Ethereum core developers have finally come to a decision regarding the upcoming Constantinople hard fork, after months of heated debate.
As covered here on CryptoCoin.News last week, there were three competing Ethereum Improvement Proposals (EIP) being considered by the dev team. You can read full details here, but as laid out in the team’s Github page, the debate came down to the following three proposals:
“a) EIP-858 – Delay bomb and reduce block reward to 1 ETH per block.
b) EIP-1234 – Delay bomb and reduce block reward to 2 ETH.
c) EIP-1295 – Delay bomb, keep rewards to 3 ETH, change other factors such as POW incentive structure.”
And the winner is…
EIP-1234 was ultimately elected the winner, as per the Ethereum Core Devs Meeting Constantinople Session #1 livestream hosted on YouTube on Friday night (Aug 31st). The upcoming hard fork, set for mid-October, is the second of the Metropolis phase. Read more on Ethereum’s development phases here.
That means that when Constantinople is implemented in October, the ETH block rewards will be cut by 33% from 3 ETH to 2 ETH per block. Meanwhile, the difficulty bomb – the scaling difficulty level that ETH miners have to contend with – will be delayed for the next twelve months.
As per the team’s Github summary:
“Starting with `CNSTNTNPL_FORK_BLKNUM` the client will calculate the difficulty based on a fake block number suggesting the client that the difficulty bomb is adjusting around 5 million blocks later than previously specified with the Homestead fork. Furthermore, block rewards will be adjusted to a base of 2 ETH, uncle and nephew rewards will be adjusted accordingly.”
Reducing inflation of ETH
At the current rate of 3 ETH per block, Ethereum is locked in an inflationary model which amounts to 7.4% per year, or 7,378,402 ETH. With the reduction of the block rewards to 2 ETH, that inflation will be cut by around a third and will fall to 4.7%.
That should be good news for the average long-term ETH holder, since the coin should, in theory, retain more if its value. However, many in the mining industry have questioned the move, suggesting that it will only benefit the big mining pools, and will effectively exclude small-scale, individual ETH miners.
If block rewards are high enough, there is incentivization to mine. But as they reduce, that incentive disappears, and the only people left in the game are those with large amounts of starting capital.
However, that should all be rendered irrelevant in the next year or so, as Ethereum makes its move to Proof-of-Stake (PoS), which has always been the long-term goal. When that happens, the dominance of ASIC miners, and large mining pools in general, will disappear from the Ethereum blockchain.
ETH price reacts?
It should be noted that, with the clear aim of moving to Proof-of-Stake, this recent decision amounts to little more than a placeholder. Every major Ethereum hard fork has been met with an accompanying price surge in the past, but with PoS on the horizon, will Constantinople produce the same result?
When Bitcoin reduced its block rewards from 25 BTC to 12.5 BTC, the price reacted badly in the short term, but then boosted in the long run.
When news of the Ethereum devs’ decision started to circulate on Saturday, September 1st, Ethereum spiked 7.8% in twenty-four hours and shot temporarily above the $300 mark – the first time it has done so in two weeks.
Since then the price has rebounded back down to the $280 range, but keep an eye out in October when the hard fork goes live.