People had been talking about it because it was a paradigm shift and it is already here. The London update of the Ethereum network has already started, including a number of changes that are expected to revolutionize the future of cryptocurrency in a way.
These modifications, which have been made with users and costs in mind , include a ‘bomb’ that will leave more than touched the miners of the second largest cryptocurrency after bitcoin.
The London update – nothing to do with the city – includes the EIP 1599 upgrade protocol . This protocol integrates the idea of changing the way transaction fees are calculated, which were very expensive because users had to bet how much they were willing to pay for a miner to collect their transaction in ether.
The new protocol makes the process managed by an automated bidding system with a fixed fee amount that fluctuates based on network congestion. In addition, it will cause part of the fee for each transaction to be ‘burned’ , or taken out of circulation, which will begin to reduce the supply of ether and ultimately drive its price. This is where the miners are already trembling.
Burning those rates is a momentous change for them, really leaving only two sources of income. Miners can keep selling their computing power to the network and expect to get a reward in freshly mined ether if they win a block.
They can also continue to receive advice from users looking to prioritize their position within the block. The first conclusion is that, in the short term, miners will not make as much money as before the hard fork (the name by which the protocol update of a cryptocurrency is known).
However, the big ‘bombshell’ for miners is actually the EIP 3554 enhancement protocol included in the London update as well. This change does threaten to accelerate the end of Ethereum mining as it is known.
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Since its launch, the Ethereum community has talked about reviewing how ether is mined. But getting people to agree to change is going to take a push, and that push is something known as a ‘difficulty bomb’.
“It is a mechanism in Ethereum that makes it exponentially more difficult to mine “, sums up to CNBC Tim Beiko, the coordinator of the network’s protocol developers. “It’s like we artificially add miners to the network, which increases the difficulty, making it more difficult for any other miner on the network to actually mine a block.”
The EIP-3554 improvement protocol advances the detonation date of this difficulty bomb by six months, reaching December . Once it explodes, it will make the ether impossible to mine.
Although it is not the first time that this ‘bomb’ has been detonated -it has been done several times between 2017 and 2019 for example-, this time it will mean the Ethereum 2.0 step, since this time the clock will not be ‘reset’ to return the difficulty at normal levels.
What’s behind this? The bitcoin and Ethereum networks are regularly criticized for displaying a mining model called proof-of-work (PoW), in which machines solve complex mathematical equations to create new currencies.
This prevents any body – such as a central bank – from centralizing the creation of new currencies. On the contrary, this method implies an abusive consumption of energy worldwide that has unleashed a loud debate already known to all.
An ‘Ice Age’ for miners
The move to Ethereum 2.0 will mean a de facto migration to a proof-of-stake (PoS) model that requires users to leverage their existing ether cache as a means to verify transactions and mine new tokens . This will continue to limit the amount of new coins created, but without requiring the massive energy expenditure of the PoW pathway.
Although it would not be necessary for this ‘bomb’ to explode to start PoS mining, the truth is that it helps things move forward by closing the access ramp to PoW mining. According to Nic Carter, general partner at Castle Island Ventures and co-founder of Coin Metrics, the goal of the difficulty bomb is to force miners and node operators to update their software after a certain amount of time.
In December, if the detonation deadline is not delayed, the bomb will explode and another parabolic rise in difficulty will be seen. It will be the beginning of the ‘Ice Age’ of the Ethereum PoW, and therefore of the miners.