UPDATE 3-Ethereum blockchain slashes energy use with 'Merge' software upgrade
Ethereum "Merge" software upgrade goes live Dramatically cuts energy usage of second-biggest blockchain Ether falls 4% amid wider risk-off moves (Updates ether prices) By Elizabeth Howcroft and Maria Ponnezhath
London: Bitcoin slid 2.7% and Etherium was down 10.1% on Friday, after Ethereum announced a major software upgrade, drastically reducing its energy usage.
Etherium's inventor and co-founder tweeted on Thursday. The new system will use 99.95% less energy, according to the Ethereum Foundation. The upgrade, which changes how transactions occur and how ether tokens are created, could give Ethereum a major advantage as it seeks to surpass rival blockchain bitcoin.
"We believe this is a significant moment that will lead to ETH outperforming the broader crypto market for some time," said Richard Usher, head of over-the-counter trading at London-based crypto firm BCB Group.
Most blockchains devour large amounts of energy and have come under fire from environmentalists and some investors. Before the software upgrade, which is known as the Merge, a single transaction on Ethereum used as much power as an average US household uses in a week, according to researcher Digiconomist.
With the software upgrade, Ethereum has moved from a "proof of work" system, in which energy-hungry computers validate transactions by solving complex maths problems, to a "proof of stake" system, where individuals and companies act as validators, using their ether as collateral, to win newly created tokens.
"Happy merge all," Etherium's inventor and co-founder Vitalik Buterin said in a tweet.
"This is a big moment for the Ethereum ecosystem." Ethereum was born in 2013. Proponents say it will form the backbone of much of the widely hyped but still unrealised "Web3" vision of an internet where crypto technology takes centre stage in applications and commerce.
It powers platforms involving crypto offshoots such as decentralised finance and non-fungible tokens, and is used in so-called "smart contracts" - blockchain-based covenants seen as having use in traditional finance and other industries.
The cryptocurrency ether fell as much as 4% to $1,571, a move analysts put down to a cautious mood for risk assets more generally.
Investors bet ahead of Merge that the upgrade would bolster the price of the ether token. Ether has gained about 85% from its June lows, outperforming larger rival bitcoin's 15% gain.
Overall, however, cryptocurrencies have suffered this year, with bitcoin and ether both down by around 55%.
Ether took market share from bitcoin ahead of the Merge, and now accounts for about a fifth of the $1 trillion crypto market.
Bitcoin's share has dropped to 39.1% from this year's peak of 47.5% in mid-June.
In addition to energy consumption, high costs and slow transaction times are key issues facing the Ethereum network.
Merge will not immediately tackle these problems, though some analysts say it lays the ground for Ethereum's expansion.
The bolstering of Ethereum's environmental, social and corporate governance (ESG) credentials "would be good for regulatory-driven institutions that want to start to explore the Ethereum ecosystem," said Marc Arjoon, ethereum research analyst at digital asset manager CoinShares.
Ethermine shut down
Ethermine, the largest Ethereum mining services provider by computing power, will shut down its servers for miners after the blockchain completes its historic technical upgrade.
The news comes on Ethereum's highly-anticipated software revamp, dubbed the 'Merge,' which shifted the most used blockchain from a proof-of-work consensus mechanism to proof of stake.
The powerful graphic cards used to validate transaction data will be replaced with investors that stake Ether.
Going forward, these validators will effectively secure the Ethereum blockchain and validate data on the network.
After the Merge takes place, as many as one million people with over $10 billion worth of mining equipment will have to unplug the graphic processing units (GPUs) they have used so far to mine Ether.
Ether mining has evolved into a multi-billion dollar industry over the last several years. The activity involves miners competing against each other to be the first to solve mathematic puzzles and earn a reward in the token.
Mining pools such as Ethermine aggregate computing power from a group of miners to increase the probability of winning Ether before distributing the rewards among miners. The pools usually charge a fee for providing their services.
"As a consequence of this transition, the Ethermine Ethereum mining pool will switch to withdraw-only mode once the Proof-of-Work mining phase has ended," Ethermine tweeted on Wednesday.
A countdown appeared on the miner dashboard and users will be able to mine Ether until it hits zero. At that point, "all Ethermine stratum servers will be shut down, and you will no longer be able to connect your miner to the Ethermine Ethereum pool," said the company.
A few days after the Merge, Ethermine will trigger an automatic payout to its miners for any unpaid balances. The company also launched an Ethereum staking pool in August, where Ether holders will be able to deposit their coins and earn yields.