How does the Ethereum Merge help the real and virtual world save energy?

The Ethereum Merge opens up new dimensions for sustainability in the Metaverse for enterprises across the globe to leverage in various forms.

In brief

• Ethereum completed its long-anticipated “Merge” on 15 September 2022 as the network transitioned from proof-of-work (PoW) to proof-of-stake (PoS)
• The transition drastically reduces Ethereum’s energy consumption, addressing one of the biggest criticisms POW based blockchains currently face: their environmental impact
• The Merge also increases the sustainability of operations within Ethereum-based metaverse platforms, as demonstrated by EY’s recruiting events on Decentraland

As Web3 comes of age and stakeholders look for ways to leverage the Metaverse, both opportunities and uncertainties arise. Before we look at how Ethereum – one of the world’s leading blockchains – has slashed its energy consumption through “the Merge” and what this means for the Metaverse, we first have to understand more about the underlying blockchain technology. Public blockchains are decentralized, distributed digital ledgers (databases) used to record transactions. This requires a consensus mechanism, i.e., a means by which a peer-to-peer computer network can validate transactions between participants before they are stored on the blockchain indefinitely. Currently, there are two common consensus mechanisms:

About the Merge

The Merge was one of the most anticipated events in Ethereum’s history, representing the network’s transition from PoW to PoS. This eliminates the need for energy-intensive mining and instead secures the network with staked Ether/ETH (the cryptocurrency used by Ethereum). According to Vitalik Buterin – one of Ethereum’s creators – the use of a PoS consensus mechanism on the Ethereum blockchain had been planned from the outset. Although the concept of PoS has been around longer than Ethereum itself, a practical implementation required almost seven years of planning and testing to go from a theoretical solution to a working practical version.

Energy consumption

The primary benefits of using PoS – as opposed to PoW – are of environmental nature. A single transaction on the former PoW-based Ethereum blockchain required roughly as much energy as the average American household uses on a weekly basis, resulting in a carbon footprint of 109.71 kg of CO2. That’s equivalent to the energy needed to power 243,155 VISA credit card transactions. Consequently, the Ethereum network previously used as much energy as the country of Bangladesh. By eliminating the need for mining, a transition to PoS has reduced this amount significantly.

Tests run on the Beacon Chain prior to the Merge suggested that the transition would lower Ethereum’s energy use by 99.95%, making proof-of-stake roughly ~2000x more energy-efficient than proof-of-work. This has indeed been the case as the carbon footprint of a single transaction on the Ethereum network decreased from 109.71 kg to 0.01 kg (recorded on 20 September 2022).

Scalability and gas fees

A popular misconception is that the Merge directly reduces gas fees (paid per transaction). This is not the case; gas fees are dependent on block space demand. The Merge does not decrease the demand for block space, nor does it increase block size. However, it does set the groundwork for “sharding”, which will spread out computational workload across the Ethereum network so that each node is no longer responsible for processing the entire network’s transactional load, but rather a small portion of it. These shards (parts of the database) take less computational power to manage, allowing the network’s transaction throughout to scale almost indefinitely at relatively low costs. For reference, the PoW-based Ethereum network could handle 10 - 30 transactions per second (tx/s). This has not changed as a direct result of the Merge. However, the “final” sharded version of Ethereum is expected to be capable of handling ~100k tx/s, according to Vitalik Buterin. This would exceed the 24k tx/s transactions that the Visa network can process.

Concerns regarding decentralization

The primary concern behind the Merge is that a transition to PoS increases the centralization of Ethereum. Recent US regulations banning Tornado Cash – a service used to anonymize Ethereum transactions – has reiterated the extent to which governments can influence a decentralized system. The concern with PoS is that a select few corporations, including Lido, Coinbase, Kraken and Binance are responsible for a large amount of staked ETH. Indeed, these four corporations control a combined total of 54% of staked ETH, which some argue makes the network more vulnerable to changes in government regulation, threatening the idea of an open, free and decentralized system.

This also applies to EY’s presence in the metaverse, although we have taken a slightly different approach from the outset. Over a year ago, we started building some of our metaverse projects on Decentraland, but to avoid the excessive carbon footprint associated with PoW, we chose to operate on Polygon – a layer two scaling solution on the Ethereum Mainnet, which combines proof of stake and proof o -authority to validate transactions. A single transaction on Polygon therefore creates as little as 430 grams of CO2 – approximately 272 times less than a transaction on the Ethereum Mainnet.

The significance of this difference can be demonstrated with respect to EY’s Talent Tree, launched in May 2022 for virtual recruiting events on Decentraland. Its creation, a single transaction on the Ethereum Mainnet, was responsible for approximately 72 kg of CO2 emissions. For reference the average gasoline-powered car would have to drive 380 km to produce the equivalent amount. 

*Estimate based on the CO2 emissions associated with a single transaction on the Ethereum PoW network (50 of which would be required for the distribution of NFT hoodies at our recruiting events

It should be noted that due to our Polygon approach, the Merge will not impact EY’s operations on Decentraland to the extent it will affect those who operate on the Ethereum Mainnet. However, it will ensure that all transactions on the platform will now be associated with a significantly lower environmental footprint.