Ethereum’s long-awaited Constantinople and St. Petersburg updates appear to have been successfully executed without any evidence of a chain split, resulting in the integration of a number of updates aimed at optimizing information processing, code execution, scaling, and — perhaps most importantly — changing block mining reward issuance.
What does the new Constantinople update mean for the mining industry, though?
Constantinople, categorized as a “maintenance and optimization upgrade,” incorporates five separate Ethereum Improvement Proposals — EIP 145, 1052, 1283, 1014, and 1234. While the first four are primarily designed to pave the way for more efficient network operation and future scaling solutions, EIP 1234 has a profound effect on the mining industry.
Spearheaded by Ethereum contributor Afri Schoedon, EIP 1234 reduces Ethereum block mining reward issuance from 3 ETH to 2 ETH and focuses on laying the economic foundation for Ethereum’s future Casper Proof of Stake consensus system by delaying the “difficulty bomb.”
Delaying the Inevitable
The Ethereum mining community has worked against a ticking time bomb since 2015, when former Ethereum CCO Stephan Tual first introduced a dynamic difficulty adjustment scheme that is now referred to as the “difficulty bomb.” Designed to exponentially increase block difficulty as part of the transition to Proof of Stake consensus, the difficulty bomb has been delayed twice since introduction — once in June 2017, and again in October 2017.
The Constantinople update delays the impact of the difficulty bomb for another 12 months, allowing for the sealing of new blocks every 15 seconds on average over the course of the next year. EIP 1234 delays the difficulty bomb by 29 million seconds, placing the chain at 30-second block times by winter 2019.
While the Constantinople update delays the onset of the Ethereum “ice age,” it’s not all good news for miners — the integration of EIP 1234 is set to significantly cut profit margins.
What Constantinople Means for Miners
The new Constantinople update has cut block rewards down by a third, reducing miner payouts from 3 ETH to 2 ETH. While the incorporation of EIP 1234 won’t necessarily break the bank of miners, the 30% reduction in rewards could potentially elbow hobbyist miners out of the industry.
The core purpose of EIP 1234 is aimed squarely at limiting Ether issuance, which has until now operated on an uncapped inflation model. The introduction of a new economic model with the Constantinople update stabilizes the Ether supply rate, but brings with it a significant change to break-even costs.
The pre-Constantine operational break-even for ETH mining at an average energy cost of $0.06 $/kWh was roughly $67, with variance depending on operational costs outside of electricity. Post-Constantinople break-even, however, increases to around $101. An increased in break-evens, however, is not financially ruinous for smaller-scale miners — only large-scale miners with electricity costs above $0.075 $/kWh will potentially operate at a loss.
A reduction in profitability and thinner profit margins does hold the potential to place more hashing power in the hands of large-scale miners able to access higher-priced ASIC hardware, potentially making the Ethereum network more centralized than before.
ETH prices have remained largely unchanged post-Constantinople despite concern over potential market dumps, with Ether prices stable after the launch of the upgrade at block number 7,280,000. The overall impact of the upgrade on Ethereum block count and rewards has been largely positive, with total daily block rewards remaining at an average of 13,000 ETH despite an increase of roughly 1,000 total blocks per day.
