Web 3. The much awaited Ethereum upgrade has been completed today. The power consumption of the second most popular cryptocurrency in the world is expected to fall by 99 percent.
This is history
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When I first started learning about cryptocurrencies, it was on a very simple level, with simple comparisons that made it easier for me to gain a connection to digital values:
Bitcoin = digital gold. Ethereum = digital silver.
Gold is more expensive than silver due to its scarcity against supply and demand – the same is true for Bitcoin and Ethereum.
Another comparison is that silver has more uses than gold, and this also applies to Ethereum and Bitcoin. Like physical silver, Ethereum has become widely used in everyday life. Bitcoin largely acts as a store of value, as does gold.
Since then in 2017, I have moved away from comparing Ethereum to silver, gaining a better understanding of the diverse uses of Ethereum beyond Bitcoin’s purpose as a decentralized network. Against this background, it becomes more correct to compare Ethereum to oil.
This is due to its versatility and the function of Ethereum as a source of energy on the Internet. The co-founder of Ethereum, programmer Vitalik Buterin, also emphasizes the idea of Ethereum as a digital oil that allows for a Web3 compatible infrastructure. The downside is that, like physical oil, digital oil Ethereum has been a huge burden on the environment.
But starting today, the use of Ethereum is more sustainable.
Internet Oil has been upgraded after many years of praise and delay. The upgrade is called “merging” and it has been successfully implemented, Ethereum is on its way to becoming less energy demanding to use.
There is talk that the energy consumption required to maintain security in the blockchain will be much lower.
Since there are no central gatekeepers to verify transactions and new data entered into the Ethereum blockchain, the security of this digital infrastructure has relied on Proof of Work which translates directly to “Proof of Work.”
Quite simply, Proof of Work is a way to decentralize the custodial role, where computing power is required to solve mathematical equations and ensure consensus.
If you use your computing power to solve mathematical equations, you are risking financially by maintaining the grid. This is because it requires a lot of electricity and expensive hardware. In this way, you “prove” your work/trust in the system.
As a thank you for helping to secure the network, you get paid for the cryptocurrency Ether – if you try to defraud the network, you won’t receive any payments and you will lose the money you put into the system.
Proof of work belongs to the so-called mining. You are my ether. You can call it digital mining. Physical mining produces coal, while digital mining produces cryptocurrency.
But coal mining isn’t good for the environment either. The Ethereum upgrade is moving away from digital mining. Proof of Work has been replaced by Proof of Stake. “Proof of Stake” directly translates to “Proof of Stake”.
You are now rewarded for participating in the Ethereum ecosystem by stacking Ether, and it will also be random which of those who bind Ether gets Ether.
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In this way, the energy consumption will be reduced because you are not relying on solving complex mathematical equations to get the ether, but using the ether that is already there.
The financial risks of network participants no longer lie in expensive appliances and electricity, but rather in the amount of ether they invest in the network.
The question many are asking is whether this upgrade is priced in Ether today and how the market will relate to a more sustainable Ethereum blockchain.
The question I ask is whether the next upgrade that will ensure faster, cheaper transactions and compete with Visa’s TPS is priced in Ether.
The digital oil mentioned in this article will be vital in Web3. What Web3 is will be explained in more detail in the next column!
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