Since 2014, supported by Vitalik Buterin Ethereum (ETH -0.45% ).He knows there was a problem: Scalability.. In the Ethereum white paper (a document explaining how the system works), “One of the common concerns about Ethereum is the issue of scalability. Like Bitcoin, Ethereum has all transactions. There is a flaw that everyone has to deal with. Nodes in the network. “
Ethereum and the better known cryptocurrency Bitcoin It works on a rewarding system called Proof of Work (more on this later). But the founders of Ethereum didn’t want to stay in the Proof of Work (PoW) system. That’s why they created what is known as the “Difficulty Bomb”. And this time bomb is scheduled to explode in June. Here’s what this means and why investors can relax (at least to some extent):
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This was always a plan
From the beginning, Ethereum developers planned to address scalability issues by switching from PoW blockchains to Proof of Stake (PoS) blockchains. For example, the official Ethereum Foundation blog post in 2015 already shows a long-term roadmap that includes this PoS switch.
The first version of Ethereum was called Frontier. However, at 200,000 blocks, Frontier received a thaw upgrade (also known as Ice Age). This introduced the so-called difficulty bomb, or more accurately the “difficulty adjustment scheme”. Once reached, it becomes exponentially difficult for miners to validate Ethereum transactions.
If not addressed, Ethereum mining will be very difficult, no one will be able to do it efficiently, and the network will almost completely shut down, as the river flash freezes into glaciers.
But why?
Behind the scenes of Ethereum is a team of developers, but keep in mind that the network is decentralized and the miners are independent parties. Indeed, you can go out today and buy equipment for mining Ethereum now. You don’t need to get someone’s permission.
Ethereum is decentralized, allowing parties to make their own choices.If the miner may not I want Go to the PoS network, sometimes called Ethereum 2.0.
For one thing, the barriers to entry are lower under PoW. You can start earning Ethereum today by investing just a few thousand dollars in setting up your mining rig. In contrast, if you want to run an independent validator node on PoS Ethereum, you need to bet at least 32 Ethereum tokens. This is an investment of almost $ 100,000 at today’s price.
On the surface, it can be argued that prisoners of war have stronger incentives for miners. However, PoS should be better for users. “Gas prices”, or user charges, are expected to fall and network speeds are expected to increase. In other words, PoS wants to solve the scalability problem that Buterin outlined from the beginning. And solving this problem is suitable for long-term user recruitment.
Therefore, Ethereum needs this upgrade. However, all participants also need to jump. To do this, the developers have incorporated a difficulty adjustment scheme. If miners continue to operate under the Ethereum PoW system, the difficulty bomb will explode and the incentive to continue using it will be lost.
Kick a can (bomb)
The problem is: The Ethereum difficulty bomb is expected to explode in June, and the new PoS network is not yet ready.
Is this the end of Ethereum? Not likely. In fact, Ethereum difficulty bombs are about to explode several times in the past. Recently it exploded in December. In each case, the developers simply introduced what was called a “fork” and modified the code to kick the can even further.
I hoped I didn’t need another fork. However, some developers share on social media that they found a bug in the Ethereum 2.0 test. These bugs need to be fixed before migrating to PoS. And these issues are unlikely to be resolved and thoroughly tested by June. This is why many people close to the project believe that the new Ethereum will not be ready until the second half of 2022.
Therefore, expect Ethereum developers to recreate a fork that avoids the next difficulty bomb. Therefore, Ethereum investors can easily breathe. It’s okay to miss the deadline. As in the past, you can postpone the deadline.
However, there may be other reasons for concern before you are too relaxed. Difficulty bombs can be easily avoided, but delays can help other competing blockchains built using PoS or similar systems continue to steal market share. Ethereum is in a difficult place. You can’t rush the process. Undetected bugs can cause your network to kneel. However, the longer the conversion is delayed, the harder it is for more users to find out why they remain loyal to expensive and slow systems.
For clarity, Ethereum is almost dying. However, the move to PoS should be watched carefully by investors for the reasons we have just seen.
This article represents the opinion of a writer who may disagree with the “official” recommendation position of the Motley Fool Premium Advisory Service. We are miscellaneous! Asking investment papers, even our own, helps us all think critically about investment and make decisions that help us to be smarter, happier, and richer. increase.
