Ethereum’s Shanghai Update Opens a Rift in Crypto
At 19:27 Eastern time on April 12, the Ethereum blockchain, home to the world’s second-most-popular cryptocurrency, ether, will finally sever its links to crypto mining. Within the Ethereum bubble, a sense of anticipation is building; some are planning “viewing parties” for the occasion. Codenamed “Shanghai,” the update to Ethereum caps off a process, after “The Merge,” which fundamentally changes the way transactions are verified and the network secured.
Under the old system, proof-of-work (PoW) mining, the right to process a batch of transactions and earn a crypto reward is determined by a race to solve a mathematical puzzle. The greater the computing power miners throw at the problem, the greater their chance of winning the race. Under Ethereum’s new proof-of-stake (PoS) system, there is no race and there are no miners; instead, the winner is determined by raffle. The greater the amount of ether somebody locks up on the network—or stakes—the greater the chance they hold a prize-winning ticket.
By demonstrating that a large-scale blockchain can shift from one system to another, Shanghai will reignite a debate over whether the practice of mining that still supports bitcoin, the most widely traded cryptocurrency, is viable and sustainable. Figures from the University of Cambridge suggest the Bitcoin network consumed 107 terawatt-hours of energy in 2022—equivalent to that of the Netherlands—of which only just over a quarter came from renewable sources. Prior to The Merge, Ethereum consumed roughly two-thirds as much energy as the Bitcoin network. But the move away from mining has cut that consumption, according to analysis by Alex de Vries, data scientist at De Nederlandsche Bank and creator of Digiconomist, a source of crypto emissions data, by at least 99.84 percent.
