November is the soonest-possible case scenario. But what does it all mean for Ethereum?
The Ethereum Constantinople hard fork is set to hit the Ropsten testnet on 9 October, and will then be implemented on the main chain soon after the Devcon 4 conference on 30 October to 2 November, said Ethereum community member Eric Connor on Twitter.
These tentative dates square with the information provided in a recent Ethereum developer bi-weekly call, where Ethereum Foundation communications officer Hudson Jameson suggested November or December for the mainnet hard fork. Others have said one can typically expect two or three months from testnet to mainnet.
Basically, the time line right now seems to put the hard fork on track for November at the earliest, but it's still probably more likely to be December or early next year. There's a rush, but not an enormous rush, Vitalik Buterin says, and the high stakes nature of any Ethereum hard fork means it has to be impeccably done before release.
"It's totally not urgent," Buterin said, adding: "We could probably have three months of safety and likely even more."
What's coming in Constantinople?
Constantinople is part two of the Ethereum Metropolis upgrade, and there are five specific Ethereum Improvement Proposals (EIPs) agreed on. For the most part, users probably won't notice any real changes, but developers will and miners definitely will.
The five EIPs set to be released in Constantinople are as follows:
That last one, EIP 1234, is a somewhat contentious change that's attracted a lot of attention.
Mining rewards and difficulty bombs
The "difficulty" in "difficulty bomb" refers to mining difficulty. It was planted in Ethereum's code as part of a long-term plan to transition Ethereum from bitcoin-style proof of work
(PoW) to an alternative called proof of stake
Presciently, Ethereum developers realised years ago that PoS would be a contentious issue, and that miners would naturally oppose it. To better override those future objections, Ethereum developers planted a ticking time bomb in the code.
It works by gradually increasing mining difficulty over time. Mining difficulty is a normal element of PoW blockchains, but typically it only increases in order to compensate for growing hashpower – ensuring that block times and inflation rates keep sticking to the original plan even as the amount of mining power in the system constantly changes.
In this case, it's an artificial and ongoing increase in difficulty intended to simultaneously increase the amount of time between each block and decrease the rewards earned by miners. Once the Ethereum difficulty bomb progresses enough, it culminates in what's called the "ice age," where PoW mining is useless, yielding no rewards and not being able to uncover any new blocks.
The thinking is that with this time bomb in place, mining will eventually be useless anyway, so miners have little motivation to continue resisting PoS in the long run.
The catch is that Ethereum is still dependent on miners until PoS is complete and ready to go, which is taking longer than initially anticipated. As such, the difficulty bomb has been adjusted and delayed a few times to keep miners working until the time comes. However, in doing so, Ethereum has also been experiencing faster-than-planned inflation. EIP 1234 simultaneously drops mining rewards while also delaying the difficulty bomb for another 12 months.
There's no right answer for what the block rewards or the difficulty bomb delay should be. After all, nothing exactly like this has ever been done before and everything is up for debate.
The decision can't be considered in a vacuum either. It's not just about pure economics and a tentative development time line, but also about community management. After all, the difficulty bomb was built to be a community management tool. The economic consequences of the bomb are largely just a means to an end.
If the catch is that Ethereum is simultaneously dependent on miners and working towards scrapping their profit margins, then the catch within the catch is that these kinds of updates can only be accomplished with a hard fork.
A hard fork is a non-backwards-compatible software update. So whether the update actually happens depends on whether enough miners willingly install and operate the update. If some miners go one way and other miners go a different way, you can get a contentious split – similar to what happened with Bitcoin and Bitcoin Cash or with Ethereum and Ethereum Classic.
In this case, the update requires miners to go against their own short-term self-interest and accept a significant pay cut. This is one of the concerns around the update. It's possible, but probably extremely unlikely, that miners revolt en masse against Ethereum's development plans.
Most miners are probably much more invested in the success of Ethereum than the value of their machines. The presence of Ethereum Classic (which has removed the difficulty bomb entirely and plans to just stick with PoW) means there's an alternative home for ETH miners after the difficulty bomb goes off and being on the wrong side of the fence is an expensive mistake in a fork. Still, there is a bit of a risk which has some arguing that the difficulty bomb should just be delayed without adding such a sizable block-reward reduction or any block-reward reduction at all.
Overall, hard forks are a fairly inconvenient way of pushing through updates. And even if they do go as smoothly as possible, there's still going to be some service disruption which isn't necessarily a great look for an immutable world computer, says Vladislav Dramaliev, head of digital marketing at æternity.
"The Constantinople fork could definitely cause disruption of services on the Ethereum network and result in a few hours (maybe days) of reduced utility. It will be a prime example of why a functioning, public blockchain system, managing billions in value, is difficult to upgrade. Implementing fundamental protocol changes always comes with a risk of disruption and community fragmentation," he notes. "Moreover, controversial proposals introduced through off-chain governance might not be the best way forward for blockchains. On-chain governance — "one-token, one-vote" or common decisions based on information markets, for example — could be more transparent from a community perspective."
What does it mean for Ethereum?
Even if most users won't experience too many immediate changes from Constantinople, there are still some long-term implications to be found, and different conclusions one might reach from the circumstances surrounding it.
First of all, reduced block rewards are probably good for speculators hoping for a rise in value, says Gabriele Giancola, CEO and co-founder of qiibee.
"From an Ether standpoint, the community can look to the fact that its current rate of inflation is currently higher than that of Bitcoin. ETH holders can favor the reduction of block rewards, since this will undoubtedly limit the supply of ETH, having a direct correlation on the overall value."
Plus, contentious hard forks are usually exciting times for markets, says John Iadeluca, the 20-year-old founder and managing director of Banz Capital Hedge Fund. Even if there are no guarantees regarding which way something will go in the end, a potentially contentious fork historically means great volatility – or great opportunity as a trader might call it.
"Hard forks usually spark speculation, as was shown with the DAO fork and the Bitcoin Cash fork," Iadeluca says. "Price became so volatile at these times, I wouldn’t be surprised if the volatility doubled nearing and after the Constantinople hard fork.
"The DAO fork led to a near 50% Ether price increase whereas the EIP-150 hard fork led to Ethereum price falling approximately 40-45% over the coinciding month. Nobody can tell you that hard forks increase or decrease digital asset price because neither of the latter is factually true. Hard forks do, however, raise speculation and that speculation usually leads into a specific direction. In any instance, volatility of Ether price tends to increase during a hard fork, so as a result, those who are keen on playing volatility are usually successful."
Volatility is largely contingent on fork contentiousness though, and if everyone's on the same page, volatility around the event might be limited. Nothing's yet set it stone, so a lot of developers and traders alike are probably going to be keeping a finger on Constantinople's pulse in the coming months.
There are also questions around how the fork is perceived by the wider market. The word "delay" typically doesn't inspire a lot of confidence, but in this case, that might not be a wise interpretation.
The development schedule
If it's like previous difficulty bomb delays, markets might have a tendency to see it as another problem for Ethereum and a sign that development is running behind schedule.
Giancola isn't concerned though.
"Following the recent announcement by Ethereum developers to delay the difficulty bomb by 12 months, we should not rush to see the delay in a negative light. In fact, there are positive aspects to look upon. Considering the overall size of the Ethereum network, and the overall monetary value, the advancements that have the chance to come to fruition over the next 12 months will aim to absolve current aspects that need reworking."
In other words, if one looks at the difficulty bomb delay as a sign that Ethereum might go live with PoS sometime in the next 12 months, it looks like an extremely promising sign. Giancola suggests it might be enough to cement Ethereum's position at the front of the pack, even as other projects continue emerging.
"Although advancement within the blockchain space is rapid, it is doubtful other projects will overtake Ethereum in the amount of time in which the difficulty bomb has been delayed. There is no project or product currently that has similar disruptive methods that could have such an impact on smart contracts. Despite the delay in the difficulty bomb, there is no concrete reasoning to think this will impact the impending shift to PoS for Ethereum. The Ethereum developers are working to implement corrections which will improve the Ethereum blockchain as a whole, creating amends to the code in which will be the best moving forward from PoW to PoS."
But on the other hand, it's also another potential reminder of Ethereum's inherent downsides, Dramaliev says.
"Newer blockchain protocols have the advantage of solving scalability issues in a test (non-live) environment. They can make use of knowledge and experience generated from "older" blockchains to improve their designs and address fundamental issues before going live. Nonetheless, no matter what happens, Ethereum will still have a significant advantage in terms of network effect and developer resources. The question is if the system complexity will increase too much after upgrades, making it more and more difficult for developers and users to use it (especially in comparison to more elegant blockchain solutions)," he says.
Part of the issue might be endemic to live decentralised projects; that nothing less than perfect is good enough.
"That seems to be the main debate right now regarding the Constantinople hard fork, on whether hard forks should get pushed back because they’re not perfect," Iadeluca says. "Should devs continuously perfect things before final launches? The answer to that is yes. Ethereum functions as an infrastructure for thousands of currency systems, and hard forks are meant to be finalisations to this infrastructure.
"If a fault was found in the Federal Reserve’s infrastructure for capital safety do you think they would still publish it? Of course not. Will the community complain though? Probably, yes. With that in mind if Ethereum aims to be a global currency system, its code needs to be perfect, which is almost impossible. Therefore, the way developers are handling the Constantinople hard fork is a step in the right direction."
In that light, the only solid time line for Ethereum right now is Constantinople on testnet on 9 October, and then on mainnet after however long it takes. It might be as soon as November, or it might be a full year. But it's probably closer to the former than the latter.