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If the 51% attack on Ethereum Classic taught us anything, it was that miners are essential to keeping proof-of-work blockchains safe. Last week a miner attained control of its network, making several double spends to steal at least $500,000 in ETC. If there aren’t enough honest miners protecting the network by making the hashrate too financially difficult to overcome, nobody’s digital cash is safe. What keeps Bitcoin and Ethereum secure is the huge amount of computational power expended by honest miners—something that is at risk if the proposed changes of Constantinople go ahead this week.
Constantinople is a mostly technical upgrade, designed to implement changes that will make the Ethereum network cheaper and faster to use. It has five main components, including CREATE2, which we covered here and EIP 1052 which makes it faster for smart contracts to verify other smart contracts. Two more upgrades make it cheaper to deploy smart contracts and store data on the blockchain.
The fifth, and most important update does two things. Firstly, It removes the upcoming difficulty bomb which was designed to make it harder for miners to create new blocks, reducing the supply of new Ether. This is the third time it has been pushed back, meaning that miners may not have planned for it to actually kick in. Secondly, it will reduce mining rewards from 3 ETH per block to 2 ETH, reducing miners revenue by a third, in what is already a difficult climate.
This is a part of Ethereum’s big move to proof-of-stake. Proof of stake does away with miners trying to solve a puzzle in order to win a prize, instead favoring a system whereby a miner gets chosen to verify transactions by how much Ether they hold. But in order to get to that point, Ethereum needs to stop being reliant on miners. And this upgrade will begin to do just that, as fewer will be able to afford to keep mining. But that’s not the only issue: security will suffer too.
Last time the mining rewards were dropped from 5 ETH to 3 ETH, the market was booming and miners were raking in the cash. This meant there were no ill effects. Yet this time, the price of ETH has fallen sharply from just shy of $1,400 to barely scraping above $100. As a response, more than a third of mining power—known as the hashrate—has dropped off the market. So, current prices are already too low for many miners to break even and this upgrade will cut mining revenue by a third. If the prices stay at this level—or worse, fall further—and Constantinople goes through, then the hashrate is going to plummet off a cliff edge like lemmings. And this means the network will be even weaker.
Ethereum will then need to make its long-awaited upgrade to proof-of-stake in order to resist hostile takeovers—such as 51% attacks. Through this consensus mechanism, someone would have to own more than half of the circulating supply of Ether in order to do such an attack. But this upgrade has been on the drawing board for a long time. As Coindesk wrote in April, 2017, Ethereum’s proof-of-stake solution, “is in the throes of completing [sic].” Yet 21 months later, it is still unfinished. Onlookers reckon that testing for proof-of-stake will happen mid-2019, but really, all bets are off. And until PoS rolls out, the network will be in thrall to its remaining miners.
The real Constantinople—the Eastern capital of the Roman Empire—was famous for its large, ahem, Byzantine fortifications. And yet over time its defenses were eroded; after a 53-day siege in 1453, the city fell to the Ottomans. Are we saying a battalion of crusaders will storm the next Devcon? Probably not. Yet, with its safeguards temporarily removed, Ethereum might face a similar fate. Or the fate of Ethereum Classic, but this time with a lot more money—and CryptoKitties—at stake.