After getting absolutely pummeled and losing over 90% of its value over the course of 2018, ETH has had a mini price rally in recent weeks in anticipation of the impending Constantinople hard fork that is expected to be activated in the third week of January.
The Constantinople hard fork is the first major upgrade that paves the path for more significant future upgrades such as Casper, Sharding and eWASM that constitute Ethereum 2.0. The Constantinople hard fork is a non-contentious one, which means that all the full nodes have signalled their intention to fully comply with the proposed changes and update their client softwares accordingly. While most of the proposed changes in the Constantinople upgrade are centered around optimizing processes to reduce gas consumption, the plan to reduce the block reward to 2 ETH per block will have a significant impact on operations of ETH miners. With miners already operating on razor-thin margins following the 2018 price rout, it will be interesting to see how the reduction in block reward will affect the network hash power.
If you are perhaps wondering why the ETH team is slashing block rewards, it is to deter mining on the Ethereum blockchain as the protocol eventually transitions to PoS consensus algorithm. In addition, the activation of the mining difficulty bomb, which makes it exponentially harder and therefore uneconomical for miners to mine Ethereum, is going to be delayed by roughly 12 months. We think the primary reason behind this delay is the uncertainty around the timing of the launch of PoS and the possibility of the chain freezing if the transition to PoS is delayed. However, the final transition to PoS with Casper 2 will significantly mitigate the intense energy consumption requirements that the current PoW algorithm demands.
Again, the Constantinople hard fork does not materially alter the performance of the Ethereum blockchain and should be thought of as a foundation for bigger upgrades that are currently in the pipeline. Besides the incremental improvements to transaction throughput from minor efficiency improvements, the hard fork also improvises the optimization of state channels, which could allow second layer solutions to implemented with more ease.
Looking beyond the Constantinople hard fork, the next set of upgrades in the pipeline are extremely crucial for Ethereum in order to address its current shortcomings around scalability and the expensive gas consumption needs for running various smart contracts. As we discussed some time ago
, it is important the Ethereum executes well on this roadmap. There are clearly advantages that incumbency bestows
. However, competitors including Dfinity, Tezos and Polkadot are redesigning smart contracting platforms from the ground-up, and any slip-up from ETH could see any of these worthy rivals gaining at ETHs’ expense.
Even more than in the case of bitcoin, therefore, the next 12 to 18 months will be extremely crucial in determining Ethereum’s long term future.