Ethereum’s record highs are just an appetizer. A palette cleanser for a major update coming this summer.
EIP-1559 (AKA the London Hard Fork) is slated for July and will destroy Ether. To be more specific, Ether will burn after every transaction significantly reducing the global supply. London Hard Fork = Deflationary Ether.
I’m so bullish I need to sit down and take a few deep breaths guided by Sam Harris.
This update also introduces the concept of “block elasticity.” Soon blocks can expand or contrast based on the number of transactions occurring on the blockchain. Along with burning fees, Ethereum is making a strong case as the number one cryptocurrency.
“If demand to use Ethereum is high enough, then there would actually be more ETH being destroyed than is being created. And so the joke that I would sometimes make is, if Bitcoin’s fixed supply is sound money, then if you have a decreasing supply, does that make us ultrasound money?” — Vitalik Buterin
The London hard fork is the first major upgrade on a long road towards Ethereum 2.0. But not everyone is happy.
Ethereum miners are losing large sums of money in this update. Transaction fees normally go to miners, but now they’re burning. Can you hear those Ether tokens sizzling? Plus this is just the start of deconstructing the Ethereum mining ecosystem. Ethereum 2.0 will transition the entire blockchain to proof-of-stake. Mining is kaputt.
I wish we could all sing kumbaya and welcome EIP-1559, but instead, miners are taking action into their own hands. They’re discussing the possibility of attacking the Ethereum chain in a 51% attack.
So where does Ethereum stand?
Ethereum Mining = Applebees’ Half Apps
To understand the nature of the problem you need a quick 101 on proof-of-work mining, or Ethereum’s soon-to-be old mining system.
Miners have the most power on Ethereum. Arguably more than the developers.
Mining does not create coins, rather, it’s a means to verify transactions. Imagine a ledger between you and a group of friends. Maybe you use it to keep tabs for drinks or half apps at Applebees.
Whoever’s in charge of updating that ledger would be “the miner” in a blockchain system. It’s important to have more than one miner so they can hold each other accountable. And for doing this you’ll pay them some money too.
Now just expand that ledger amongst millions of people, attach a marketplace that sells Crypto Kitties, and allow others to build their own multi-billion dollar businesses on it. Voila, you get Ethereum.
Got it? Got it!
Most Misunderstand This About Mining
While critics like Bill Gates love to criticize Bitcoin and Ethereum mining for wasting energy (which he definitely has a point) he fails to understand that crypto mining was created to tell time, not to solve esoteric math problems.
Author of the book “21 Lessons: What I’ve Learned from Falling Down the Bitcoin Rabbit Hole.”
“Bitcoin isn’t about computation. It is about independently agreeing on the order of things... Everyone agrees beforehand that the chain with the most cumulative work is the source of truth.” — Gigi, pseudonym for author
In a proof-of-work system the more computational energy you provide, the more power you control on the blockchain. This responsibility rewards you more Ethereum tokens; it’s also why miners pool their computational power together.
Conversely, in Ethereum’s new proof-of-stake system, the more tokens staked equate to the amount of power you receive on the blockchain. In these POS systems you only receive random transaction fees; no block reward.
These fees amount to 7 to 9% APY on your Ethereum holdings. It’s like a crypto savings account. This is amazing for non-miners like you and me. But it’s a ticking time bomb for ETH miners
This is why they’re taking action.
Civil War: Whose Side Are You On?
In March Ethereum mining was a $1.38 billion industry, and in large part due to high gas fees. EIP-1559 is ruining their livelihood. Miners aren’t going down without a fight. Just like Captain America.
Flexpool — one of the smaller Ethereum mining pools — launched a website to prevent the proposed update. It’s since garnered the support of mining monoliths Sparkpool and Ethermine (both of which hold more than 20% of mining power).
As it stands 60% of Ethereum’s total mining power is against EIP-1559. And it only takes 51% of them to destroy the network. A coordinated attack could destabilize Ethereum and result in fraudulent transactions.
An April Fools joke even hinted at the attack. No one’s laughing.
Look at this whole situation through the eyes of the miners. You can see where they’re coming from. Yet according to one of the six EIP-1559 authors, Abdelhamid Bakhta pointed out miners should have known this was coming: “It is not like they were not aware of this proposal. The idea was first introduced by Vitalik in an article named ‘First and second-price auctions and improved transaction-fee markets’ in July 2018.”
How Miners Can Attack the Network
I’d like to thank YouTuber Bitcoin for Beginners for laying out these strategies of attack. Here they are —
➰Destroy the Network: It’s theoretically possible, but highly unlikely. This is because miners make their money in Ethereum, so a coordinated attack would devalue the currency and crush them in the process. Nobody wins. It’s scorched Earth with no survivors. Why would anyone do this? Ask this guy.
➰Ethereum Classic 2.0: Miners could also continue to support the forked blockchain much like Ethereum Classic. The major problem with this is Ethereum’s blockchain is eons more complex than it was five years ago. DeFi and NFTs alone are multi-billion dollar industries with complex individual data that would all need to be ported over. It’s a pipedream.
➰Manipulate the New Chain: Miners could also join the new chain and attack it on arrival. It’s a Trojan horse scenario. Theoretically, however, they could only do this to blocks that are less than half full. This takes a lot of coordination on the parts of the miners. But it’s the most plausible plan.
Why I’m Still (a Little) Worried
There aren’t many viable options for miners to successfully attack the network. But I’m still worried.
When you wage war against a billion-dollar industry — albeit one that owes its success to the technology it wants to sabotage — you can’t expect your opponent to go down easy.
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. “— Sun Tzu
There’s an underlying tension between the miners and the Ethereum Foundation developers. Crazy enough, a mining company even announced a new application-specific circuit (ASIC) miner for Ethereum.
What’s going on here? One last squeeze for Ether or something more sinister? You can never truly tell in a decentralized system, and that’s the fun of it sometimes.
Regardless, while you have to feel for the miners, this proposed update stands to benefit the entire network for years to come. When ETH2 goes live it will scale up from 15 transactions to 100,000 transactions per second.
EIP-1559 is the first step towards that reality.
There is one more proposal to the hard fork that may solve everything. EIP 3368 which increases block rewards to three ether with a gradual decay to one ether over two years. The jury is still out on this proposal however.
Thankfully, Ethereum founder Vitalik Buterin offers some sober advice in these trying times —
“If some miners leave, new ones can come”