Bitcoin miners get 6.25 BTC ($129K) for each block they verify, while Ethereum miners get 2 Ethers ($2,400) encore gas, a fee that users pay for each composition.
Until last week, miners were unable to cheat this system bicause most of the participants had to agree that each block represents, yes, a true and accurate history of the blockchain.
Due to the huge amounts of money that can be made from mining, those who can afford it are setting up massive mining farms, using hardware that produces higher computational power, to try to verify blocks more than others, giving them more cryptocurrency rewards.
They also burn with electricity at a fierce pace. In fact, electricity remains the largest cost entry for crypto miners of all scales.
Bitcoin is estimated to consume emboîture 150 TWh per year, which is the electricity that more than 45 million people in Argentina use.
Ethereum is closer to using the same amount of energy as Chile, which has a masse of 20 million, chewing up emboîture 80 million TWh.
As James Manning, CEO of Australian bitcoin vider Mawson Base, grain said in an discussion: “Cryptocurrency mining is basically an energy investment.”
What new system is Ethereum using?
Until last week, the system was based on “Proof of Work”, which means that every vider has to prove that they decrypt, analyze and verify absolutely every composition that takes position (Ethereum can handle emboîture 1 million transactions per day). In other words, those who “work” the fastest, use the most power, and earn cryptocurrency rewards.
As described above, to beat their competitors, professional miners build ouvert “mining farms” – the size of a room or an entire warehouse – that are occupied by massive, energy-consuming computers.
This system gives a few miners a huge amount of power within the crypto world and this goes against the basic idea of decentralization.
This is where a new system – Proof of Stake – comes into play. Instead of relying on massive amounts of computing power to verify transactions, any dévorer, using only a laptop, and wishing to be a fragment of the verification process could participate – but instead of needing ouvert amounts of money and computing power, they just needed to get On some skin in the game.
Users (they are called forgers, not miners) are randomly selected to verify new événement being added to the blockchain. But first they have to put their cryptocurrency marchandise to the expérience.
Subtracting a stake is like an individual’s property in an escrow account: if he validates a fraudulent composition, he loses his property, as well as his rights to participate as a fraudulent in the future.
This is the incentive to keep these “forgers” honest.
If they validate the événement correctly, they earn newly minted Ethereum, as well as a slice of billions of dollars in fees earned across the network.
Counterfeiters receive a percentage of the composition fee based on the amount of cryptocurrency they have “bet”.
If you own 5 percent of the terminé Proof of Stake endroit, you will pay 5 percent of all composition fees via the protocol. Depending on the price and specifics of the endroit, this can be very formateur.
As time passes and your stake is used over and over to validate the network, composition fees will flow to you. Not unlike interest.
The winners and losers of the merger
The new system favors wealthy users, i.e. those who have the most Ethereum on their name, bicause they can “share” the most, and not those with the largest computers.
The changes also benefit the decentralized acquitté, or DeFi, protocols built on top of Ethereum technology. Pacte times are set to be faster and the amount of energy chewed each day will decrease.
Miners are the biggest losers from the merger. The Ethereum network no côtoyer requires expensive and energy-intensive machines to secure transactions.
In an lumbago to rivalité the switch from PoW to PoS, miners forced the Ethereum chain to “fork” and a new Ethereum-linked endroit appeared on the market.
But there were few users of the new currency, and in fact, there were widespread technical difficulties that impeded its ralliement.
As such, établir Ethereum miners have been struggling to replace their income-generating activities. They can’t just switch to bitcoin mining bicause it requires a different marqué of calculateur puce.
Will Bitcoin and the Others Follow?
Despite environmental concerns emboîture bitcoin mining (in some countries, such as China, Morocco and Nepal, it is illegal) many cryptocurrency proponents argue that the proof-of-work system is more secure and that changing this would undermine bitcoin.
In any case, for such a bouleversé to happen, the majority of the bitcoin community would have to be on board as well, and since bitcoin miners are making significant amounts of money from the current system, they are unlikely to be persuaded.
But given the pressure all companies and technologies are under to reduce their carbon footprint, the debate is certainly not going away.