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
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And as always: thank you very much for watching!