Explained: How Ethereum is upgrading and could it change crypto’s future?

New Delhi: Notably, over the last couple of weeks, Ethereum has been performing more extraordinarily than Bitcoin on the cryptocurrency market. After suffering a month-long plunge, the world’s second-largest cryptocurrency grew around 24% since March 11 whereas Bitcoin gained only about 16%.

The reason behind the growth appears to be an upcoming upgrade that will mend the working of the Ethereum blockchain and in the process make it “more scalable, more secure, and more sustainable.”

This upgrade has been in the works for quite a time, on March 15, Ethereum successfully finished a critical test that ends right before the finish line. According to investors, hopefully, there will soon be a wave of new adopters.

Besides, a researcher at the Ethereum Foundation stated that this upgrade can reduce energy consumption by at least 99.95%.

Here’s all you need to know about the upgrade and how this can change crypto’s future:

What is Ethereum?

Ethereum is a programmable blockchain that maintains a publicly accessible record of transactions using several computers across the globe. Besides, it can be used to send cryptocurrency to anyone for a fee towards computation and storage. It can also be used to make and access different types of financial products. 

Why is it upgrading?

As blockchains are decentralised, no single entity is responsible for updating the shared ledger. Rather, they rely on the network of computers to record transactions, cross-reference them and reach a common consensus. This means that a larger part of the decentralised network confines a transaction for it to be recorded on the distributed ledger, making the system tamper resistant.

One of the mechanisms built into Ethereum is called ‘Proof of Work’ (PoW). This requires members of a network (crypto miners) to use large amounts of computational power to solve an arbitrary mathematical puzzle.

The computer succeeds in solving the puzzle fast, creates a new blockchain of processed transactions, which has a cryptographic link with the previous block, making it difficult for any kind of alterations.

“Ethereum’s current energy expenditure with proof-of-work is too high and unsustainable,” it says. This requires a switch to a new mechanism called proof of stake (PoS).

How will the new system work?

Proof of stake is considered to be a consensus mechanism in which users will need to stake their cryptos to become ‘validators’ in the network, who are randomly selected to create blocks and check the blocks they don’t create.

Besides, Ethereum is already testing the PoS system on a separate blockchain called The Beacon Chain, planning to merge with the Ethereum blockchain, sometime this year.

How can it change crypto’s future?

The shift to proof of stake by Ethereum will put an end to crypto mining on its blockchain and is expected to reduce energy consumption by 99.95%. Besides, this curtail of its energy consumption by 99% would certainly produce a more optimistic re-evaluation of the environmental cost of crypto and its feasibility as a worldwide financial system.

Besides, an end of profitable ETH mining means that anyone currently mining ETH will either have to transition to a different PoW coin or sell their graphics cards and use the money to stake.

This can enable a good reduction in GPU prices which have been surging since last year due to the global clip shortage.