Ethereum drastically reduces its energy use with ‘Merge’ software upgrade

The Ethereum 'Merge' software upgrade has gone live, paving the way for more energy-efficient blockchain networks. 

The upgrade, which changes how transactions occur and how ether tokens are created, could give Ethereum - crypto’s most important commercial highway - a major advantage as it seeks to surpass rival blockchain Bitcoin.

Under the change, Ethereum will move 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 the network’s native token Ether as collateral to win newly created tokens.

The completion of the upgrade was announced by Ethereum inventor and co-founder Vitalik Buterin on Twitter on Thursday.

Ethereum is home to about 3,500 active decentralised apps, ranging from exchanges to games and handling billions of dollars worth of crypto. Like most other blockchains, the network required large amounts of energy to perform transactions, something that has been severely criticised by environmentalist campaigners. 

The Merge, which has been planned for years, is not expected to change the end-user experience on Ethereum, but has been anticipated to become a key stepping stone to more upgrades that will make the network faster and cheaper and should further increase its stature and usage.

“This is the first step in Ethereum’s big journey toward being a very mature system,” Buterin said. “And there are steps left to go. We still have to scale, we have to fix privacy. To me, the Merge symbolises the difference between an early-stage Ethereum and the Ethereum we’ve always wanted.”

Before the software upgrade, a single transaction on Ethereum used as much power as an average US household uses in a week, according to researcher Digiconomist.

"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.

Ethereum was born in 2013. According to proponents, the blockchain could 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.

Ethereum powers platforms involving crypto offshoots such as decentralised finance and non-fungible tokens and has been used in so-called 'smart contracts' - blockchain-based covenants seen as having use in traditional finance and other industries. 

The software upgrade was called the Merge because the existing Ethereum blockchain will combine with a parallel network that has been running for almost two years to test the proof-of-stake concept. Overall, the upgrade has been in consideration for over seven years. 

“This is a far-reaching overhaul of the most commercially important blockchain in the digital asset ecosystem and is probably the most important landmark event in crypto history since the launch of Bitcoin," said Nigel Green, CEO of financial advisory, asset management and fintech organisation deVere Group. 

“This is a momentous day for crypto”, he added.