Cryptocurrencies have come under fire as of late due to the extensive power required to facilitate mining. However, the second-largest cryptocurrency by market capitalization, ether, is making a move towards more efficiency, giving it a potential environmental, social, and governance (ESG) component.
A move towards a proof-of-stake (PoS) network can help minimize the heavy use of electricity necessary to provide the processing power necessary for mining. Ethereum began as a proof-of-work (PoW) ecosystem, which relies heavily on that processing power for mining and consumes copious amounts of electricity.
According to a CNBCTV18 report, Ethereum, “annually used 99.6 Terawatt-hours of electricity—more power than is required by the Philippines or Belgium,” based on numbers from Digiconomist. The numbers also suggested that a “single Ethereum block required 220 kilowatt-hours of electricity, which is the same amount of power that an average US household consumes in 7.44 days, the Digiconomist estimates suggested.”
Ethereum 2.0 will highlight this transition to PoS, which began in 2020 and is slated to complete in 2022. In the meantime, ESG investing has also grown exponentially, so a more efficient Ethereum network should hopefully keep the environmentally conscious concerns at bay.
Additionally, having an ESG component could open ether and the cryptocurrency market at large to a swathe of investors who may have been hesitant to jump into digital assets.
“Looking at the ESG principles, Bitcoin and Ethereum and other leading cryptocurrencies already address the ‘S’ and the ‘G’ pretty well…the evolution from proof of work to proof of stake and less energy-intensive consensus algorithms will bring blockchain into compliance with the ‘E,’” said Charlie Morris, co-founder and managing partner at CMCC Global.
Ethereum Not Immune to Stock Market Correlation
Much has been said about cryptocurrencies and their ability to thrive as an uncorrelated asset to the stock market. Lately, however, ether and other cryptocurrencies like bitcoin have been moving in unison with equities.
Amid the Russian invasion of Ukraine, as stock markets were roiled with volatility, cryptocurrencies have been acting similarly. Of course, the price movements are much wider with digital currencies, as seen in Ethereum’s move lower for the year — the native coin, ether, is down 29%, considerably more than the S&P 500’s loss of 8%.
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