The great ‘bomb’ that Ethereum will detonate in December will leave its miners very touched

People had been talking about it because it represented a paradigm shift and it’s here. The London upgrade of the Ethereum network has already gone live including a series of changes that are expected to somewhat revolutionize the future of cryptocurrency. These modifications, which have been made with users and costs in mind, include a ‘bomb’ that will leave miners of the second largest cryptocurrency after bitcoin more than touched.

The London update – nothing to do with the city – includes the EIP 1599 improvement protocol (for its acronym in English). This protocol integrates the idea of ​​changing the way transaction fees are calculated, which were very expensive because users had to bet how much they were willing to pay for a miner to collect their transaction in ether.

The new protocol sees the process managed by an automated bidding system with a fixed fee amount that fluctuates based on network congestion. In addition, it will cause part of the fee for each transaction to be ‘burned’, or withdrawn from circulation, which will begin to reduce the supply of ether and ultimately boost its price. It is here where the miners already begin to tremble.

Burning those fees is a game changer for them, really leaving them only two sources of income. Miners can continue to sell their computing power to the network and expect to get rewarded in freshly mined ether if they win a block. They can also continue to receive advice from users looking to prioritize their position within the block. The first conclusion is that, in the short term, miners will not earn as much money as before the hard fork (the name by which a cryptocurrency protocol update is known).

However, the big ‘bombshell’ for miners is actually the EIP 3554 enhancement protocol also included in the London update. This change does threaten to hasten the end of Ethereum mining as it is known.

Since its launch, the Ethereum community has talked about reviewing the way ether is mined. But getting people to agree to change is going to require a push, and that push is something known as a ‘difficulty bomb’.

“It’s a mechanism in Ethereum that makes it exponentially more difficult to mine,” Tim Beiko, the coordinator of the network protocol developers, sums up CNBC. “It’s like we artificially add miners to the network, which raises the difficulty, making it harder for any other miner on the network to actually mine a block.”

The EIP-3554 improvement protocol advances the detonation date of this difficulty bomb by six months, reaching December. Once it bursts, it will make ether impossible to mine. Although it is not the first time that this ‘bomb’ has been detonated -it has been done several times between 2017 and 2019 for example-, this time it will mean the Ethereum 2.0 step, since on this occasion the clock will not be ‘restarted’ to return the difficulty at normal levels.

What’s behind this? The bitcoin network and Ethereum are regularly criticized for boasting a mining model called proof-of-work (PoW), in which machines solve complex mathematical equations to create new currencies. This prevents any body – such as a central bank – from centralizing the creation of new currencies. On the contrary, this method implies an abusive consumption of energy worldwide that has unleashed a loud debate already known to all.

An ‘Ice Age’ for miners

The move to Ethereum 2.0 will see the de facto migration to a proof-of-stake (PoS) model that requires users to leverage their existing ether cache as a means of verifying transactions and mining new tokens. This will still limit the amount of new coins created, but without requiring the massive energy expenditure of the PoW pathway.

Although this ‘bomb’ would not need to go off to get PoS mining going, it does help move things forward by closing the PoW mining on-ramp. According to Nic Carter, general partner at Castle Island Ventures and co-founder of Coin Metrics, the goal of the difficulty bomb is to force miners and node operators to update their software after a certain amount of time has elapsed.

In December, if the detonation deadline is not delayed, the bomb will go off and you will see another parabolic rise in difficulty. It will be the beginning of the ‘Ice Age’ of the Ethereum PoW, and therefore of the miners.