Ethereum 2.0 Transitions from Miners to Validators!
The upcoming upgrade to the Ethereum network will bring significant changes to how miners are compensated for their work, and they are not happy at all!
It’s not easy to run a decentralized network. Because there is no single point of contact, entire communities are participating in the update process. This brings us to Ethereum.
The blockchain is currently undergoing a massive transformation. The Ethereum network is switching from a highly energy-intensive proof-of-work algorithm (like Bitcoin’s) to a proof-of-stake algorithm. Finally!
Simply put the transition can be described as a complete renovation of your house while you are living in it. The discussion for the project had been going on for a while and has already been delayed by a long shot.
Let’s take a detailed look into it.
The ETH community is generally enthusiastic about the move to PoS. The launch of Ethereum 2.0, however, is not without controversy, as you might anticipate. Some critics aren’t thrilled with what they are witnessing, even though the network will now be able to handle more transactions per second, and reduce gas fees.
Ethereum 2.0: The London Hard Fork
This is what they are calling the next big upgrade to the Ethereum Network. The countdown has already begun. The London Hard Fork is up for launch today on the 5th of August.
The London Hard Fork is focused on five Ethereum Improvement Proposals (EIPs). It is here that we find that devil in the details as well as the reasons why a sizable portion of the community is unhappy.
Only 21 million bitcoins will ever exist since this crypto has a fixed market supply cap, earning it the title “DIGITAL GOLD”. Ether, on the other hand, is an inflationary cryptocurrency, meaning that there is no limit to the number of ETH that can exist.
Every time a block is validated, miners are paid with brand new coins, which happens around every 15 seconds. They are also reimbursed by the transaction fees that users pay.
EIP-1559 wants to change this. Once the upgrade comes live tomorrow, transaction fees will no longer be paid to the miners, instead, they will be sent directly to the network to be burnt (why wouldn’t miners be upset?). This limits the circulation of Ether over time, thereby increasing ETH’s value. SUPPLY AND DEMAND!!!
Benefits of the Upgrade
We have to understand that there are huge benefits of this upgrade.
One of them is that it will reduce and make the transaction fees for users who utilize the Ethereum blockchain more predictable, helping them calculate overall transaction costs.
Next, the congestion we’ve witnessed on this network has sparked outrage, which has been worsened by the danger of a bull market, the boom in NFTs, and the growing DeFi sector.
Reasons Why Miners Might Get Upset with the Upgrade
To be fair, everybody understands why some miners are irritated at the prospect of losing a significant source of income, especially because the 2 ETH they earn as a block reward these days is far less than the 5 ETH they used to receive in the past.
When it comes to these transitions, some miners are seeking to adopt both.
Users will still be able to tip to boost the likelihood that their transactions will be performed quickly. Furthermore, efforts to make Ethereum deflationary should result in the residual ETH that miners receive as a reward that is worth more in the long run.
Undoubtedly, Miners play an important role in the Ethereum ecosystem. They’re the ones in charge of keeping the blockchain up and running and validating transactions.
The switch to proof-of-stake, on the other hand, will basically render them obsolete. This is because validators, who have a vested financial stake in the network’s security, will come first.
Although nothing prevents miners from becoming validators, one minor issue is that many of them have very expensive hardware that will now be rendered useless.
When it comes to EIP-1559, the real question is whether miners, who are already aware that they are about to be rendered obsolete, will start throwing in the towel?
It does not appear realistic that a huge departure would put the blockchain’s security in jeopardy. However, if a large number of people leave, mining ETH could become more profitable for those who stay.
We recently experienced this in Bitcoin, after a big number of miners were forced to close shop due to China’s crypto crackdown, the BTC network’s difficulty rates dropped, making it easier for others to validate blocks.
Taking a look at how Ethereum miners have been paid in recent months, In may, revenues topped $2.35 billion, as ETH soared to $4362.35.
However, according to The Block, revenue fell 53% in June to $1.1 billion. Due to lower transaction costs, gas fees accounted for only $166 million.
Through EIP they could have made at least $940 million.
Major Changes to Watch Out For
EIP-3554 of the London Hard Fork will also bring about significant changes to the network.
A difficult time bomb threatens ETH miners by making new ETH so difficult to find that there is no financial incentive. With EIP-3554, this time bomb will be delayed until December 2021, giving miners more time to prepare.
Token staking will now become accessible across the Ethereum network once ‘the merge’ occurs. Researchers at Eth2 are working on ways to speed up the process, so it may happen sooner than expected.
What Should You Expect from the Upgrade?
The London Hard Fork Won’t affect crypto exchanges, any web or mobile, or hardware wallet users. The Ethereum Foundation developer Tim Beiko has re-assured this statement. But, those who run their own node need to upgrade to the latest Ethereum client.
Fun Fact: The project name ‘London Hard Fork’ came from all the cities where conferences for the project development were held
To put it simply, the London Fork marks the beginning of the end for miners on the Ethereum blockchain.
A New Era Begins!
