymakers’ excitement for the merger may present Ethereum as a secure investment for environmentally conscientious investors.
“Sustainability has become a strategic priority for many institutions.” “Offering crypto services based on energy-intensive proof-of-work sits uneasily with that,” said Brosens, an expert in digital banking and legislation. “Banks may sidestep unpleasant talks with their investors and partners by focusing on Ethereum proof-of-stake.”