Promoting itself as the “world computer”, the Ethereum blockchain has become the most sought after commodity in the cryptocurrency space today and is perhaps the most cutting edge technology in existence at this time. But it has some crucial cracks in the system which could see it go down like the Titanic in just over 30 days from now.
Obviously the Bitcoin blockchain is the gold standard of cutting edge cryptocurrency technology and Ethereum is merely a close second, but far more other new tech startups depend on Ethereum. Many more projects and developers utilize the Ethereum blockchain for their altcoins and so Ethereum has proved to be more valuable for its utility, despite being more vulnerable than Bitcoin to attack. Bitcoin has proved itself to be impenetrable to attack of any sort and is in my opinion superior technology, but it is admittedly slower in TPS (transactions per second) and therefore Ethereum shines brighter for sheer use case.
As a result the upcoming London Hard Fork which is scheduled for Ethereum in July, just weeks away, could be something of a concern for most of the entire crypto sector today. The July London HF plans to implement – among others – the EIP 1559 (Ethereum Improvement Proposal) which will lead the way for Ethereum to move from PoW (Proof of Work) to PoS (proof of Stake). At this event a fundamental shift in the code and architecture of the Ethereum blockchain will occur.
No longer will Ethereum be mined by miners using so much “dirty” power, but now it will be run by those with the biggest stake of capital in the system. Add to that the fact that miners will no longer be paid to secure the blockchain by solving the complex math puzzles, as is the case with Bitcoin blockchain and any other PoW mechanism. Now stakers will validate the nodes. Not only that but one further crucial shift will take place, which could lead to a war that splits the system of destroys it altogether...in just a few weeks from now.
We are talking about the new HF proposal EIP 1559 which intends to charge a small fixed set fee for every transaction, instead of the (in my opinion) extortionist gas fees currently charged by miners on Ethereum. Add to that the fact that this fee will no longer go to the miners but will be burned. That’s right, the ETH will now be destroyed each time it is used to pay for a transaction instead of going to some miner’s wallet. This is leading to what is called “deflationary Ether”.
Of course the miners, who are making a fortune charging huge transaction fees, hate the idea as it removes their income. At the moment the Ethereum blockchain has not been able to scale or facilitate the massive amount of TPS that go through the system. So as a result if you want your transaction to go through quicker, you simply pay the miner more in fees and they will push you to the front of the queue. Fees thus skyrocket during congested hours of the day and the miners make a fortune. Sadly the small retail trader or investor is squeezed out of the system due to the high fee of using the blockchain at all. And this is why I as a small fish, as well as most users, are very happy to hear about this proposal by the Ethereum developers regarding the historic shift away from these greedy miners.
Unfortunately the miners themselves are obviously very unhappy about this proposed loss to their cash cow, and so it looks like a war is brewing which could destroy the entire Ethereum blockchain. As Vitalik Buterin said, this burning of ETH will not only make Eth sound money, like bitcoin, but if more is burned that is crated daily, then it will be “ultrasound money”. This is making the investors and users like us very happy. Our Eth could gain in value in the deflationary process.
But the miners are up in arms and banding together to hijack the entire blockchain. They are planning a 51% attack – a takeover of the system. It started with one small mining pool called Flexpool, who objected. Their objection didn’t mean too much because, as Vitalik says, if some miners leave then others can take their place. However, they then went around and got the other mining pools to join with them. Now the two largest mining pools, Sparkpool and Ethermine have joined resulting in a total of at least 60% of all mining hash power now against the HF coming in July.
This means that if they really want to, these miners could collectively use the “nuclear option” and collectively crash the Ethereum blockchain. This is unlikely thankfully, because it will benefit no one, and is a lose – lose scenario. After all, the miners also hold masses of ETH and if the blockchain collapses and the price crashes, then they too lose everything.
These rebel miners could cause other problems though. They could still refuse to adopt the London HF and cause a split in the chain, much like the one already occurring when Ethereum Classic was forked off the Ethereum blockchain five years ago. This will not go down well since the Ethereum ecosystem is far more advanced since back then and used by far more people for dapps and NFTs, etc. It will cause problems in a complex platform. Price may suffer. Efficiency may also suffer.
Now it’s not like they didn’t know this was coming. Vitalik mentioned it in 2018 already. And we all agree that the system has room for improvement. These miners and their fees are really not a good look. Perhaps there is even the environmental factor in the mining via PoW which is improved by turning to PoS, but that is another debate altogether.
Not only will this shift to PoS provide “elastic block size” which can improve efficiency by stretching or contracting block size according to congestion on the day, but it will also vastly improve TPS from the current 15 TPS to a massive 100 000 TPS. Naturally everyone will benefit from this upcoming HF – except the miners who will lose their transaction fees. So it has caused a war between the miners and the developers which is about to get ugly.
These disgruntled miners could just split from the new blockchain and use the old blockchain, by refusing to implement the HF. The problem is that the London HF coming in July also includes EIP 3238 which is the “difficulty bomb” where the puzzle to be solved increases in difficulty under certain circumstances. This will prevent the miners from staying with the old chain at the time of the HF because the difficulty bomb will ruin them if they choose to stay with the old chain.
To conclude, the upcoming London HF is great for Ethereum, great for all of us users, traders, investors, devs and everyone...except the miners. And they are not going down quietly. They have pooled their power and it looks like a war is about to break out and potentially break the Ethereum blockchain. I have no idea what will happen but it’s looking very interesting. At it’s best this HF will improve the Ethereum ecosystem, burn lots of ETH and potentially push the TPS up massively as well as the price, which is some say could then hit $20k.
At its worst the July HF could see a miner mutiny and 51% attack of some sort, either causing a split and a new Ethereum chain, like Ethereum Classic. Or it could see the entire Ethereum blockchain system crash and burn. I have no idea what will happen but to me it looks like a potentially delicate time in the history of Ethereum, which has more running on it and more cash invested that ever before.
This could be the biggest event in the cryptocurrency industry this year. So get that popcorn out because its going to be one massive show of fireworks in just a few weeks from now. I hope you’re ready for any eventuality.
(images pixabay)