Ethereum crypto overhaul targets environmental impact

London: The world’s second biggest cryptocurrency after bitcoin, ethereum, will soon overhaul its blockchain technology to curb the network’s much-criticised environmental impact.

Ethereum, whose digital unit ether tumbled in a crypto crash earlier this year, will in September undergo a major technical revolution. So what is the backdrop for the looming reset -- known as the Merge -- and how will it calm prices and cut electricity usage?

Bitcoin, ethereum and other such currencies are "mined" by solving complex puzzles using powerful computers that consume enormous amounts of energy in vast warehouses, often near cheap electricity sources.

A blockchain is the decentralised and secure ledger for recording those transactions, which occur when encrypted codes are passed across a computer network. Users validate their success via a so-called "proof of work" mechanism that rewards them with cyber currency -- but only after they have proved their participation in such energy-intensive mining.

The lucrative crypto industry is worth about $1.0 trillion, despite crashing in the first half of 2022. However, ethereum is still down by a hefty 55 percent in value so far this year. Ethereum is nevertheless regarded as vital because it is where most virtual assets, including headline-grabbing non-fungible tokens (NFTs), are bought and sold.

That is partly because users can create "smart contracts" or algorithmic computer code, which carry out customised transactions for different functions. "The ethereum blockchain is the base layer infrastructure of the majority of the whole crypto ecosystem," summarised Lennart Ante, CEO and co-founder of the Blockchain Research Lab.

"Everything relies on ethereum," he told AFP. "In the last few years, there have been other similar platforms such as Solana or Cadano, but none of these have this huge network and this huge amount of developers and projects, and historical success."