Ethereum mining cliffs rose from summer 2022 to December 2021

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Somewhat buried in Ethereum’s major software makeover on Thursday is the Ethereum Improvement Proposal 3554, or a code update known as EIP-3554 for short. As we know, it threatens to accelerate the end of Ethereum mining.

Since its launch, the Ethereum community has been talking about reviewing how to mint ether, the token associated with the Ethereum blockchain. But to make people change, you need a push – and that push is known as a difficulty bomb.

Tim Beiko, coordinator of the Ethereum protocol developer, said: “It’s like artificially adding miners on the network. This increases the difficulty and makes it harder for all other miners on the network to actually mine blocks.”

EIP-3554 will increase the explosion date of its difficulty bomb by 6 months to December. When it disappears, it essentially renders Ethereum unminable.

Ethereum 2.0

Cryptocurrencies like Ethereum and Bitcoin regularly receive flaws due to the mining process, which is the way new coins are generated. Both are currently using the so-called “proof of work” mining model. In this model, the machine solves complex mathematical equations to create new coins. This makes it impossible for the central government to arbitrarily create new coins-there is no equivalent for the central government to print new dollars-cryptocurrencies maintain the value of these cryptocurrencies. I believe it helps to do it.

However, this effort required considerable energy to power the computers used to perform the calculations, and has attracted criticism from outsiders concerned about energy shortages and carbon emissions.

The Ethereum community has fused around the idea of ​​moving from proof of work to “proof of stake.” This requires users to leverage existing Ethereum caches as a way to validate transactions and create new tokens. This limits the amount of new coins created, but does not require the energy used to run a large bank of computers to solve mathematical equations.

Beiko told CNBC that the original proposal required 1,500 ethers for these so-called validators and is now worth about $ 4.2 million. To lower the barriers to entry, the new Proof of Stake proposal requires interested users to have 32, or about $ 90,000.

“It’s still not a trivial amount, but it’s a much more accessible system,” says Beiko.

Since December 2020, the Ethereum community has been testing proof of stake workflows on a chain called Beacon.

Proof of Stake was originally planned for Ethereum, but the developers postponed the rollout because they saw a significant flaw in the previous implementation. According to Beiko, Beacon solves these problems.

“We knew there was a lot of technical work to deal with, such as the increase in centralization seen in other proof of stake systems,” he said. “This was achieved with a beacon chain that has one or two orders of magnitude more validators than other Proof of Stake networks.”

Migrating the entire Ethereum ecosystem to Beacon is an upgrade called “Ethereum 2.0” and is the next step in the process. Engaging everyone in the move is where difficulty bombs are important.

Ice age

This is not the first time in the history of Ethereum that a difficulty bomb has exploded.

It has occurred several times, including 2017, 2019, and last year.

Difficulty When a bomb explodes, the system is flooded with artificial miners, increasing mining difficulty. That is, new blocks appear more and more slowly on the network. “Really, really, really quickly, raising the difficulty doesn’t benefit new miners,” explained Beiko.

But each time it disappeared, the community reset the clock to return the difficulty to normal levels.

You don’t have to fire a bomb to deploy proof of stake mining, but closing the ramp to proof of work mining will help you get things going. Beiko calls it a more temporary measure.

According to Nic Carter, general partner of Castle Island Ventures and co-founder of CoinMetrics, the point of the difficulty bomb is essentially to force miners and node operators to upgrade their software after a given amount of time. ..

In December, if the explosion deadline is not postponed, the bomb will explode, increasing another parabolic difficulty, as shown in the graph above. But this time, the developer never rewinds the watch.

It is the beginning of Ethereum’s proof of work “Ice Age”.

Not everyone is happy

There are many supporters of the upgrade to Ethereum 2.0, but not everyone is happy with the change.

“Some miners oppose it, but it’s in their financial interest to oppose it,” Beiko said.

Once the protocol has completely moved to the Proof of Stake model, there will be no revenue from Ethereum mining.

At that point, the miner has several options as to what to do next.

There are many other chains that support GPU-based mining, so miners can choose to start mining other cryptocurrencies.

You can also stop the mining process altogether and sell the mining equipment. Beiko expects to see it a lot.

“I’ve also seen many Ethereum mining farms and mining pools start staking,” he said.

“I’ve seen mining pools take advantage of profits to set validators on Ethereum, and also provide pool services to users who may not have 32 Ethereum but want to validate their network. I also saw it doing. ”Therefore, even if you don’t park $ 90,000 in Ether, you may be able to maintain some skin in your mining game.

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