Ethereum 2.0 power consumption plummeted by 99%, and the biggest victim was the mining farm?

Ethereum may steal Bitcoin’s spotlight at any time

It cannot be denied that Bitcoin shines too brightly. It has been hailed as the embodiment of “cryptocurrency” by some, and praised as well as lauded as others. Meanwhile, its younger and smaller “older brother” Ethereum has been left in the shadows.

But Ethereum is something we cannot ignore. It is a “small” thing, but it is not “small” at all. Its market value is close to 15 billion US dollars at the time of this article. Its growth trajectory and the energy it contains are actually comparable to Bitcoin.

The amount of electricity consumed by ETH mining is one-fourth of that consumed by Bitcoin mining. According to statistics from 2018, the amount of electricity consumed by ETH is almost equal to the annual electricity consumption of the entire country of Iceland. Indeed, the amount of electricity consumed to mine one ETH exceeds the average daily electricity consumption of an average American household!

Vitalik Buterin, a 24-year-old Russian-Canadian computer genius (who created Ethereum at the age of 18 and is affectionately called "V God" by netizens), said: "Transactions on Ethereum do consume a lot of electricity and cause considerable waste. Even if you don't think these carbon emissions and pollution are a big deal now, there is indeed a huge demand for energy, and those traders are real energy seekers."

Therefore, Vitalik is preparing to do something big in 2019. He is going to revamp the product he created and solve the problem he created!

Ethereum Rebirth Plan

This year, the Ethereum Foundation, co-founded by Vitalik Buterin, joined forces with the more open open source movement to promote cryptocurrency and work together to promote disruptive changes to the Ethereum code. If these programmers do a good job, then by the end of 2019, if everything goes well, Ethereum will only consume 1% of the current electricity to complete transactions under the new code!

Vitalik Buterin, the inventor of Ethereum, hopes to bring a different, energy-saving and power-saving blockchain platform to everyone in 2019.

Zaki Manian, a consultant at cryptocurrency company Cosmos, said: "Ethereum's rebirth plan will be the most interesting and anticipated technological innovation this year!" He emphasized: "Ethereum's transformation must require a large number of programmers and organizations to work together in an open environment to create seamless and perfect code. This is also the most ambitious and imaginative project ever made by the open source community!"

Similar to Bitcoin, Ethereum is also based on blockchain technology, a specialized digital trading tool, and its maintainers are a community of users who have spontaneously formed a community. But unlike Bitcoin, the inventor Vitalik Buterin wants to do more and bigger things. He not only wants to develop a decentralized trading tool, but his vision is to make Ethereum a truly "global computer" that is completely decentralized, open to everyone, and truly free of fraud, censorship, and downtime.

Ethereum's own technical advantages and current bottlenecks

Why does Ethereum have such an amazing future? That’s because it has its own unique features in data storage, decision-making mechanism, and automatic distribution of value. It manages these tasks through “smart contracts”, which are written by users or some programmers using Solidity, a specific code language on Ethereum.

"Smart contracts" were originally aimed at commercial applications, but the protocols that emerged from these applications will eventually make Ethereum the ultimate cloud computing platform.

Although this vision sounds very grand, it contradicts the current reality of Ethereum. There are tens of millions of dollars of applications running on Ethereum, and even Buterin himself said that he suspected that the resources consumed by Ethereum are too large, far exceeding the social benefits it has achieved.

The crux of the problem lies in "mining". Like most cryptocurrencies, Ethereum relies on a kind of computational competition (called POW proof of work). In POW, all participants compete to solve algorithmic problems on encrypted transactions and add these transactions to the global distributed ledger of the blockchain. This is a "winner takes all" competition game, and the winner will get the cryptocurrency that has just been "mined". Therefore, the more powerful the computing power you have, the more capable you are and the higher the probability of obtaining these rewards.

The PoW mining mechanism is very complex in design, and its purpose is to prevent anyone from controlling the blockchain in some way. For example, if the computing power of a Bitcoin miner's computer system exceeds half of the total mining power on the entire network, then the miner can commit some fraudulent acts, such as modifying some completed transaction records. Bitcoin users also lose their right of recourse due to the complete anonymity of these miners.

In theory, PoW ensures that mining is a distributed behavior. But in reality, the opposite is true. The continuous development of "Application-Specific Integrated Circuits" (ASICs) continues to promote mining, and a small number of companies and individuals from China who specialize in developing specialized chips are constantly concentrating computing power in their hands in multiple cryptocurrency fields.

Ethereum chose to resolutely fight against this trend. The way it chose to fight back was to choose a memory-intensive PoW algorithm to mine ETH. This algorithm would punish miners who used mining machines, effectively avoiding the trend of computing power concentration. However, it also had another disadvantage. It failed to prevent the explosive growth of computing resources dedicated to ETH mining.

In 2017 alone, computing resources dedicated to mining ETH increased by more than 25 times, and the price of the token soared from $8 to $862. Mining companies set up mining farms filled with GPU mining machines that are perfect for mining ETH.

The result is a surge in demand for electricity, which has led to protests from environmentalists. Utilities and some local community groups are very dissatisfied with cryptocurrency miners who use cheap electricity but provide almost no jobs. Some miners have asked the power sector to upgrade some power equipment, but once the price of cryptocurrency collapses and mining stops, the upgraded facilities and accessories will instantly become decorations, causing great waste.

The recent market turmoil has exacerbated such concerns. In January last year, the price of ETH was $1,385, and then it began a long and endless decline. In November, it had collapsed to below $120, which was enough to wipe out all the profits of miners, forcing some miners to slow down their mining progress or even shut down their machines to rest.

According to a forecast by Digiconomist, a professional blockchain economics website, Ethereum miners are likely to cut their electricity consumption by more than half in less than 20 days.

No wonder some public power utility departments are raising electricity prices for miners. Coupled with the restrictive regulations issued by some management departments, all of this seriously affects the security and stability of PoW-based cryptocurrencies. The rising threshold of computing power interface, the narrowing of channels, and the rising electricity costs have discouraged many new miners who were originally eager to try. This has further exacerbated the trend of centralization of mining computing power. Once the trend of centralization rises, the possibility of cheating and fraud will also increase significantly.

Paul Hauner, one of Ethereum's contributors and co-founder of Sigma Prime, an Australian digital security and blockchain development company, said: "For Vitalik, drastically reducing electricity consumption has always been part of his vision since the beginning of Ethereum. Now there is a general consensus in the Ethereum community that PoW consumes too much electricity. For me, how to solve this problem has become a top priority!"

Ethereum's rebirth plan is to replace PoW (Proof of Work) with PoS (Proof of Stake). This is a consensus mechanism that is as famous as PoW and first appeared in the release of Peercoin in 2012. This time, it no longer relies on millions of processors to process the same transaction at the same time. PoS randomly selects one of them to perform the task.

In PoS, the names of participants have also changed. They are no longer miners, but validators. The core secret to ensure their good conduct is that in PoS, to become a validator, you must hold a certain amount of tokens as collateral. Of course, the higher the value of your collateral, the higher the return you can get; on the contrary, if you are caught cheating, you will lose more.

PoS, the only way for Ethereum to be reborn!

After transferring to PoS, the problem of electricity consumption has been well solved.

According to Buterin, “It is the working mechanism of PoW that consumes a lot of electricity. The transactions of the blockchain itself do not take up too much computing resources. It is just verifying the digital signature, not doing the kind of high-precision 3D matrix drawings, or processing massive amounts of data to achieve machine learning. So technically, it can achieve significant energy and power savings.”

Ethereum's pursuit of energy saving and power saving is not only an environmentally friendly move, but it will also bring direct economic benefits. In order to encourage validators to enter the market, Ethereum must pay a certain fee to issue new ETH, and this issuance cost will further dilute the true value of ETH. Now that energy saving and power saving have been achieved, the mining cost will be reduced, and the value of ETH will be stabilized or even increased.

Migrating to PoS also brings about an improvement in security. Under PoS, the account address of each validator is known, and if the validator breaks the rules, the account can be destroyed. To put it in an analogy, this is a bit like the status of the Bitcoin community has been greatly improved, and it has the power to burn down the data centers of miners who abuse the rules.

At the end of 2015, the advantages of PoS had already made the Ethereum community begin such a transformation. At that time, its leader Buterin was considering how to promote such a transformation in the next one or two years. In order to make their demands clear, the core programmers of Ethereum rewrote the PoW code. As a simulation of the real situation, the difficulty of mining will increase exponentially. By the end of 2016, the speed of generating new transaction blocks will slow down. And it is expected that in the next few years, this model will completely stagnate the mining process.

This looks like a time bomb, and also an alarm that can go off at any time. In October 2017, when the block time doubled to 30 seconds, the Ethereum team reset the alarm, pushing the PoW doomsday back 12 months. By that time, they might have continued to delay the arrival of the final judgment day.

It’s not just the Ethereum team that is unwilling to wake up. According to Vitalik Buterin, programmers on Ethereum have already solved most of the technical difficulties related to PoS, but the progress from theoretical research to practical implementation and the development of effective software is much slower than previously expected.

The reason why 2019 brings hope is that in June 2018, the leaders of Ethereum collectively decided to adopt a more radical new solution. Before that, they were thinking about embedding PoS into the existing Ethereum platform. In June, they decided to make a clean break from then on, a brand new blockchain that runs entirely on PoS! This chain is also called Ethereum 2.0!

Just a few months after this decision, the draft technical specification of PoS was made, and more than 12 teams began to develop the software using various languages. Hauner's team at Sigma Prime is currently developing an Ethereum 2.0 client written in Rust. He expects this application and a series of other test network applications running on PoS to be available in early 2019. V God said that the public beta version will be available at the end of 2019, but he also said: It's not absolute. There may be some unknown difficulties in the development process, and maybe the work will be rolled back to a previous node...

Of course, as a blockchain platform worth billions, Ethereum cannot afford to lose. Any instability or insecurity in the new version will have a huge negative impact. You know, to play on Ethereum's PoS chain, ETH holders must configure a smart contract on the original Ethereum chain, and then this smart contract will irreversibly transfer ETH to the new chain. Any mistakes will endanger the entire ecosystem.

However, if Ethereum continues to drag its feet, it also cannot afford to lose. It is followed by a large number of projects with sufficient capital ammunition: Cardano, Dfinity, EOS and Manian's Cosmos project. They are all polishing their own PoS blockchains. Like Ethereum, they are trying to prove to the world that high security and efficiency can be achieved without conflicting with each other.

Undoubtedly, whoever does it first will represent the future computing platform, and those who fail to take the lead will gradually be forgotten by everyone.

“This environment is essentially an evolutionary one where only the fittest survive,” Manian said.