Ethereum plans to be 99% more economical.

Cryptocurrency will soon be on an energy diet to compete with more efficient blockchains

Against the backdrop of a stir around Bitcoin, his “little brother” Ethereum went into the shadows. But a project with a market capitalization of about $ 10 billion can hardly be considered imperceptible. And the energy consumption of this cryptocurrency is also impressive.

In comparison with Bitcoin mining, mining of ether consumes from a quarter to half less energy resources. But this advantage does not negate the fact that most of 2018 Ethereum consumed almost as much electricity as all of Iceland. The energy required to conduct a normal transaction in Ethereum is comparable to how much electricity an average American family “burns” in a day.

“Even if we do not take into account the problems of excess carbon dioxide in the atmosphere and environmental pollution, then we are still talking about the expenditure of a huge amount of resources . Real consumers - people who need electricity - can thus receive less, ”said Vitalik Buterin , a 24-year-old Canadian-Russian programmer who invented Ethereum at 18 years of age.

In 2019, Buterin plans to seriously tackle the problem of energy loss. The organization Ethereum Foundation , which he co-founded, and an impressive part of the crypto-community are going to start a long-discussed thorough processing of the Ethereum code. And, if the calculations of the developers are correct, by the end of 2019 transactions will be 99% more economical.  


Attempt to transform Ethereum will be "one of the most exciting technological spectacles" of the year. So says Zaki Manyan, consultant cryptocurrency startup Cosmos. In his opinion, the specificity of the Ethereum development process will require the joint, organized and open work of many programmers and organizations. They will have to agree on the specifications, invent the necessary technologies and combine them into a single whole so that the platform can work in a new way. "Today it is the most ambitious open technology project that the community has ever been involved in," says Manyan.

Like Bitcoin, the Ethereum blockchain network is based on a digital transaction registry, which is monitored by the entire user community. However, Buterin designed Ethereum is not just as a kind of base, managed without the intervention of the central authority. According to his vision, Ethereum should become a global computer, decentralized, accessible to everyone, and, in fact, completely protected from downtime, censorship and fraud.

The great potential of the Ethereum blockchain is due to its ability to store data, support solutions and automate the distribution of value. He copes with such tasks with the help of smart contracts - programs written by users or developers in a special language created specifically for these purposes. Smart contracts have an obvious business potential. However, the main hopes are pinned on the fact that developers will be able to create applications with their help, which will ultimately turn Ethereum into a powerful platform for cloud computing.

But reality is still different from this grand vision. There are already several projects with a capitalization of several million dollars on the basis of the platform, but even Buterin admits that Ethereum consumes incomparably more electricity than it benefits the society.

All the troubles of mining. As in many other cryptocurrencies, the mining process in Ethereum is associated with the Proof-of-work (PoW) computational algorithm. In PoW, all participants seek to confirm new transactions and add them to the global distributed registry. The winner takes all the cryptocurrency units released in the process. And the more computing power is at the user's disposal, the higher his chances of making a profit.

The PoW mining device itself forces it to consume a lot of resources. It is designed to protect the blockchain from attempts to seize control of the network. So, if the Bitcoin-miner computing system concentrates more than 51% of the computing power of the entire network, then the miner will be able to replace information in long-completed transactions. And Bitcoin users will have nowhere to turn for help, as miners conduct their business anonymously.

In theory, PoW preserves the distribution of mining. However, in practice, the development of specialized integrated circuits (ASIC) for mining, produced by a group of Chinese factories, made it possible to concentrate the management of many cryptocurrencies in the hands of several players.

In the fight against mining concentration, Ethereum took a step further. Ether uses a variant of the PoW algorithm, which intensively consumes RAM, with the result that the use of ASIC becomes inefficient.

But this innovation did not stop the explosive growth of computing power aimed at the extraction of ether. The amount of resources allocated to this task increased 25 times in 2017. After the price of the token increased from $ 8 to $ 862, mining companies began to open data centers fully equipped with graphics processors that are excellent for mining mining.

The increased demand for electricity has caused discontent among environmentalists. Utilities and residents of individual regions believe that mining creates significant financial risks and costs of untapped opportunities. According to them, cryptocurrency miners consume all cheap electricity, creating very few jobs. Attempts to meet the demand of miners will pull over themselves the improvement of equipment, which will be unnecessary if the prices for cryptocurrency fall, and mining activity will be terminated.

The recent market dynamics confirm the concerns of utilities. A year ago, the cost of broadcasting reached $ 1,385, and then began a steady decline. In November 2018, the price dropped below $ 120, which is enough to make mining unprofitable. According to forecasts by Digiconomist, a site created by one of the PwC blockchain specialists, in the near future, the miners of Ethereum will reduce their electricity consumption by more than half.

Not surprisingly, some utilities, like the Montreal-based Hydro-Québec, are raising electricity tariffs for miners. Such opposition from energy companies could even shake the security of the PoW cryptocurrency. Limited access to electricity and rising prices for it will make the process of entering the mining for new players less attractive, and current players will concentrate even more power in their hands, and as a result, the risk of collusion and fraud will increase.

For Buterin, reducing energy consumption was part of the plan from the very beginning of the existence of ether. Many Ethereum supporters also agree with this measure. “Most of the Ethereum community believes that PoW consumes too many resources. For me, this is a priority issue, ”says Paul Honer, one of the founders of the Australian cyber security and development company blockchain Sigma Prime, and a developer supporting Ethereum.

The Ethereum PoW algorithm is planned to be replaced by Proof-of-stake (PoS), an alternative distributed consensus mechanism that was first used in practice in the Peercoin cryptocurrency launched in 2012. Instead of racing for primacy between the millions of processors that simultaneously process the same transaction, PoS randomly chooses one of them to solve the problem.

In PoS, participants are called validators, not miners. The key point of this scheme is that validators must maintain integrity. The participant must prove that he has something to lose. That is, it provides a certain amount of air as a pledge. And the more he is ready to allocate for participation in the process, the higher the chance to get the opportunity to validate transactions. Simultaneously with the growth of bail, the moral effect of its loss in fraud attempts grows.

According to Buterin, the transition to PoS will reduce electricity consumption by more than a hundred times. “PoW work is the component that consumes a significant share of electricity. Blockchain transactions themselves do not require a lot of computational power, in essence, representing only the operation of confirming digital signatures. And we are not talking about any heavy 3D matrices or machine learning on gigabytes of data, ”says Buterin.

Reducing computing power and energy consumption is not just a step towards the development of an ecological society. There is also a financial benefit here, since the adopted measure will lead to a slowdown in the production of a new broadcast and an increase in its value. “PoS validators do not consume a lot of electricity, and therefore we don’t have to reward them in such quantities,” says Darren Langley, a senior blockchain developer at the Australian company Rocket Pool, who is creating an application that collects deposit pools that pay their members a percentage of total cryptocurrency mined.

Switching to PoS can also improve platform security. The PoS mechanism assumes that the location of each validator’s account is known, and the account can be destroyed if the rules are violated. Vlad Zamfir, the main PoS-developer of the Ethereum Foundation, compares this with the situation in which the Bitcoin community could set fire to the data centers of miners who have abused their capabilities.

The advantages of PoS convinced the Ethereum community to move to it in 2015, and leaders like Buterin assumed that the transition could be made in 1-2 years. To show the seriousness of the intentions, the main developers of the platform reprogrammed the PoW code to an exponential increase in the complexity of mining. This measure, also known as the “bomb of complexity,” slowed down the creation of new blocks of transactions at the end of 2016 and, presumably, should forcibly stop the mining of the ether several years later.

This bomb, however, worked more like an alarm clock with an off button. In October 2017, when the time spent on mining almost doubled, the Ethereum team dropped the counter, putting the day of judgment on PoW for 12 months. And, most likely, they will have to do something similar again in the near future.

The point is not that the team Ethereum "pulls rubber." According to Buterin, platform developers in theory have already overcome most of the problems associated with the transition to PoS, but the process of transforming theoretical solutions into effective software is progressing more slowly than expected.

Hope for change in 2019 is fueled by a decision that Ethereum leaders endorsed in June 2018. Previously, they were going to embed PoS into the existing Ethereum blockchain. In June, they abandoned this idea and plan to start switching to a new blockchain, which works only on PoS.

Implementing this “two-wire” solution with a working title Ethereum 2.0 is of particular importance for Ethereum programmers, since continuing to work with the original blockchain would force them to describe the PoS logic using a sophisticated set of smart contracts. Honer, the lead developer of the Ethereum 2.0 client creation initiative, considers smart contract language to be a rather complex tool for writing complex constructs. “Smart contracts are a limited environment for computing. It does not allow to do complex things, ”the developer shares her impressions.

A few months after the decision to switch to Ethereum 2.0, its PoS specification was outlined in general terms. About a dozen teams are already working on new software using different programming languages. The Honer group in Sigma Prime, for example, is being developed by Ethereum 2.0 on Rust. They expect this and other applications to work on the PoS beta network or test networks in early 2019.

Buterin says that public test networks will also help launch another innovative solution, Ethereum 2.0 - chains with many branches to improve transaction throughput. And this can happen by the end of 2019. But he still makes a reservation about the possibility of the emergence of "unpredictability", which can move the deadlines for implementation.

Given the multi-billion dollar capitalization of the Ethereum network, there is something to lose if there is an unstable launch or security problems. To take part in the work of the new PoS-chain, the holders of the ether will have to create a smart contract in the original Ethereum blockchain, which will irrevocably transfer the cryptocurrency to the new blockchain. Any mistake could jeopardize the entire ecosystem of projects using Ethereum smart contracts.

The platform has a lot to lose in case of further delays. A number of projects like Cardano , Dfinity , EOS , CosmosProvided with financial and other resources, they are working on creating their own PoS blockchains. Like Ethereum, they strive to prove that high safety and energy efficiency can go well together in a single platform.

The first project, which succeeds in realizing the potential of the blockchain application concept, is likely to become the cloud platform of the future. And his rivals await oblivion. “This environment is by nature very competitive,” says Manyan. “Only one of the platforms will survive.”