Despite the bankruptcies, hacks and general foul mood in crypto, one metric is moving in the right direction.
As we talked about earlier this year, ethereum — the world’s second-largest crypto network — made a move to reduce the energy used in the “mining” process for authenticating transactions on the blockchain.
In September, ethereum switched from the so-called proof of work method, in which a bunch of miners compete to solve an authentication puzzle with giant banks of supercomputers, to a method called proof of stake, in which just one miner validates a transaction. That requires much less electricity.
Marketplace’s Meghan McCarty Carino spoke with Alex de Vries, the founder of Digiconomist, a website that tracks cryptocurrency energy use, about just how much less energy the ethereum network is consuming, based on a paper that de Vries recently published.
The following is an edited transcript of their conversation.
Alex de Vries: This change has had a tremendous impact on the energy consumption of the ethereum network. They managed to reduce their energy consumption by at least 99.84%. In absolute numbers, that translates to as much electrical consumption as a country like Ireland or even Austria. So we’re talking a really significant reduction in the power requirement of the network as a result of this change in the software.
Meghan McCarty Carino: So ethereum has reduced its power intake. Has that had much of an effect on the crypto sector’s electricity consumption overall?
De Vries: Well, that’s a much more difficult question to answer because the thing is, these devices that were previously being used in ethereum were mostly graphic cards, and graphic cards can quite easily be repurposed, for example, for the mining of other digital currencies. It’s even the case that as these ethereum miners were forced to shut down and remove their machines from the data center space they were using, bitcoin miners that previously were unable to find the space they needed for their machines took this space that became available after the ethereum miners left and started using their energy, and therefore limiting the amount of energy reduction we have globally from this change in the software of the ethereum system.
McCarty Carino: I mean, the whole crypto ecosystem seems to be dealing with a basic loss of trust. Is becoming more energy efficient kind of a luxury problem in that context?
De Vries: As the market is getting more and more squeezed, only the ones that are having access to the cheapest forms of electricity, and the ones that are having the most power-efficient devices, are going to be able to survive the current conditions. That hasn’t changed. That’s always been the case. But right now, under the current market conditions, the ones that don’t have the optimal setup or aren’t running the most optimal devices or just don’t have access to the cheapest electricity are being forced to shut down and leave the mining market.
McCarty Carino: Have you seen any indications that other crypto mining operations for other currencies might make this switch?
De Vries: Well, it depends on the cryptocurrency. The thing is in ethereum, it was always part of their plan to make the switch. They had this thing in their road map from basically day one. And that’s not been the case for bitcoin, for example. They don’t have any plans whatsoever to make a similar change to their software. So at the moment, there is no reason to be optimistic that this will happen in bitcoin as well.
McCarty Carino: So we have this more sustainable method of crypto authentication. But the crypto sector is going through some tumultuous times lately. There’s the bankruptcy of the FTX crypto exchange. We’ve seen a bunch of crypto hacks, there’s been this dramatic downturn in crypto valuations. I mean, what are your findings mean in light of all this other stuff going on?
De Vries: Well, I think we need to establish that the very fact that crypto asset prices have been under a lot of pressure recently is already putting pressure on the energy consumption of these networks as well. For the very simple reason that these crypto miners often get paid a fixed amount of coins for every block they create. So as the value of those coins goes down, they simply have less money to spend on resources like energy and hardware. That is pretty good news for the environment. Hey, we can see that over the past couple of months, the bitcoin network, even though they have no plans to change their software, the energy consumption of the network went down by probably up to 50% simply from the bitcoin price going down. Though, of course, it would be a much better solution if they also changed their software because that’s the only way to receive or to achieve a near 100% reduction in the energy consumption.
Related links: More insight from Meghan McCarty Carino
You can read De Vries’ paper in the scientific journal Cell here.
But just in case you need perhaps a little more in-depth refresher on how crypto mining actually works, here’s an explainer from my Marketplace colleague Matt Levin about the process, as well as a previous conversation we had with De Vries that covers some of the nuances of “proof of stake” versus “proof of work” authentication.
Bloomberg News has more on the situation for crypto miners now that this digital gold rush is losing its luster. Many set up shop in Texas, attracted by the promise of cheap energy and a welcoming regulatory environment.
But now with soaring power costs and the loss of value in currencies like bitcoin, it’s become pretty tough to make a profit, much less pay back the Texas-sized loans many miners took out to finance their operations.
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