For several months, Ethereum has been announcing that it will take a step towards 2.0. The blockchain massively used for the purchase and sale of non-fungible tokens (NFT), will mobilize a new method, proof of stake, to secure the transactions it records. The main objective is above all ecological: the proof of work, currently used, is a very energy-intensive process and its impact on the environment is therefore significant.
What is the Ethereum Blockchain?
Ethereum, designed in 2015, is a blockchain (chain of blocks): this technology makes it possible to transmit or store information without there being a control center governing the use of this information. Each block corresponds to a multitude of actions carried out by Internet users and whose validity has been verified.
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This blockchain tends to differ from Bitcoin, because it works differently. Bitcoin is intended to serve as a platform for executing decentralized financial transactions. Ethereum, for its part, is a network for the execution of decentralized applications (smart contracts). The Ether cryptocurrency makes it possible to pay miners, people who, thanks to the power of their computer and the electrical energy they use, make it possible to validate the transactions and contracts of all blockchain users. Ethereum is particularly used for the purchase and sale of certain products such as NFTs.
It is precisely thanks to these NFTs, whose market reached more than 40 billion dollars in 2021, that Ethereum has become increasingly used. In order to guarantee the verification of transactions, Ethereum, like Bitcoin, relies on the proof-of-work mechanism. It keeps records of all transactions made over time. This consensus protocol is very effective in terms of securing transactions, in particular it makes it possible to deter attacks by denial of service (DDoS) or to limit spam.
This mechanism relies on cryptocurrency miners. The miner will calculate the proof of work. She attests that he spent the energy and the time necessary to solve complex equations allowing the addition of an additional block in the blockchain. The block itself constitutes the proof of work. The average time between adding the previous block and adding a new block is about 10 minutes. However, this time fluctuates depending on the computer equipment available to the miner, but also on the price of the cryptocurrency: the greater the value of the transaction, the longer the verification time will be.
Why does Ethereum no longer want to exploit proof of work?
Even if the proof of work is very efficient, this method has a major drawback: the mechanism is very energy-intensive. As explained above, proof of work is provided by cryptocurrency miners. Any miner who succeeds in applying their proof of work adds a new block to the chain and receives, in return, some cryptocurrency. This process requires enormous computing power, and therefore, a significant amount of electricity.
The Ethereum blockchain uses 113 terawatt-hours (or 113 billion kWh) per year according to Digiconomist : this value corresponds to the amount of energy used by the Netherlands in one year. The smallest transaction with Ethereum can consume as much energy used by an average American household in a week. Kazakhstan, where a large number of miners of different cryptocurrencies have settled, is suffering from power supply problems.
Several countries like Sweden have the will to prohibit the mining of these cryptocurrencies as they are energy-intensive. The project has even been proposed within the European Union. China has taken the plunge and purely and simply banned cryptocurrencies on its soil, just like mining.
In addition to wasted electricity, proof of work generates significant waste. Computer servers used for cryptocurrency mining often become obsolete after a year and a half to two years and end up in landfill. In addition, it is vulnerable to 51% attacks, i.e. a malicious miner could undermine the entire blockchain by appropriating the majority of the validation power.
If he succeeds, he can try to block the validations of cryptocurrency user transactions or make sure to repeat the transaction. Thus, if the hacker-miner buys a good, he can make sure to recover the cryptos he has spent while obtaining additional cryptos thanks to the transaction fees and keeping the object he had initially purchased.
What other disadvantages does Ethereum operate?
Experts and architects working for Ethereum have highlighted a few issues that they want to resolve in the coming months.
First of all, gas costs students. This is not fossil energy, but the name given to a fee paid to the miner who provides the computing power needed to operate the network. You should know that gas is what makes Ethereum work. Like any product, it is subject to the law of supply and demand. If there are large transactions involving large values, gas charges are high, if not, gas charges are lower. Thus, with the explosion of the NFT market, the demand has exploded as well, thus buying an NFT can cost more in gas fees than the price of the NFT itself.
Next, network congestion is to be taken into account. The Ethereum network tends to get bigger as its usage increases. This makes it more difficult to perform certain actions, since the history of all transactions made on the blockchain takes up more space. This limits the rapid functioning of the blockchain: there is an average of 15 transactions per second, a value that has not changed for a few years.
At last, the mining algorithm Ethash. This algorithm, designed specifically for Ethereum, was originally developed to make mining profitable on consumer graphics cards. What should have been a real asset for the blockchain is turning against it and angering individuals and companies wishing to obtain high-performance hardware. Indeed, miners found that by using computers with powerful GPUs, they could earn more cryptocurrencies through gas fees.
This chain reaction creates a shortage that irreparably drives up the price of graphics cards. Other blockchains such as Bitcoin are also affected. Some manufacturers like Nvidia have decided to restrict their graphics cards so that their computers are no longer used for mining. This has fueled the anger of a group of cybercriminals, Lapsus$, who have decided to steal a large amount of data from the firm in order to demand a ransom: they are asking Nvidia to stop restricting some of its components for mining of cryptocurrencies.
What is Proof of Stake, the method that will allow Ethereum to move to 2.0?
In August 2021, Ethereum offered a major update for all its users, the “London hard fork”. The primary objective was to respond to the very high and fluctuating transaction costs depending on the operations in order to stabilize them. But an underlying objective was already mentioned at that time: the transition to proof of stake, a mechanism that could be 99.95% less energy intensive than proof of work.
A few months later, in December 2021, Tim Beko, one of the Ethereum developers, announced the launch of a decisive test phase before the launch of proof of stake: Kintsugi. The objective was to prepare for the arrival of Ethereum 2.0. This testnet incorporates many features of the blockchain while making several changes, including the introduction of proof of stake.
Unlike Proof of Work, Proof of Stake does not require the involvement of miners to validate transactions and add a block. Virtual miners called validators carry out this process for them. With proof of stake, a blockchain user, among those who have a large amount of cryptocurrencies, will see part of their Ethers used in order to verify transactions and create a new block. Subsequently, he will in return receive compensation for having put part of his cryptocurrency at stake.
Ethereum users are eagerly awaiting the arrival of proof of stake which they consider more secure than proof of work. Besides the lower energy costs, the 51% attack is no longer possible, as it is necessary to control much more than just half of the blocks in the chain. Additionally, validators face slashing if the block they attempt to create has fake transactions: some (if not all) of their Ether is lost forever.
Further improvements are promised after the arrival of proof of stake. Ethereum is expected to introduce sharding, a method of breaking down the blockchain into 64 separate chains to support more transactions. Another technique called rollups would also speed up transactions by running them off-chain and sending the data back to the Ethereum network.