Winter is coming
The difficulty-bomb is starting to expand.
Miners need more and more time to find new blocks.
This process shall help to improve Ethereum by switching to Proof of Stake !
The difficulty bomb isn't really noticable yet.
Since the beginning of this year the price of ETH increased dramatically.
Naturally Ethereum's hashrate and thus it's mining difficulty are following this growth.
But if you look into the historical charts you can see that difficulty and hashrate are slowly starting to drift apart.
Naturally they should be delayed synchronized (more hashrate -> increasing difficulty)
But in this case the Difficulty is running away and starts with it's programmed increase.
It is normal and important for the Difficulty of the cryptographic task for the miners to increase with the hashrate.
This can guarantee a specified blocktime even if the involved computing power is increasing.
This is used to fix parameters like coin inflation, transaction speed, etc.
But Ethereum is loosing it's balance of diffifulty and hashrate.
The Difficulty is increasing faster than the Hashrate.
As result the system is slowing down.
Previously the Ethereum Blockchain handled a Blocktime of 14 seconds.
Now it already takes 15 seconds to generate new blocks.
This doesn't seem to be that much, but this should be understand as a significant indication !
Simultaneously the number of new created Ether is starting to decrease.
In January and February Miners produced around 30.000 new ETH per day.
Today there are only ~ 27.000 new ETH created.
So far the effects of the difficulty bomb are harmless.
They are noticable while looking into the numbers, but tey aren't effecting
the usabilty of ethereum yet.
But the effects will dramatically increase within this year.
The Difficulty Bomb is growing exponential !
It is expected for the blocktime to reach 30 seconds per block this summer.
This will mean the supply of new eth and the network capacity has halved.
In the next month and years the difficulty will increase faster and faster until it become impossbile for the miners to find a block.
Than Ethereum will freeze...!
Planned obsolescence for soft switch to Proof of Stake
Ethereums ice age is no coincidence or mistake.
The difficulty bomb was planned by the developers.
It is used as kind of a planned obsolescence, which will ensure that a certain Ethereum version will be unusable at some point.
This shall spur the developers, miners and users to improve ethereum by participating on radical changes.
The great Hardfork debate we see in the Bitcoin space for more than 2 years now,
won't happen to ethereum on the basis of the difficulty bomb.
A second and maybe even more important reason is the switch of Ethereum from PoW to PoS.
(PoW = "Proof of Work" means miners are in competition for the block rewards while they are proving their computers are calculating compute cycles.)
(PoS = "Proof of Stake" means the miners use invested ether to simulate the actual mining process to compete for the block rewards.
"Miners" are called "Stakers" in this concept.)
Proof of Stake is environmentally friendly, lowers the threshold for initial investments into mining, allows for lower intervals between the blocks, and is a prerequisite for sharding the blockchain whereby Ethereum shall achieve almost endless scalability.
So it might be worth it to go this way !
The Roadmap of Ethereum to switch to Proof of stake seems to be elegant.
With the next Hard Fork, "Metropolis", mining and staking will be parallel possible.
The Stakers will use a "Caspar" contract to lock Ether and validate blocks.
At the same time, the creation of new blocks is further determined by the miners through Proof of Work.
The Difficulty-Bomb will cause that mining will be less profitable than staking at some point.
Ice Age reached Blockchain with Delay
Actually, the Ethereum Blockchain should have been practically unusable since late 2016.
But the Developers noticed that they had overestimated ethereums progress.
It wasn't possible to keep this deadline for PoS.
So with the Hardfork to "Homestead" version of Ethereum, they defused the difficulty Bomb.
Vitalik Buterin wrote about a year ago:
"... the ice age will now be very slow.
... from Block 3.5 million, we will have an average blockinterval of 25 seconds for about 100.000 blocks (about 1 month).
Then we will have 35 seconds for the next 100.000 blocks (about 1.4 month),
then ~ 55 seconds for about 2.2 month, then ~95 sec. for about 3.8 month,
and so on until we reach ~ 655 seconds for about 26 month"
The final downfall will occur around 2021 when the network will be almost freezed."
The increase of the difficulty and the blocktime will be more noticable in the coming month, but it is unlikely that effective functional restrictions will occur before spring 2018.
Until than the Ethereum developers should have already arrived the metropolis phase of Ethereum.
The Roadmap of Ethereum consists of 4 phases:
- Frontier, Homestead, Metropolis and Serenity
Currently we are in Homestead, the stage dedicated to the creation of graphic wallets and security.
With Metropolis Ethereum wants to attack the mass market.
Parts of this new version will be the introduction of the Caspar Proof of Stake, which is still to run parallel to mining.
Only when the Ice Age really hits, Proof of Stake will push out the mining.
This will then initiate the Serenity Phase.
But while many changes for Metropolis are still complete, the final version of Caspar is still missing and there are still some disagreements.
Therefore the Developers haven't called a concrete date for Metropolis.
However, a release is planned in August or September.
Until then, the gaps between the blocks will have grown to more than 20, perhaps even 30 seconds.