Ethereum’s Upcoming $29 Billion Hard Fork

Published in

The Cryptoverse

5 min readAug 30, 2018

On Today’s Episode of The Cryptoverse…

I would like to talk to you about Ethereum’s upcoming $29 billion hard fork, which could be happening as soon as October 2018.

So I’m really addressing 3 groups of people today:

Crypto Enthusiasts who just love to keep up with current events, you guys are not really at any risk from this news
Investors and speculators in the Ethereum tokens, you guys may want to know this stuff because it increases the risk to you financially, and
Businesses who are developing or using the Ethereum network, you guys may very well be aware of this situation, but also need to pay attention because of the increased risk to your business until this situation resolves itself

If you don’t fall into any one of these three categories then just stare at my handsome face for the duration of the video and see if you can derive any value from today’s content.

Episode Transcript & Notes

Ethereum’s $29 Billion Hard Fork In October

https://www.coindesk.com/ethereums-october-upgrade-could-be-29-billion-blockchains-biggest-test-yet/

Sometime in October or November 2018, Ethereum will hard fork to install a set of upgrades known as Constantinople.

This upgrade has been on Ethereum’s roadmap for a while so the majority of the community are well aware that it’s coming.

However, it brings up one of our old favourite topics that applies across the board in the world of crypto, the topic of governance, which is the process of making collective decisions among all the human participants.

Something that is scaring a lot of people about Ethereum is this thing called the difficulty bomb.

Now this isn’t a bug or anything, it’s something the Ethereum developers put in there as an incentive, or rather a way to force miners to move from proof of work to proof of stake.

Once the difficulty bomb explodes, the mining difficulty will suddenly become so high that it’ll mean no amount of mining power would be able to create an Ethereum block without years of proof of work mining.

Since Ethereum relies on blocks being mined every 15 seconds or so, having to wait years for just 1 block makes the network completely unusable… unless everyone starts creating blocks by proof of stake.

So the difficulty bomb makes sure that there remains just one Ethereum network after proof of stake activates, since the proof of work version of the chain has ground to a halt.

Now we’ve known about the difficulty bomb for a while but as time passes it creeps ever nearer. We’re expecting the bomb go off sometime in early 2019 according to CoinDesk. It depends when we reach a certain block number.

The upgrade to Ethereum that converts it to proof of stake is known asCASPER, which absolutely must be ready to take over after the difficulty bomb goes off or the Ethereum chain will just stop dead.

The problem is that Casper is not going to be ready before the difficulty bomb goes off by the looks of things.

I say that because of what I read here on EtherChain.org (EtherChain)…

https://www.etherchain.org/coinvote/poll/298?closed=true

The other complication is that inflation is tied to block production.

Meaning every time an Ethereum block is mined, new Ethereum is created to reward the miner.

The higher the difficulty, the slower the blocks. The slower the blocks the slower the rate of inflation and miner reward.

There’s also segment of the Ethereum community who want to reduce Ethereum’s inflation rate, that’s what the poll on EtherChain is dealing with.

Lower inflation means less money paid to miners when they mine a block.

Lower mining rewards makes mining less profitable, leading to miners potentially dropping out, thus making a mining attack on the Ethereum network require fewer resources.

That’s what people mean when they say fewer miners means the network will be “less secure”.

Here’s a quote:

“Fun fact! In the past 365 days, the ethereum network has paid $6.6 [billion] to miners,” that’s from a trader named Eric Conner.

I guess one segment of the Ethereum community think that’s too much and think the reward per block should go down from 3 to 2, or even down to 1 Ether per block.

Another thing compounding the problem is the significant fall in the Ethereum price lately.

If we look at Ethereum’s price measured in USD:

https://uk.tradingview.com/chart/9Ly0ynVv/

We see it’s now a good $75 below it’s April lows, and trading close to it’s 2018 lows which are prices not seen since September 2017.

So that’s another force that’s having a negative impact on Ethereum miners profits. Ethereum miners are not having a good time right now and are probably worried about the future of their businesses.

So what goes the almighty creator of Ethereum Vitalik Buterin think?

Well in a comment posted on GitHub in response to EIP 1295…

https://github.com/ethereum/EIPs/pull/1295#issuecomment-416324636

So to me that means if profit margins for miners shrink, only the biggest, most efficient mining operations will be able to sustain themselves.

The smaller miners go out of business and the Ethereum network becomes more centralised.

So I’m sorry I don’t have any hard conclusion for you on this because it’s all very much still up in the air.

While much of this may seem like technical detail, it’s important to be aware of because if you are speculating on Ethereum’s price there’s a risk to you financially, and if you’re building your business on Ethereum there’s an increased risk to your business.

How you respond to this situation comes down to your risk tolerance.

I can’t give any advice to you as an individual because I don’t know your circumstances and am not qualified to give financial advice anyway.

On a principle level though, the standard way to respond to an increase in risk is to reduce your exposure to that risk.

That means selling a portion of your Ether holdings until everything settles down, if you wanted to reduce your risk.

Or buying Ether if you want to increase your risk exposure with the intention of gaining a higher reward.

That choice I leave to you and your financial advisor.

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