How Ethereum 2.0 Is Planning to Reduce Energy Consumption by 99%

In the year of 2018, several studies outlining the environmental impact of digital currencies appeared on the market. As such, concerns were raised on whether cryptocurrencies are efficient from an energetic point of view.

To put things better into perspective, most energy isn’t consumed via transactions, but rather by the mining process. All popular digital assets based on the Proof-of-Work (PoW) consensus protocol are dealing with energy inefficiency, and a negative environmental impact.

Reports indicate that Ethereum will soon go through a fork that will update its protocols, integrate new features, and adopt a Proof-of-Stake (PoS) consensus mechanism that is bound to be energy-efficient. Ethereum’s co-founder, Vitalik Buterin, explained that large energy consumption is understandable, granted that PoW works by promising big rewards, in exchange for massive amounts of power. As such, the reward to power ratio is proportionate.

With the introduction of PoS in Ethereum 2.0, the mechanism works by randomly choosing validators that process, verify and secure transactions. The difference here is that the network will no longer rely on solving complex mathematical problems. Rather, the honesty of the validators will be ensured by requiring them to wager an ether-based stake that serves as collateral. Lack of honestly will result in losing the stake.

PoS practically makes mining obsolete, and energy consumption is reduced by 99%. Therefore, the coin-based reward can also be lowered. According to Buterin, “Blockchains of the future with proof of stake and sharding will be thousands of times more efficient, and so the efficiency sacrifices of putting things on a chain will become more and more acceptable.”

At this moment in time, testing of the new consensus algorithm is underway and far from complete. Because of this, it is unlikely that Ethereum 2.0 will be released in 2019; hence it’ll take longer before any other cryptocurrencies adopt a similar system.  The Ethereum co-founders have already announced that the PoW-to-PoS change will not happen with the Constantinople fork.

Despite this, opinions of the cryptocurrency community are divided. While saving the environment is a noble task, mining has so far proven to be a fairly profitable activity. Additionally, a coin cannot remove incentives given to miners/validators, since doing so will create instability on the network.