Ethereum, the second largest cryptocurrency in the world, is now much greener

New Delhi ( Business) — Ethereum, the world’s second most valuable cryptocurrency, has completed a massive software upgrade that its backers say will reduce its carbon footprint.

The long-awaited renewal, known as “the merger”, will reduce Ethereum’s energy consumption by almost 99.95%, according to the Ethereum Foundationa non-profit organization dedicated to supporting cryptocurrency and its related technologies.

“The merger refers to the original merger of the Ethereum Mainnet with a… separate blockchain called Beacon Chain,” he added.

Until now, both Ethereum and Bitcoin ran on a so-called “proof of work” mechanism, under which high-powered computers were required to solve complex puzzles. The merger moves Ethereum to a mechanism called proof-of-stake, which is much more energy efficient as it removes the need for computers to compete with each other. Instead, users deposit their ether to enter the race for the most money.

With this change, Ethereum expects it to “improve security, reduce power consumption, increase the number of users on the network, and increase its market capitalization,” Deutsche Bank wrote in a note this week.

“Happy merge everyone,” Vitalik Buterin, the 28-year-old Russian-Canadian programmer who helped create Ethereum, said on Twitter. “This is a great moment for the Ethereum ecosystem. Everyone who helped make the merger happen should feel very proud today,” he added.

The co-founder said the upgrade “will reduce global electricity consumption by 0.2%.”

The environmental damage generated by cryptocurrencies

While cryptocurrencies have seen a phenomenal rise in recent years, observers say they are terrible for the environment. According to Digiconomista platform that tracks crypto energy usage, a single Ethereum transaction is equivalent to the weekly energy consumption of an average American home.

Earlier this month, Digiconomist said that the energy saved as a result of the upgrade “would probably be equivalent to the electrical energy consumption of a country like Portugal”. It could also become the “last nail in the coffin” for bitcoin’s transaction mechanism.

Ethereum was down 0.7% after the news, trading at $1,592.78, but analysts say the upgrade could have a major impact on the crypto world in the long run. The world’s most valuable cryptocurrency, bitcoin, is down nearly 1%, trading at $20,174, according to CoinDesk.

“It’s been a long time and the question on traders’ lips right now is whether this will be the next bullish catalyst for cryptocurrencies or a ‘sell the fact’ event,” Craig Erlam, senior market analyst at Oanda, wrote in a note on Thursday.