Cryptocurrencies: Why Ethereum Is More Sustainable Than Bitcoin

The energy consumption of digital currencies is a big problem – and has raised enormous doubts about the environmental sustainability of Bitcoin. The number two on the market, Ethereum, has been switching to a new algorithm since the beginning of August, thereby massively reducing consumption. This could significantly increase the attractiveness of the cryptocurrency again.

Bitcoin is on everyone’s lips. Hardly a day goes by without headlines about meaning, sustainability or the price development of the world’s largest cryptocurrency. Not quite as popular as the Bitcoin is the second largest cryptocurrency: Ethereum .

It’s a misunderstanding. Ethereum is not a digital motto. Rather, it is a foundation based in Zug, Switzerland. The purpose of the Ethereum Foundation (EM) is to provide an open and accessible technology (“Open Source”) that aims to develop and operate decentralized applications. A blockchain programmed by EM serves as the basis for this.

Bitcoin / US dollar (btc / USD)

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Bitcoin / us dollar (btc / usd) - finance100

The project was first presented in 2013 by its inventor, the Canadian-Russian programmer Vitalik Buterin. In contrast to Bitcoin, whose creator Natoshi Sakamoto apparently only stands as a pseudonym for an anonymous group of people, Ethereum can be assigned real names and real faces. Vitalik Buterin and his partners Gavin Wood and Jeffrey Wilcke wanted to offer an alternative to the classic client-server concept, in which data and applications are stored centrally on servers. Since then, Ethereum has served as a platform for decentralized blockchain projects of all kinds and thus goes well beyond a pure payment system (as with Bitcoin) in terms of functionality.

The cryptocurrency of the Ethereum network is called Ether (ETH). It serves as an internal means of payment, so it is calculated as a fee for the use of Ethereum applications or the transfer from ETH. After Bitcoin with a market capitalization of around 850 billion US dollars, Ether has the second largest value of all cryptocurrencies at just under 360 billion US dollars. Like other digital currencies, ETH can also be bought via crypto exchanges and stored securely in an electronic wallet on a smartphone or PC without being monitored by third parties.

Smart contracts are the secret of the success of the second largest cryptocurrency

The secret of Ethereum’s success are the so-called smart contracts. These “clever contracts” are “if-then rules” stored on a blockchain that automatically execute transactions as soon as specified conditions are met. This saves time and money, for example with interest payments or dividend payments. The corresponding cash flows are generated automatically after a certain key date.

If several of these smart contracts are logically linked to one another, one speaks of a DAPP (Distributed App). The special thing about these applications is that they are operated decentrally by the entire Ethereum network and not – as is usually the case – by a single company. After installation on the blockchain, DAPPs can no longer be changed or removed, everything is fully automated. For example, if Twitter were a DAPP, it would be virtually impossible to delete tweets or freeze accounts.

Ethereum / US dollar (eth / USD)

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  • Ethereum / us dollar (eth / usd) - finance100

Especially in the field of digital financial services, DAPPs find practical and useful application options today. The DAPP Agave enables, for example, the allocation or lending of crypto currencies without providing personal data. The work of clerks is also not required.

Another useful solution that Ethereum offers are the so-called Non Fungible Tokens (NFT). NFTs are digital values ​​that can be clearly assigned to a real, existing object. All NFTs are unique and cannot be copied and are used wherever virtual objects are collected and traded as one-off goods. For example in the art scene. With the help of NFTs it is possible for the first time to trade digital art such as paintings, sculptures or photographs – and to achieve correspondingly high sales. The most spectacular example at the moment is the purely digital image Everydays: The first 5000 days by US artist Mike Winkelmann, who changed hands for an unbelievable 69 million dollars through Christie’s auction house.

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The Ethereum platform offers great potential for the international financial industry. The first steps in this direction are already being made. In April, for example, the European Investment Bank (EIB) and three syndicate banks issued a digital bond on the Ethereum blockchain. The advantages are great: fewer intermediaries are involved, the fixed costs are significantly cheaper and the processing speed is significantly faster.

Ethereum relies on a new, more economical algorithm

But now the Ethereum network is facing another milestone: since the 4th. The difference lies in how a transaction is controlled and confirmed on the blockchain. In the proof-of-work, the miners compete to be the first to solve increasingly difficult arithmetic tasks in order to create new blockchain blocks and thus new coins or tokens. This requires huge, ever larger server capacities, which results in immense energy consumption. A problem for which Bitcoin has also been heavily criticized for some time, especially since many Bitcoin miners are based in countries like China, where electricity is still largely generated from fossil fuels.

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In the case of proof-of-stake (proof of share), the path is different. It is not the fastest miners who win here, but everyone who owns and provides shares in a crypto currency. In the case of ether, this means that anyone who owns two percent of it can theoretically validate two percent of all ether transactions. There is also no reward in the form of new tokens, but the Ethereowners set the transaction fee they charge for their use in advance. According to experts, switching to the PoS process can theoretically reduce energy costs by up to 99.95 percent. In the long term, this could also increase the transaction capacity from the current 15 transactions per second to several thousand.

A very recent example from Germany shows how much the Ethereum concept has already arrived in the real world and is actively used there: The cryptographically encrypted data of our digital vaccination pass is compared with the help of the Ethereum blockchain.

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