How Ethereum block rewards changed: from 5 ETH to the thirdening
In our last post, we talked about how new Ethereum blocks are mined, what uncle blocks are, and how miners get their rewards. This time, we’ll delve deeper into how the size of the reward is determined and thirdening means.
Ethereum is an inflationary currency. Its supply constantly grows, and there is no maximum limit on ETH supply. It’s the same with any fiat currency, actually. There can be as many USD in circulation as the US government wants to print. By the way, the situation is very different with Bitcoin, where the upper limit is set at 21 million BTC — and no more BTC will be mined beyond this point.
The difference between inflationary USD and inflationary ETH is that new ether is mined according to an algorithm. At any given moment, you can calculate how many new ETH will be produced on the main chain in the next 24 hours, week, or month. For example, right now the block reward is 2 ETH per block, and the average block time is 20 seconds. So about 6 new ETH are created every minute, 6*60=360 ETH every hour, and 360*24=8640 ETH every 24 hours.
To this, you need to add all the new ETH awarded for adding uncle blocks. As you may remember, when two blocks with the same transactions inside are mined at the same time, one is selected to be added to the main chain, and the other becomes an uncle block — a bit like an orphan block on Bitcoin. Some miners might continue to build on this uncle for a while, but eventually they abandoned it. We’ve also discussed that uncle blocks are rewarded, too, but at a lower rate. For the first one, a miner gets about 87.5% of the full block reward, but each new block added to the uncle chain gets less and less. That’s why miners switch to the main chain sooner or later.
Because it’s hard to predict how many uncle blocks there will be every day, you can’t calculate exactly how much new ether will be produced in any 24-hour period. But one thing is certain: Ethereum inflation never stops. And when there’s more money in circulation, it tends to lose value. So if the amount of ether becomes too great, its price might fall. The way the network tries to deal with this problem is to cut the block reward from time to time.
When Ethereum launched five years ago, a total of 72 million ether were produced as part of the genesis block. Those who contributed to the project were awarded 60 million ether, and the rest went to the Ethereum Foundation.
For a while after launch — until the block height of 4 399 999, to be precise — the reward was 5 ETH per block. Back then, the price wasn’t particularly high, though, so mining ETH wasn’t a get-rich-quick scheme at first.
On October 17, 2017, the Byzantium hard fork was activated. At block 4 370 000, the reward was cut from 5 ETH to 3 ETH. Uncle rewards were adjusted accordingly. This was part of the so-called EIP (Ethereum Improvement Proposal) 649.
Finally, on February 28, 2019, the Constantinople update went into effect at block height 7 280 000. That’s when the notorious “thirdening” happened. This means that the block reward was cut by one third — from 3 ETH to 2 ETH per block. This was an extremely controversial decision, and its negative effects for small, independent miners can be serious in the long term.
In our next post, we’ll talk about the difficulty bomb, the Ethereum ice age, and how miners can suffer from the thirdening. All this exposition is necessary before we can get to the most interesting part — 2Ether dynamic block rewards. Stay tuned and follow us on social network.
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