Ethereum Hard Fork: Constantinople Upgrade vs Ethereum Mining

Editor's note: The Ethereum Constantinople hard fork upgrade scheduled for January 16, 2019 will adjust the block reward again (from 3 ETH to 2 ETH), which is another adjustment after the block reward was reduced from 5 ETH to 3 ETH in 2017. It is undeniable that this adjustment is to prepare for the implementation of the PoS mechanism in the Ethereum Serenity phase, which is an inevitable choice for the development of Ethereum. Will this adjustment have the same impact on Ethereum miners as the last one? What will Ethereum developers face after implementing this adjustment?

The Ethereum Constantinople hard fork upgrade scheduled for the middle of this month may have some irreversible effects. Mining on the Ethereum network will change - not because mining will be less profitable, nor because of some silly controversy that this fork will repeat the mistakes of ETC. Almost all members of the Ethereum community support this planned upgrade, except for some miners.

We all know that mining in the Ethereum network will end when the PoS mechanism is implemented in the future (when the Ethereum network's validators replace the current miners), which is the inevitable result of changing the consensus mechanism from PoW to PoS in the Ethereum development roadmap. Although miners still have mines to mine before Ethereum completely switches to the PoS mechanism, some decisions regarding this Ethereum hard fork upgrade will inevitably have some impact on the miners of the Ethereum network.

Ethereum’s significance in GPU mining

The Ethereum network was (and still is) the poster child for GPU mining, and it holds a huge symbolic image in the cryptocurrency mining space. By the “crypto-mania” of 2017, Bitcoin mining was controlled by a large number of mining farms or mining pools with powerful ASIC miners; in contrast, Ethereum mining was still a very profitable industry, and anyone could participate in mining : from gamers with powerful GPU cards, to amateurs with the funds to try mining, to college students who “borrowed” electricity from their dorm rooms to mine, and of course entrepreneurs who invested heavily in GPU equipment in the early days. Ethereum mining is not only a symbol for all the beneficiaries, but also for the entire blockchain and cryptocurrency industry: it made “mining” a mainstream idea and concept. But those golden days are long gone. 2018 was a brutal year for cryptocurrency speculators, and it was also a brutal year for miners. In the fourth quarter of 2018, the worst performer in the S&P500 was mining with NVIDIA graphics cards, hundreds of mining facilities were temporarily or permanently closed, and tens of thousands of people stopped mining at home. The AMD RX580 graphics card used for mining once sold for $600 in early 2018, but the current price is less than $150. There are a large number of mining equipment being liquidated on platforms such as Craigslist, eBay and Reddit. GPU mining machines are no longer a scarce resource, and gamers around the world are ecstatic because the price of GPUs has returned to normal levels.

Okay, now that we have reviewed the past, let’s return to the present.

Constantinople Hard Fork

The Ethereum Constantinople hard fork is just one step towards eventually switching the Ethereum network to a PoS mechanism, which will eventually implement the Casper consensus mechanism. This month’s hard fork upgrade will be carried out when the Ethereum network reaches a block height of 7,080,000 (expected to be reached within two weeks), and this upgrade will implement 5 EIPs (Ethereum Improvement Proposals).

EIP145 : This proposal was proposed by Alex Beregszaszi and Paweł Bylica, and is basically "to provide native bitwise shifting at the same cost as other arithmetic operators." If you are not a developer, this EIP proposal will have little or no impact on most people, so if you don't understand what the quote means, don't worry (I don't quite understand it myself...)
EIP1014 : This proposal was put forward by Ethereum founder Vitalik Buterin. It mainly "allows interaction with addresses that do not yet exist on the chain but are still reliable (on real or virtual channels). This address and the code it contains can only be ultimately generated by a specific initialization code snippet." If you are not a developer, you don’t need to care too much about this change.
EIP1052 : This proposal was proposed by Nick Johnson and Paweł Bylica, and its main purpose is to "add a new operator that returns the keccak256 hash of the contract code." This EIP proposal will allow smart contracts to perform bytecode inspection in a more cost-effective and efficient way.
EIP1283 : This proposal was put forward by Wei Tang. Its main purpose is to "adjust the net gas metering of the SSTORE opcode, optimize the storage algorithm, and reduce the GAS consumption of smart contract storage." This is a proposal to improve the Ethereum network and solve the problem of high gas consumption. It is very beneficial from a macro perspective.
EIP1234 : This proposal was proposed by Afri Schoedon. It is mainly to delay the difficulty bomb of Ethereum network mining and reduce the block reward from 3 ETH to 2 ETH. This proposal is the focus of this article. Let's analyze this proposal together.

EIP1234: Why this proposal will likely have an impact on the entire GPU mining community?

01 Current Ethereum Mining Status

Depending on where you live and the electricity price you pay, mining Ethereum is still profitable. However, for residents living in California, where electricity costs $0.13-$0.16/kWH, mining Ethereum is either not profitable or just breaking even.

Currently, a mining device with 8 RX 580 graphics cards can mine about 0.13 ETH per week. According to the current ETH price, this is equivalent to a weekly profit of only about $20 , but if calculated based on the historical highest price of ETH ($1,422), 0.13 ETH is worth about $185. This is a big gap! If someone is currently mining in the Ethereum network, then this person either has access to very cheap electricity, or is holding a "hodler" mentality and accepting the current loss for future gains.

Despite this, the resources currently spent on Ethereum mining are still very huge. At present, in addition to the Bitcoin network, the Ethereum network still has the largest computing power. A large part of the Ethereum network computing power comes from small miners and mining equipment around the world.

But all that is about to change.

02 Difficulty Bomb Delay

The Ethereum mining difficulty bomb was implemented in late 2016, with a slow increase in difficulty at first, followed by a rapid increase in mining difficulty, to make the incentives for mining on the Ethereum network less unattractive for miners, in preparation for the inevitable shift to PoS. This “ice age” has been delayed before, and will now be delayed by another 12 months , as Ethereum developers fell behind on implementing PoS and were busy with other matters on the Ethereum roadmap that are of great significance to the future of the Ethereum network.

Wait, isn’t the delay of the difficulty bomb a good thing for miners? Yes, but also no . The delay of the difficulty bomb comes with an important caveat, namely the adjustment of block rewards.

03 Adjustment of block rewards

Miners can get ETH rewards for every block they mine in the Ethereum network. The adjustment of block rewards is not the first time. In fact, adjusting block rewards is a key part of cryptoeconomics. The last time the Ethereum network adjusted block rewards was in 2017, when the block reward was adjusted from 5 ETH to 3 ETH. About a week later, the block reward will be adjusted from 3 ETH to 2 ETH - equivalent to a reduction of $1.5 million in daily mining rewards.

As mentioned above, reducing block rewards is nothing special and can be beneficial from an economic perspective (e.g. reducing the amount of ETH in circulation by reducing rewards, thus increasing its scarcity and value). However, given the current state of the mining landscape, this block reward reduction may have a greater impact than previous ones.

04 The current reduction in rewards comes at a dangerous time

This reduction in Ethereum block rewards has a different impact than the reduction in rewards at the end of 2017. Mining the Ethereum network was once very profitable, and the price of ETH also skyrocketed. Miners were still happy about the reduction of block rewards from 5 ETH to 3 ETH in 2017, and so were investors.

However, the current situation is that due to the large drop in ETH prices, many miners are hesitant to continue mining, so if the reward is reduced to 2 ETH, it is likely that many miners will stop mining on the Ethereum network. At the same time, many miners are currently in a state of balance between income and expenditure, and reducing block rewards will cause them to suffer serious losses, which will also cause them to stop mining on the Ethereum network.

Wait, when some miners stop mining on the Ethereum network, won’t the mining difficulty readjust? Yes, but this will face a new threat.

05 Growth in Ethereum ASIC Mining Use

The word "ASIC" alone can make many projects and miners feel disgusted or worried. ASIC, which stands for Application specific integrated circuits, is a chip designed specifically to perform one task: mining powerfully and efficiently. Once an ASIC chip for a mining algorithm is developed, it usually means that mining machines using GPU chips to mine a certain coin will become irrelevant. We can compare GPU mining machines to "small retail stores" and ASIC mining machines to "Walmart".

The use of ASIC miners has led to an ongoing cat-and-mouse game in which some projects hard fork to a new PoW algorithm, only to have the new algorithm adapt to new ASIC chips. On the other hand, some projects welcome ASICs because the increased hashrate brought by ASIC miners can help make their networks more secure. Currently, ASIC miners for the Ethereum network's Ethash mining algorithm are already in use (note: Ethash is the current Ethereum consensus engine based on PoW proof of work, also known as the mining algorithm). Several companies have already started selling ASIC miners, and many other companies have announced that they will bring more powerful and efficient miners for Ethash. ETH was once considered a cryptocurrency that survived ASIC miners, but this situation will soon change with the entry of a large number of ASIC miners for Ethash.

To reiterate: as small GPU miners leave the Ethereum network, it won’t be long before there are mining farms using ASIC miners to mine on the Ethereum network (just as there were in Bitcoin’s history).

06 Possible Impact & ProgPoW Algorithm

As small miners leave the Ethereum network and large "Wal-Mart"-level mining farms enter, the end result is the possibility of mining centralization (just like the current Bitcoin mining centralization) - something Vitalik is very opposed to. Mining centralization is contrary to the core values of cryptocurrency, and many members of the Ethereum community have called for the implementation of a mining algorithm called ProgPoW (Programmatic Proof-of-Work) to resist ASIC miners targeting the Ethash mining algorithm. But in the end, Ethereum developers believe that the ProgPoW mining algorithm does not need to be implemented in the next hard fork upgrade.

During the Ethereum core developer meeting a few days ago, perhaps due to the pressure from the huge Ethereum mining community, they held a discussion on this issue. Video link:

https://www.youtube.com/watch?v=iSc3TbjZu1k&feature=youtu.be&t=3171

One of the developers, “Mr Else,” noted that current ASIC miners for the Ethash algorithm are only “slightly better” than regular GPU miners — but that the next generation of ASIC miners will be “2x better than GPU miners. ” The developers went on to call the competition between GPU manufacturers and ASIC companies a “slow arms race.”

The end result of the meeting was that they would implement ProgPoW in the future, provided there were no critical issues with the largely untested mining algorithm. However, this could take many months to implement, not to mention the organizational and resource hassles that would be required to carry out the next hard fork.

The fact is that no one knows exactly what the medium- to long-term impact of this hard fork will be. But in my opinion, the short-term impact is very clear: thousands of miners will leave the Ethereum network and have a ripple effect on the entire mining industry.

When these miners switch to mining other cryptocurrencies, the mining difficulty of other cryptocurrencies that can be mined using GPUs will also increase significantly. For example, in terms of market value, Monero is the second most popular cryptocurrency for GPU mining after ETH, and Monero currently has a daily mining reward of about $120,000. With the Constantinople upgrade, ETH's daily mining reward will be reduced by about $1.5 million.

Simple economics tells us that this will displace many miners using GPU miners, further consolidating the power of ASIC miners. On the other hand, this may also lead to an increase in the price of ETH, as the supply of ETH will decrease . But this may take several months to happen, as the current cryptocurrency market is still struggling with a bear market.

Summarize

If it takes a long time to implement the ProgPoW mining algorithm, this may become an open question. It would be best if it could be implemented in the next 3-4 months. If the ProgPoW algorithm is implemented, the Ethereum network will also take a step backwards, because the confirmation time brought by the ProgPoW algorithm will be 1.5 to 2 times longer than the Ethhash algorithm. If the ProgPoW algorithm is not implemented, Ethereum developers are faced with the need to switch Ethereum to the PoS mechanism as soon as possible before the new ASIC mining machines begin to grow to a considerable scale, but it may still make PoS more centralized than the intended goal. This seems to mean that ASICs will always win in the end, and the saying that "the rich get richer" cannot be avoided even in the field of cryptocurrency - this is ironic, but not surprising.

There is no doubt that large ASIC mining pools may bring such problems from the perspective of centralization of computing power or even 51% attacks on small currencies with weak computing power. But despite this, from a personal perspective, ASIC mining is still profitable. In today's society, people seek benefits and avoid harm. As long as there is profit, people will seize the opportunity. In addition to economic incentives, ASIC mining actually provides huge value for the security of large blockchain networks, and will also drive innovation in encryption technology, bringing about mining algorithms such as Grin that use the Cuckoo Cycle mining algorithm that claims to be able to resist ASIC mining.

Still, unless Ethereum’s core developers take action soon, ETH will no longer be a GPU-mined cryptocurrency, and Ethereum’s era as the most influential GPU-mined cryptocurrency may also end, which is sad for most miners. As we know, Ethereum faces great challenges before it can finally implement the PoS mechanism and bring about the final end of mining on the network, and the beginning of the end of Ethereum GPU mining may have arrived.

Source: Unitimes

By Han Yoon

Compiled by: Jonny

<<: There is still a pitfall in the Constantinople hard fork. Will Ethereum miners fight back with ProgPoW?

>>: [Breaking News] BTC.com mining pool will launch Grin mining simultaneously on the mainnet!