Vital ‘V’

Vital ‘V’

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One morning in October I found myself buried in news and industry commentary about ‘The Merge’, i.e. Ethereum’s (ETH) shift from a ‘proof of work’ mechanism to a ‘proof of stake’. Prior to this shift, which hasn’t as yet had any impact on ETH’s value, the narrative around crypto-mining and its associated energy consumption (and emissions) was approaching a peak of sorts. According to ETH’s founder and Blockchain charismatic leader, Vitalik Buterin (28, Russian, Estimated net worth $400m – $1bn), ‘The Merge’ – which saw the old ETH network merge with a new proof-of-stake blockchain called Beacon Chain – has reduced Ethereum’s energy profile by a whopping 99.5%. Talk about an ESG focused network redesign! You can read more about Ethereum’s carbon footprint in this report by the Crypto Carbon Ratings Institute. This is a systemically significant development for Blockchain technology, and its effect on other value chains can already be felt. GPU prices and availability appear to be stabilising. The knock-on effects might be far reaching too. For instance, crypto-mining posed a potential risk to the development of AI technologies. GPUs play a major role in this space because they supply the advanced computer power required to run large, complex training models. But what does ‘Proof-of-stake’ mean? Well, it is a cryptocurrency consensus mechanism used to process or validate transactions in a blockchain. The previous approach, ‘Proof-of-work’ required miners to use energy intensive processing power to solve complex cryptographic puzzles; whereas this new approach requires them to stake their own ‘coins’ for the opportunity to validate transactions. This approach should also reduce the cost of transactions on the ETH network – which should, in theory, support wider adoption. Whatever the case, the maturity and resolve Vitalik brings to the industry is very welcome. As such, I think this milestone will indeed be very significant in the future history of blockchain and cryptocurrency.
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