Imagine replacing a plane’s jet engine with a clean electric version… in mid-flight, with hundreds of people on board. That’s effectively what the Ethereum blockchain is about to do, in its biggest and riskiest upgrade since launching in 2015.
Expected to take place late Wednesday night or the early hours of Thursday morning, Ethereum will transition to “Proof of Stake” in a process known as “The Merge” that will change the way the blockchain verifies transactions. Ethereum will come out the other side consuming 99.95% less energy, according to Ethereum.org, a group of open-source researchers. That promises to fix one of the biggest criticisms of Web3. According to current estimates, Ethereum consumes as much energy as The Netherlands every year. (Bitcoin guzzles even more.) And while almost half of it comes from renewable or sustainable sources, crypto continues to face backlash over its energy use.
The environmental impact is not only having real-world effects, but also is hurting adoption. In music, Charli XCX pulled out of an NFT festival in March due to the negative reaction of her fans over environmental concerns. Last week, David Bowie’s estate sparked criticism for releasing a posthumous NFT collection. One fan wrote on Instagram, “DB loved the planet too much for this bullshit.” After The Merge, however, transacting NFTs will consume less energy than watching YouTube videos.
“Ethereum’s environmental impact will shrink to effectively nothing,” confirms Tim Beiko, protocol support at the Ethereum Foundation.
The long-awaited Merge also paves the way for cheaper and speedier transactions, Beiko says, allowing Ethereum to scale to mainstream use. It won’t happen overnight, however. “The Merge only changes how the network is secured, not its capacity,” he says. “Ethereum’s main way to increase its capacity is via Layer 2 solutions.” These “Layer 2s” are high-speed lanes that sit on top of Ethereum.
As for the Merge itself, the average person won’t notice any difference. Anyone who owns ETH, NFTs or a crypto wallet doesn’t need to do anything. “One reason the Merge took a while to ship,” says Beiko “was to ensure the experience for end users is seamless.”
The process of switching Ethereum’s engine mid-flight has been practiced many times already. A test version of the chain, known as the Beacon chain, has been flying alongside Ethereum since 2020 and tested extensively. Now it’s ready to “merge” with the existing Ethereum chain.
So, what exactly is going on?
In technical terms, Ethereum will switch from something called Proof of Work (PoW) to Proof of Stake (PoS). The current PoW system, which powers Bitcoin and Ethereum, uses several thousand tons of computer hardware, known as “mining” equipment. Located all around the world, these “miners” compete against one another to verify transactions, consuming large amounts of energy. They are rewarded with BTC and ETH respectively for this “work.”
This process makes blockchains like Bitcoin and Ethereum incredibly secure. Miners are distributed all over the world, making it almost impossible for any single company or government to shut it down or control. And any attacker would need to capture 51% of the network’s equipment and energy, at near-impossible cost and effort. It’s secure, but highly energy intensive.
Proof of Stake aims to achieve the same security and decentralization, without the energy use. Instead of mining equipment, participants around the world will secure the network by “staking” their ETH using a simple laptop. They’ll be rewarded with a yield for checking transactions and creating new blocks. Crucially, however, they’ll be penalized if they act maliciously. Break the rules, and a percentage of their ETH “stake” will be “slashed” or burned.
Beiko offers a useful metaphor. “You can think of PoS as introducing a ‘stick’ alongside the carrots we had in PoW.”
Advocates say that PoS is not just energy efficient, it’s also more democratic. Anyone can run a validator on their laptop by staking 32 ETH (about $54,000) and those with smaller amounts can pool their stake through crypto platforms such as Coinbase, Lido and others. No need for expensive mining hardware and energy contracts.
However, not everyone is convinced about this switch. “I do question the rushed move to PoS,” wrote Nic Carter, a partner at Castle Island Ventures and founder of leading blockchain data source Coinmetrics for Coindesk.
Carter is concerned that Ethereum staking will be dominated by a small group of companies based in the US (most people will pool their “stake” through services like Coinbase rather than running their own validator). In that scenario, there are fears that governments and regulators could force Coinbase and others to ban certain transactions, add surveillance, regulation or impose sanctions. The entire point of crypto, many will argue, is to limit the influence of big tech and governments. “Ethereum’s odds are likely better in my estimate if it remains on PoW,” Carter concludes, “but it’s not necessarily doomed.”
Others have cited security and morality concerns because, theoretically, a bad actor could amass a large amount of ETH to try to influence the network in their favor. With PoS, a larger stake could lead to a larger influence. Indeed, Bitcoin has no plans to change to PoS for these reasons. Beiko acknowledges the dilemma but concludes that, ultimately, “Ethereum wouldn’t do this change if the community didn’t believe it was safe,” he says. “Overall, we think it’s a tradeoff that’s worth it.”
The Merge is due to take place late tonight or early Thursday morning, depending on the time zone, although the exact timing remains an estimate. Instead of a timestamp, the Merge is scheduled for a specific “block number” in the Ethereum blockchain — block number 15,537,351. Ethereum produces a new block of transactions approximately every 10-20 seconds which puts The Merge on track for early Sept. 15.
Watch the countdown in real time here.
