Ether (ETH), by far the 2nd most popular cryptocurrency after Bitcoin (by market capitalization), designed to help managing the decentralized applications (dAPPs) on the Ethereum platform, is one of the biggest competitors of Bitcoin when it comes to mining.
Mining ether is more lucrative than mining Bitcoin since it uses GPUs that are multi-purpose in comparison to ASICs that cannot be used for anything else than for mining. Upon inception, the Ethereum network has set the proof-of-work (POW) algorithm to secure the network and mine the new tokens, in a way similar to Bitcoin’s. Later on it was decided that the proof-of-stake (POS) algorithm will be used instead to amplify the network’s security. For this purpose, the POS protocol named Casper is currently being developed by the Ethereum team. The switch will take place before November 1 this year arousing lots of discussions within the community. The discussions are mainly concerned with the so-called Ice Age, the hard forks and the EIP #186 issue that we will explain below.
What is the Ethereum Ice Age?
The Ethereum Ice Age is the name given to the process of adjusting the network difficulty during the ether mining and the transaction verification. Without adjusting the difficulty, the network would ‘freeze’ due to the constantly increasing difficulty and the block time. To avoid the Ice Age back in 2015, the first hard fork was created.
What is a hard fork?
A hard fork (similar like the Bitcoin hard fore we discussed some months ago) occurs when the community decides to upgrade the blockchain by changing its protocol, or the rules governing the functioning of the network and the consensus mechanism. When the blockchain has been upgraded, the previously valid transactions become invalid and the new version of the blockchain (fork) is being created. The hard fork of 2015 was mainly implemented for security reasons to negate the consequences of the attack on the network. The next hard fork will take place this year as a result of the difficulty adjustment and mining reward reduction referred to as EIP #186.
What is EIP #186?
EIP stands for Ethereum Improvement Proposal represented by a set of features defining the standards of the Ethereum platform. These standards include the core protocol specifications, client APIs, and the rules for issuing contracts. EIPs are proposed by the members of the Ethereum community in order to address the technical aspects of the platform’s setting. They are submitted on the Ethereum’s GitHub profile to be reviewed, accepted or rejected by the core developers’ team.
The EIP #186 is one of such proposals created by Matthew Light (username lightuponlight) on December 22, 2016 and titled “Reduce ETH issuance before proof-of-stake #186”. As stated in the title, the EIP #186 addresses the decrease of the mining reward in the Ethereum network as a result of the switch from the proof-of-work (POW) to the proof-of-stake (POS) algorithm to enable the creation of the new ether. In order to understand the issue, let’s see how the Ethereum mining works and why is this switch needed in the first place.
The intricacies of mining ether
At the moment the Ethereum mining is based on the POW mechanism that requires solving mathematical puzzles by utilizing lots of computational resources and therefore electricity. This is the underlying mining method in the Bitcoin network that has demonstrated lots of weaknesses due to increasing difficulty: e.g. huge computational resources (special hardware for mining), cost-inefficiency and unprofitability plus the so-called monopolization of Bitcoin mining by large pools and farms that gain most of the profit. Although the mining of ether can be done on a regular PC individually, the POW algorithm is far from providing the due security of the network from malicious attacks and keeping the data safe.
On Ethereum, a new block is created roughly every 15 seconds and the reward per block is 5 ETH for the miner who solved the ‘puzzle’. The proof-of-stake algorithm is considered to be a more solid medium for mining cryptocurrency, because it is based on reaching the decentralized consensus by the participants of the network based on the amount of ether owned by an individual.
The switch from the POW to the POS mining algorithm will increase the efficiency and security of the network making it more resistant to hacker attacks. The fork that will be created as a result will positively affect the value of ether stabilizing its price by reducing its annual inflation rate. Resulted by the EIP #186 proposal, the issuance rate of ether per block will be reduced as well as the mining reward: from 5 ETH to 1,5 ETH (similarly to Bitcoin halving). The adjusted difficulty and the block-time will decrease the amount of energy required for mining, and therefore the electricity bills. The proposal was supported by 99% of the Ethereum community who participate in a vote.
How will that affect mining operations?
In the light of these upcoming changes in the Ethereum network, at f.e. HyrdoMiner (check the HydroMiner ICO page we’ve created), we are looking forward to the EIP #186 hard fork as it will help to maintain the healthy balance between the profitability of mining ether, the price of the token and the mining difficulty. Currently, ether (ETH) is the cryptocurrency that’s mined most (40%) by the HydroMiner facilities, while the Ethereum Classic (ETC) created after the last hard fork is the 2nd (20%). The use of our unique mining algorithm that automatically defines the most profitable altcoin to mine based on the energy requirements, the reward, the hashrate and the price of the token has proven ETH and ETC the most profitable cryptocurrencies to mine. They strongly believe that the upcoming mining switch, the EIP #186 implementation and the protocol upgrade will help to retain the status quo of these two crypto preserving the efficiency of the network and the mining profitability. They totally understand and the support the Ethereum community in its concern with adjusting the difficulty of mining in order to achieve the maximal energy-efficiency. Combined with the eco-friendly technologies such as green energy, e.g. hydropower and solar power, the way they are utilized by HydroMiner can produce lavish returns of investment (60%) in less than a year’s time. Visit hydrominer.org for more details.
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Tags:bitcoinBTCcrypto miningdAPPsEIP #186ETCETHetherEthereumGitHubgreen energyhard forkHydroMinerhydropowerice agemining difficultymining rewardPOSPOWprotocolsmart contractssolar power