Ethereum Merge Highlights Differing Visions For America’s Energy Future

Last month, the technology platform EthereumETH
, which powers the cryptocurrency Ether, underwent a major systems update known as the “merge.” One of the stated goals of the update was to improve the technology’s energy efficiency, and already we are seeing a drastic decline in Ethereum’s energy use. Meanwhile, Ether’s main competitor, BitcoinBTC
, has indicated no such plans. The split in the crypto community highlights not just differing worldviews about the future of crypto, but also different visions for energy more generally.

Cryptocurrencies have come under increasing fire in recent years because critics correctly point out that, for example, Bitcoin’s energy use can rival that of a small country. The high energy use stems from the blockchain technology these currencies are built upon, which requires a system of verifying transactions before they are permanently recorded to the blockchain ledger. In exchange for doing this work, validators receive new cryptocurrency tokens as rewards, in a process known as “mining.”

Bitcoin’s mining system is known as “proof of work,” whereby computers compete with one another to validate transactions, and this involve substantial computing power. Ethereum moved away from the proof of work model with the merge, switching to a “proof of stake” system. Under that system, participants stake a deposit of Ether tokens as a kind of collateral. This enables a more select group of validators to enjoy the privilege of verifying transactions.

So far, Ethereum’s switch appears to have been successful from an energy standpoint. The Ethereum Foundation claims the merge resulted in a 99.95 percent decline in Ethereum’s energy consumption. The switch has not come without costs, however, to Ether users. Since the merge took place, the value of ETH relative to the US dollar declined more than 20 percent. Ether’s market cap took a roughly comparable hit. Meanwhile, no such change was evident with Bitcoin (see figure).

At the moment, the Bitcoin community has shown few signs that it will switch to a proof of stake system. There are likely several reasons for this. First, Bitcoin is arguably more decentralized than Ethereum, making a change like this harder to pull off. Second, Bitcoin’s energy consumption is still considerably less than that of some other industries, like gold mining or banking. Some commentators argue the controversy is overblown. Third, the benefits of the switch could also be overstated. For example, some miners previously mining Ether are already switching to mining other cryptocurrencies, casting doubts on the overall benefits of the strategy.

The divide in the crypto community in some ways mirrors differences in philosophy in the energy space. There are those who envision a society centered around “energy abundance,” and those who instead see “energy efficiency” as the best path forward. Energy abundance is about increasing the overall supply of energy, making it cheaper, more plentiful, and cleaner over time. Eli Dourado and Austin Vernon, writing for the Center for Growth and Opportunity at Utah State University, speak of “energy superabundance.” These authors point to recent declines in the cost of technologies like wind and solar and argue that an energy revolution could be upon us—one in which energy is essentially unlimited and nearly costless. They envision a world of flying cars, hyperloops, electric autonomous trucking, and more, all powered by a nearly limitless supply of cheap, clean, abundant energy.

The goal of energy efficiency is almost the polar opposite. Here, the aim is reducing energy use, which may involve similar renewable technologies but in most cases entails some reduction in living standards (even if modest). The Department of Energy’s regulations for microwave ovens, ceiling fans, and countless other household appliances are centered around this philosophy. Essentially, consumer convenience takes a back seat to helping the environment and reducing emissions.

To be fair, both philosophies have costs associated with them. An energy abundant future could unleash economic growth and raise living standards, but could also have a significant impact on the environment, despite the role of cleaner overall tech. For example, one could envision mining activities increasing substantially in an energy-rich world as demand for lithium batteries skyrockets.

Reducing energy use through improved energy efficiency undoubtedly has benefits for the environment, but it also tends to suffer drawbacks such as the “Jevons paradox.” As energy cost declines, people tend to use products more intensively. When cars become more fuel efficient, people drive more miles, and when housing becomes more energy efficient, people are more prone to crank up the AC when it’s hot outside. This predictable behavioral pattern offsets some benefits of the approach.

The energy efficiency philosophy harks back to a simpler time. Much like Donald Trump’s “make America great again” slogan, it relies on nostalgia for returning things to the way they were. Energy abundance is more future-oriented in the sense that it recognizes that as the world gets richer, people will inevitably find more ways to use energy.

Some may see an abundance agenda as less ethical, especially those who see humanity’s impact on the ecosystem as fundamentally destructive. On the other hand, doing more with less tends to be a natural byproduct of the productivity improvements that accompany economic growth. So, ironically, faster economic growth in an energy-abundant world could, as a natural consequence, lead to more energy efficiency, even if energy use rises overall.

Surprisingly, Bitcoin and Ethereum seem to capture these two distinct worldviews. The Ethereum merge emphasizes bearing significant costs for an immediate reduction in energy use and by extension carbon emissions. Bitcoin may be betting that in the future, energy will be more plentiful, making the debate between proof of work and proof of stake a moot point.

One thing is for sure: The two cryptocurrencies constitute different conceptions of what progress looks like. Time will tell which philosophy represents genuine “progress.”