How Will Ethereum 2.0 Reduce Energy Consumption?
Ethereum

How Will Ethereum 2.0 Reduce Energy Consumption?

4 months ago

Ethereum Mainnet is expected to merge with the beacon chain proof-of-stake system in early 2022. Find out how it is expected to reduce Ethereum's energy consumption by an estimated 99.95%.

How Will Ethereum 2.0 Reduce Energy Consumption?

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The Ethereum network is home to many initiatives, ranging from decentralized finance (DeFi), decentralized applications (DApps), non-fungible tokens (NFTs) to various types of specific-niche smart contracts. However, the blockchain also suffers from high energy consumption due to its proof-of-work (PoW) mechanism. It is estimated that the blockchain consumes 73.2 TWh every year, the equivalent of a country like Austria. Therefore, as activity on this network increases, so does the criticism regarding Ethereum's power consumption and how it needs to be addressed.
The developers have put in a long-term approach to help reduce Ethereum's energy consumption over the coming years. Several crucial network upgrades pave the way for Ethereum 2.0 — a more efficient network without compromising scalability. Everyone agrees proof-of-work's energy expenditure is unsustainable in the current climate. The eventual switch to proof-of-stake (PoS) will mark a crucial milestone.

The Current Ethereum Energy Consumption

As a PoW blockchain, Ethereum suffers from the same criticism as Bitcoin. Miners control the network, yet the growing competitive nature of this activity requires investing in more powerful hardware. While newer generations of miners are often more energy-efficient, there is also a higher demand for bringing more devices online. That ongoing progress creates a bigger carbon footprint for PoW blockchains. In this era of climate justice, that is not a good approach.

Unfortunately, one does not switch off PoW on a dime.

Ethereum has resulted in power consumption on par with Finland's and a carbon footprint that isn't far off from Switzerland's. Using renewable energy would help address some concerns, although the Ethereum developers opt for a more sustainable future approach.

Instead of hoping for more efficient mining hardware and renewable energy, the developers will switch the network to PoS. It removes the need for miners and their expensive hardware creating a bigger carbon footprint every day. Instead, any users with an internet connection, a device with sufficient CPU and 32 ETH can become a validator and secure the network. This approach shifts the power back from miners to users who want to support the network rather than those who seek out financial gain.

Why Proof-of-Stake Is More Viable

As smaller devices can engage in PoS, expectations of Ethereum reducing its carbon footprint and power consumption are high. In addition, as network validators replace miners, there is no need for mining hardware. Instead, validators will use their Ether as collateral to process transactions, 32 ETH to be exact. Users without 32 ETH can stake their Ether in a pool to validate transactions and earn rewards, in a process called staking. Validators receive a reward for this activity, although the network can take those rewards away if the operator behaves maliciously.
The broader accessibility of staking and validating borrows certain elements of a PoW network. Attackers still require control over 51% of the network resources or more to perform an attack. However, there is a big disincentive to do so, as a failed attack results in the attacker losing their collateral in ETH for bad behavior. That brings us to another benefit of PoS, as it eliminates the energy expended on arbitrary computations.
Per the current estimates, the switch to proof-of-stake will reduce Ethereum's energy consumption by 99.95%. A significant amount, as it indicates, staking is 2000x more efficient than traditional mining.
Moreover, the developers aim to process more network transactions — roughly 1,000 per second — with future scaling options to achieve up to 100,000 transactions per second (TPS). Currently, Ethereum mainnet is achieving around 14 TPS, according to Etherscan. Compared to the Visa network, Ethereum will, at total throughput, use less than 1% of the payment processor's energy consumption to operate.

EIP-1559 Is a Crucial Step

While enthusiasts eagerly await the upgrade to PoS, another upgrade has taken place on the Ethereum network. The high energy consumption of the network creates different problems for users. Ethereum's transaction fees are passed on to miners who include these transactions in the network blocks. That resulted in users regularly paying $100 or more per transaction through a "bidding" system, especially when the network is congested.
Through EIP-1559 — part of the London hard fork upgrade — that bidding approach is now automated, making transaction fees more predictable and stable. It also means miners earn less money, as all transaction fees are burned. That reduces the supply of Ether, and over 1.225 million Ether — or $4.79 billion — has been removed from circulation to date, according to watchtheburn, a website that tracks ETH burned since EIP-1559.

For now, Ethereum is not deflationary while PoW remains active. However, when the switch to PoS occurs, the fee burning will still remain in place. That will result in Ethereum being deflationary and becoming far more energy-efficient at the same time, something Ethereum bulls never fail to point out. EIP-1559 is the biggest upgrade to Ethereum since its inception, although the developers will surpass that when ETH 2.0 goes live.

Why the Beacon Chain Matters

There is a lot to look forward to regarding Ethereum's switch to being more energy-efficient. Upgrading to PoS is a big deal, and the concept of Ethereum and PoS has been explored through the Beacon Chain. It was launched in December 2020 and was set up to coordinate the proof-of-stake system across the network, while still allowing the developers to make adjustments and upgrades whenever needed. With a network of shards and stakers, it will effectively expand the network to 64 blockchains, increasing the capacity of the network and transaction speed.

Moreover, the Beacon Chain provides crucial insights as to how Ethereum's energy consumption will evolve. The numbers, as mentioned earlier, look very promising. However, it is too early to draw conclusions, as users need to wait for the merge with the Ethereum mainnet.

The merge between the Beacon chain and the mainnet is essential to bring smart contracts to PoS. When the chains merge, Ethereum's PoW era will end. It will be interesting to see how many validators from the Beacon Chain — currently over 270,000 — will become network validators on the mainnet in early 2022.

When Is Proof-of-Stake Going Live?

Time is of the essence for Ethereum to reduce its energy consumption. The switch to PoS needs to happen soon, although there is no official date for this transition. It is slated to happen in Q1 or Q2 2022, although any bugs or last-minute changes may push the date back even further.

Conserving energy can best be achieved by switching off PoW entirely, but only if the PoS infrastructure has been vetted thoroughly. Besides reducing energy consumption, the merge also promises increased network capacity and transaction speed, something which the Ethereum network is sorely lacking behind, and leading to the rise in value of "Ethereum killers" like Solana, Polkadot, Avalanche, Cardano and more.
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