Ethereum, the 2nd biggest crypto network, slashes its energy use

The world’s second-biggest cryptocurrency network, Ethereum, is about to pivot to a new system that will use vastly less electricity.

Why it matters: One of the biggest knocks on cryptocurrencies centers on the enormous amount of energy its networks consume. But with this change, trading in one of the leading currencies will be no more energy-intensive than playing an online video game.

How it works: Cryptocurrency networks use so-called “consensus mechanisms” to ensure that transactions are valid. Those tools keep track of who owns what and ensure that no one spends any currency that isn’t theirs.

  • The original consensus mechanism, “proof-of-work,” is the reason crypto uses so much energy.
  • Ethereum is switching to a new strategy, “proof-of-stake.” It’ll be an expensive shift, but after it happens, Ethereum’s energy use might only be about 1% of what it was before, according to the Ethereum Foundation.
  • The switch, known as The Merge, is expected to happen a bit after midnight Eastern Time tonight. Users shouldn’t notice anything different once it happens.

Yes, but: Up till now, Ethereum has used a lot of power, but Bitcoin has always been — and will continue to be — the industry’s biggest energy user, by far.

Our thought bubbles: Years in the making, The Merge is easily 2022’s biggest cryptocurrency moment, after the bull market’s end in May.