In the blog below, Todd Hickman, Senior Energy Manager, discusses how the Ethereum network plans to decarbonize and reduce its energy usage by more than 99 percent.

The Ethereum blockchain will soon be making a significant change to its structure, which is projected to reduce its energy consumption by more than 99 percent.

Most people are now familiar with Bitcoin, which was created in 2009 by programmer Satoshi Nakamoto. The original Bitcoin white paper, authored by Nakamoto, described the concept of blockchain technology for the first time.

Since then, the new age of blockchain technologies has produced more decentralized digital currencies, the new field of decentralized finance (defi), and the very recent development of non-fungible tokens (NFT’s).

Current market capitalization of Bitcoin stands at about $825 billion. The second largest blockchain by market capitalization is Ethereum, with an estimated value of approximately $365 billion.

Ethereum, which was conceived in 2013 by programmer Vitalik Buterin, is significantly different than Bitcoin due to its smart contract functionality. This function has enabled Ethereum to become the dominant underlying platform for decentralized finance and non-fungible tokens.

One common denominator between Bitcoin and Ethereum is that both blockchains consume tremendous amounts of energy.  Both blockchains currently operate on a “proof-of-work” system, which requires a global network of computers to run 24 hours per day.

Digiconomist estimates that each individual Bitcoin transaction consumes 1,793.4 kWh (kilowatt hours) of electricity.  Annual consumption across the Bitcoin network is estimated to be about 164.7 TWh (terawatt hours).

For Ethereum, Digiconomist estimates each transaction at 165.56 kWh, with annualized consumption of around 73.19 TWh. If the energy consumption of Ethereum were compared to that of individual countries, Ethereum would be ranked as the world’s 41st largest consumer of energy, as illustrated on the chart below:

For the Ethereum network to dramatically reduce its carbon footprint and become more sustainable, Buterin and others at the Ethereum Foundation plan to shift the structure of the blockchain from “proof-of-work” to “proof-of-stake” in late 2021 or early 2022.

Once this change is implemented, Ethereum mining will become obsolete. Instead of trying to earn cryptocurrency tokens via the energy-intensive process of running computers with graphics cards to solve algorithmic puzzles, the “proof-of-stake” model will incentivize token owners to simply put up their tokens as collateral.

Once a token is “staked” as collateral on the Ethereum blockchain, there is no longer an energy requirement from the token owner and the tokens earn rewards as validators.

The overall energy requirement of the Ethereum network would then be similar to any company which uses cloud-based computing, with the only electricity requirement coming from the servers that host Ethereum’s nodes. This is expected to result in a decline in the Ethereum network’s energy usage of more than 99 percent. This dramatic reduction in energy consumption driven by the new “proof-of-stake” structure will establish Ethereum as a greener alternative to Bitcoin.

Contact Edison Energy today to learn more!