Is Ethereum Eco-Friendly? Exploring the Impact of the Merge

Ethereum is a software platform that's associated with ether (ETH), a cryptocurrency that can be bought and sold by investors. Ethereum upgraded in September 2022 in an update that was called the Merge. Developers integrated the long-anticipated transition to proof-of-stake, among other issues. Its proof-of-stake validation mechanism is more environmentally friendly than proof-of-work mechanisms. It significantly reduced the blockchain's energy requirement.

The new Ethereum chain was called Ethereum 2.0 until the Ethereum Foundation requested that it not be. It promised faster transactions and lower gas fees. Discover how green Ethereum is and learn about its plans that may be even more environmentally friendly.

Understanding Ethereum's Energy Consumption

Ethereum is a software platform that is open to anyone. It is commonly associated with ether (ETH), a cryptocurrency that is bought and sold by investors. Ethereum can be used by anyone for different reasons, including banking and finance, network and application building, and peer-to-peer financial networking without the need for middlemen.

Ethereum was created in 2013 and launched two years later by Vitalik Buterin. It is among the most well-known names in the cryptocurrency markets, coming in as the second-largest by market capitalization after Bitcoin. As of May 27, 2024, Ethereum's market cap was $466.67 billion. But, Ethereum mining is no longer possible after the move from the proof-of-work (PoW) model to proof-of-stake (PoS). Proof-of-stake reduced the blockchain's energy use by more than 99%.

PoS differs from PoW in that it is not a network-wide competitive process of encrypting information through a hashing algorithm. PoS still uses a hashing algorithm and verifies transactions through a consensus layer, but the validators are randomly chosen by the network based on the amount of ether they have staked. Staking means offering ether as collateral to become a network validator so the participant can earn ether rewards.

Selecting one semi-trusted validator to hash the information in a block and verify it uses far less energy than a competition. So, Ethereum is much more green in terms of energy consumption than it used to be.

Were Ethereum Gas Fees Reduced?

Transaction fees rose on the Ethereum network in 2020 because of increased network activity. At the time, the transactions of originators who offered the most in fees were placed in front of those who paid less. This created a fee war of sorts, with users trying to get their transactions validated quicker and miners charging more for prime validation spots.

An earlier attempt to fix rising costs tried to remove the transaction auction mentality from the network by imposing a base fee and a priority fee. The priority fee is similar to a tip to validators for them to choose to process one transaction instead of another. This was ineffective at lowering transaction fees because users still increased their tips to get transactions approved faster.

Analyzing Ethereum Transaction Speeds

The Merge, which was an upgrade to the Ethereum blockchain to a different version set the stage for future upgrades. Many people called the upgrade Ethereum 2.0, It was the most significant update to the system. Although it didn't improve transaction speeds at the time or even a few years later, future upgrades will introduce improvements in network speed and scalability.

Is Ethereum Green?

According to the Ethereum Foundation, the blockchain and network consume 0.0026 terawatt-hours per year (TWh/yr). This translates to the equivalent of 870 tonnes of carbon dioxide. Compare this to Bitcoin's 149 TWh/yr and global data centers' 190 TWh/yr. Ethereum also consumes less energy than video gaming in the U.S. (34 TWh/yr) and less than Google (19 TWh/yr).

The University of Cambridge's Judge Business School researched the energy sources for the Ethereum network after the Merge. According to its findings, 48% of Ethereum's energy comes from sustainable sources like wind power, nuclear power, and other renewables. The remaining 52% is powered by natural gas (30%), coal (19%), and oil (3%).

According to similar reports, Ethereum is greener than it was before switching to PoS. However, there are many more upgrades planned that have the potential to make it even more efficient and eco-friendly.

Ethereum's Sustainable Future

Ethereum has plans for upgrades to bring a new concept to the blockchain, which is expected to allow it to scale and increase transaction processing speeds. In March 2024, the Dencun Upgrade was released.

This upgrade introduced proto-danksharding, a process where second-layer rollup providers can send Binary Objects (also known as blobs) to the Ethereum main chain. Blobs are much cheaper to send than rollups, so transaction fees are expected to drop when full danksharding is released.

The full upgrade to danksharding is expected to allow Ethereum to scale up to more than 100,000 transactions per second and be cheaper, both of which will contribute to its greenness.

Future upgrades will address issues regarding:

• Censorship resistance
• Decentralization
• Protocol risks from Maximal Extractable Value
• Block verification
• Computational costs

The lesser the blockchain costs, the more decentralized it becomes and the more efficient it will be. However, there are concerns whether decentralized applications built on Ethereum will consume more energy. Ethereum has positioned itself as the platform of choice for Web3 development.

Web3 is a concept of restructuring the backend of the internet, where control of people's information, data, and digital creations are returned to them. Many steps must be taken and hurdles overcome before blockchain technology can be used to create the new internet infrastructure conceived by developers.

If Ethereum is the platform used to create applications for this emerging and in-development restructuring, its eco-friendlier network might not be as environmentally friendly. However, it could be even more so—there is no way to tell.

The Bottom Line

For Ethereum, the evolution to a better-performing, more accessible network has begun. Continued updates promise to cut back on emissions and make the network more energy-efficient while improving speeds and cutting transaction costs. However, Ethereum has much ground to cover to get to the levels of efficiency it wants, both in speed and environmental friendliness.