Key takeaways
- Ethereum Network difficulty sharply drops immediately after Constantinople Upgrade
- The drop can be attributed to a decrease in block reward & a delay of the already creeping difficulty bomb
- The difficulty level has since started increasing since the low of last month formed on the 30th of March
Constantinople Block Reward Change Catalyzes Drop in Ethereum Difficulty
A recent Twitter thread by crypto data analysis company CoinMetrics reported on the difficulty of mining on the Ethereum network contracting after a recent block reward reduction. The block reward reduction was introduced in the Constantinople protocol upgrade and lowered the reward that miners receive for appending blocks from 3 ether to 2 ether.
The data presented by CoinMetrics clearly links the difficulty decrease with the block reward reduction. CoinMetrics notes that the “mining difficulty has contracted as rewards have decreased”.
With fewer rewards for appending blocks, Ethereum miners have less incentive to mine resulting in a subsequent drop in the network difficulty.
Drop in Difficulty Outsizes Drop in Hash Rate
One item not mentioned by the Twitter thread was that the hash rate of mining on the Ethereum network has not mirrored the same drops as the difficulty level. The hash rate dropped from 157 TH/s on February 28th to 136 TH/s on the 30th of March, a 13% drop.
The difficulty drop far outsized this, dropping 41% over the same time frame.
The additional drop in network difficulty can be attributed to a delay in the Ethereum “difficulty bomb”. The Ethereum difficulty bomb refers to code embedded in the protocol that significantly increases the difficulty of the mining algorithm leading to higher block times.
The Constantinople hard fork took place at block 7,280,000 on 28th of February. One of the decisions prior to the fork was to delay the introduction of the “difficulty bomb” until February 2020.
The effects of the bomb started to be realized in early December 2018, with the average block time ramping up from a historical average of 14 seconds, to a peak of 20 seconds prior to the Constantinople upgrade.
Such a change is implemented to smooth the transition from proof-of-work to proof-of-stake in Ethereum. The “difficulty bomb” was delayed in the Constantinople hard fork as the network was not yet ready to begin its transition to proof-of-stake.
Ethereum Difficulty Increasing Since March Lows
Current data shows that the mining difficulty has since begun increasing from the lows formed at the end of March. Drops in the difficulty rate foster a less competitive mining environment and logically provides an incentive for miners to reenter the market.
The reentry of miners corresponds with the increase in both difficulty and hash rate from local March lows formed on the 30th of March. The hash rate has increased 9% since this point while the difficulty has increased 10% over the same period.
