Ethereum’s Constantinople Update & Difficulty Bomb

Not too long from now, Ethereum will get another
update. It’s called Constantinople and will bring
some much needed upgrades to improve the performance of the Ethereum blockchain and it will also
address the problems related to the difficulty bomb and miner rewards. The update is rather intensive and will break
backwards-compatibility, meaning that it will come into existence with a hard fork. But no worries: we don’t expect Ethereum
to actually split into a new cryptocurrency. Lets go over the changes in Constantinople
and lets start with the performance improvements. This is an important area for Ethereum because
its facing a lot of competition from other platforms that have better performance. To address this, developers are improving
the Ethereum Virtual Machine, the engine that executes the code of smart contracts. The first improvement is EIP-145, which adds
bitwise shifting instructions to the EVM. Bitwise shifting is the process of moving
bits of a number to the left or right. With this new instruction, these operations
will use 10 times less gas, meaning that running certain smart contracts will get cheaper. Oh and by the way EIP stands for Ethereum
Improvement Proposal. Every member of the community can write such
a proposal and submit it for review. If a majority of people agree with the proposal,
it gets accepted and implemented. Next up is EIP-1052 which introduces a new
operation that allows smart contracts to verify the code of another contract more efficiently. Previously this verification would require
you to grab the code of the other contract and verifying it. This new operation however returns a hash
of the code allowing you to check that instead. The hash of the contract is like a fingerprint,
it uniquely identifies the code and can’t be forged. So, EIP-145 and 1052 will make the EVM more
efficient and thus make it cheaper for people to run their smart contracts on the Ethereum
network. Besides performance improvements there is
also EIP-1014 that will add state state channels to Ethereum. These can be compared to Bitcoin’s Lightning
network and allow certain transactions to be settled away from the main blockchain. This can greatly improve the throughput and
performance of Ethereum. It can be compared to Bitcoin’s Lightning
Network and if you want to learn more about that, check out this video here. And then we get to a proposal that might seem
a bit weird: EIP-1234 is about delaying the difficulty bomb and reducing the block reward. So what’s a difficulty bomb and why would
we want to reduce the block reward? Let’s start with the block reward. Up until now miners on the Ethereum network
get 3 ether when they mine a new block. This is called the block reward. A new block is created roughly every 15 seconds
meaning that everyday there are 5000 to 6000 new blocks added. With a block reward of 3 ether that results
in 15,000 to 18,000 new ether being added to the total supply. This can become a big issue because the ever
growing supply of ether puts the price under pressure. You see, if something is scarce, it increases
in value but if something is available in abundance, it decreases. In case of a cryptocurrency: it can push people
towards selling their coins because they decrease in value. So, reducing the issuance of new coins will
effectively reduce the inflation of ether and will probably drive the price of ether
up. It will also attract new investors because
they know that the value will be more stable. So reducing the block reward makes sense. Bitcoin has a similar, but completely automated,
mechanism where the issuance is halved after every 210,000th block, again trying to make
the resource more scarce. Some people suggested to reduce the issuance
even further, to 1 ether. While it would likely push the price of ether
even higher, miners would earn a lot less. And that’s a potential issue because the
network needs miners to secure the platform. If a lot of miners stop mining Ethereum it
could weaken the network and make it vulnerable to attacks. So instead, a more conservative reduction
in block reward was chosen in the hope that most miners will stick around. EIP1234 also wants to delay the difficulty
bomb. So what’s that? Well it all has to do with Ethereum’s plans
to move away from the proof-of-work algorithm and adopt proof-of-stake. You can learn more about proof-of-stake and
why it’s so important in this video right here. But the brief summary is this: right now miners
are needed to process transactions and create new blocks. As a compensation for their hard work, they
receive the block reward. With proof-of-stake however, miners become
obsolete, meaning that they’ll lose their revenue. So when Ethereum finally switches to proof-of-stake,
miners can choose to not adopt the update and instead keep the old version running. It would be a true hard fork where the community
is torn apart, each going their own direction. This happened to Ethereum in the past when
it was forked into Ethereum Classic. The developers however are keen to keep this
from happening again and so they added the difficulty bomb into the protocol. It’s a special mechanism that makes mining
a new block exponentially more difficult overtime, until at some point it becomes impossible,
effectively freezing the entire network. This is also called the Ethereum Ice Age and
it was first added on September 7th, 2015. The difficulty bomb accomplishes two things:
first it puts pressure on the developers of Ethereum to come up with an update for the
protocol because they obviously don’t want it to go into an ice age. And secondly it forces miners to adopt new
updates because otherwise they’ll end up with a blockchain that can’t make them any
money. In other words they can’t stick with a network
that is increasingly becoming slower. The difficulty bomb is a great idea, but not
perfect. After the original introduction in 2015, the
plan was to make the network almost unusable by the end of 2016. The idea being that the switch to proof-of-stake
would’ve been made by that time. But obviously that didn’t happen. Developers don’t want to rush the Casper
update, the one where they will adopt proof-of-stake. They want to make sure that the new protocol
is as safe as the old one. So the difficulty bomb has been delayed a
few times, including now with the Constantinople update. It’s still there waiting to put pressure
on developers and miners, but for now its defused, giving everyone more time. So that was a bird’s eye view of Ethereum’s
upcoming update. It’s planned to be released at the end of
October but that might still be postponed. That was it for this video, if you liked it,
hit the thumbs up button and consider getting subscribed. And as always: thank you very much for watching!

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