Author: Kess Van Orman and Shalva Chorgoliani - Audit Interns PKF Malta
Published on Malta Business Weekly: 22nd September 2022

The evolution of energy sourcing for Ethereum is now a reality and its tomorrow is a mystery. Anyone could have a mammoth discussion regarding the crypto industry, but a step in the green direction has been made in recent news. Despite the shift, not everyone is happy with these changes and some still hesitate to integrate or acknowledge the potential. Uncertainty, lack of understanding, and scepticism play a role, but for some, the lack of available power over control of the industry. The positives are still present as the evolution of energy usage didn’t start with Ethereum but rather a cryptocurrency called Peercoin, followed by two others called Blackcoin and Shadowcoin. The method isn’t new, but the most current adopter has revamped the concept of “proof-of-stake” (PoS), a technology using a validation methodology to create new blocks for the blockchain. The existing top three cryptocurrencies using PoS are Ethereum (ETH), Cardano (ADA) and Solana (SOL). Before going into more detail, a background is needed to explain the developments of the new version of the crypto industry.

In recent years the world has seen the rapid development of the cryptocurrency industry. With the growth of different crypto-assets, annualised electricity usage has doubled to quadrupled from 2018-2022. As of 2022, it is estimated that total global electricity usage for crypto-assets is up to 240 billion Kilowatt-hour per year, equivalent to the annual electricity usage of some individual countries and up to 0.9% of global yearly electricity usage. This contributes to greenhouse gas emissions and other types of pollution.

Ethereum, the second largest cryptocurrency after Bitcoin, accounted for 20%-39% of global crypto-asset electricity usage. These cryptocurrencies were based on “proof-of-work” (PoW) ledger technology which requires a lot of processing power and electricity usage.  PoW requires “miners” to use energy to solve “puzzles”. In addition, powerful computers are used to do this, which requires heat management and cooling systems – another source of energy consumption. Such unsustainability of cryptocurrencies has made some people refuse to use them. For example, last year Elon Musk halted purchases of cars with Bitcoin, saying he was concerned over the “rapidly increasing use of fossil fuels for bitcoin mining”. Even some governments, like Kosovo, banned “mining”, and there are calls for the EU to do the same.

However, Ethereum’s move to alternative PoS technology is supposed to reduce energy use by 99.95% – an assumed percentage that is yet to be proven. This technology does not require powerful computers that consume a lot of energy. Not only is it more energy efficient, but it also allows the development of new technologies based on Ethereum. Moreover, it will increase cryptocurrencies’ acceptance among policymakers, businesses and society. Ethereum’s move will also give the world’s largest cryptocurrency, Bitcoin, incentives to consider changing its “proof-of-work” technology to “proof-of-stake”. In that case, overall power usage by crypto-assets can be decreased to 1% of today’s levels and the crypto world will be one step closer to achieving net-zero greenhouse gas emissions goals. However, some believe that Bitcoin’s switch to PoS would be impossible due to technical difficulties.

Another option to make cryptocurrencies “greener” is to switch to “green mining” – using carbon-neutral renewable energy to mine Bitcoin. Some estimates say that in 2019, 70% of proof-of-work electricity consumption on the Bitcoin network came from Chinese hydroelectricity. And in 2020, about 40% of crypto was mined using carbon-neutral means. However, the Chinese crypto ban made many miners move to fossil fuel energy in Kazakhstan or the United States. Some green energy companies are already using their excess power to mine crypto. Generally, if green energy is cheaper, it will attract miners as they are looking for the cheapest power source to maximise their returns.

Despite all outcomes, the evolution of Ethereum occurred as of 15 September and the risks were worth the price for reaping greener pastures. It is always challenging to make changes but seeing that cryptocurrency is relatively new, the effort was and still is worth it. Considering all the hurdles Ethereum has gone through, the world may start to view crypto as the future’s choice, whether it is this generation to figure that out or the next. Only time can determine such motives.

Author: Kess Van Orman and Shalva Chorgoliani - Audit Interns PKF Malta
Published on Malta Business Weekly: 22nd September 2022
Get in touch: info@pkfmalta.com