Ethereum, the third largest cryptocurrency by market capitalization and the most popular platform for decentralized applications (dApps), is getting an update on January 16 (approximately).
The update is called Constantinople and makes the Ethereum network a little more efficient, paving the way for further changes later. It also brings some important changes for miners on the network.
Here is an overview of exactly what is happening and the steps that the ether owners should take before the fork.
The answer to the second question is really simple: there is no need to do anything. The imminent update, even if technically a fork, will most likely not be litigation, which means that there is no disagreement about whether it should happen. This means that Ethereum will not split into two separate currencies next Wednesday. If all goes well and the odds are good, ether participations will be exactly the same before and after the fork, regardless of whether the ether is on a private wallet or an exchange.
And no, the ether holders will not receive a new coin; if you see information on it somewhere, it's a scam or a mostly irrelevant project that's just trying to draw attention to the confusion that surrounds every fork of cryptocurrency (which is why I'm mainly calling Constantinople an update and not a fork).
IMO the Ethereum community should consider adopting @zcashcoThe terminology of calling things like "network updates" of Constantinople and reserving "fork" for fractions that leave 2+ feasible chains. Too many people ask me lately where they can unload their non-Constantinople coins …
– Vitalik Non-giver of Ether (@VitalikButerin) 10 January 2019
Ethereum operators and miners will have to update their software before updating; links can be found here.
Note that the date of January 16th for the update is approximate. The update should take place when the 7.09 million block of the Ethereum blockchain is drawn, which is currently approximately Wednesday, January, 16, 8pm UTC, but the exact time will change slightly as the new blocks do not they are always in the same time frame.
Opening the way for a faster future
With that out of the way, there are still some things you should know about this update.
Constantinople consists of five EIP proposals (Ethueum Improvement Proposals), which are documents that explain a new feature or change in the Ethereum code. Explaining them in detail might be a bit too technical for most users, but here is an overview of the most important changes they make.
Four of the EIPs – EIP 145, 1014, 1052 and 1283 – describe various technical improvements, which make Ethereum a little more efficient, cheaper to use and paves the way for future updates. In short, they are nice, they are necessary, but they are not something that the vast majority of users will notice in everyday use.
EIP 1014 deserves to be identified as it allows you to interact with the Ethereum addresses that have not yet been created. This is important as it will be used for so-called status channels, which (hopefully) will be an important scaling solution for Ethereum, allowing the execution of certain transactions on a separate blockchain. Remember how Cryptokittes stopped the Ethereum arrest? Well, thanks to the status channels, games like Cryptokitties will be able to live on Ethereum without slowing it down.
From PoW to PoS
The fifth EIP, 1234, makes two important (but closely related) changes. One reduces the reward for mining of Ethereum and the other delays the so-called "difficulty bomb", a mechanism that forces Ethereum to switch to a completely different mode of operation called "stake test" (PoS) ).
Ethereum, like Bitcoin, is a blockchain-based platform with a proof-of-work consent mechanism. This means that the blocks with all the transactions on the networks are confirmed by the miners, who use the computing power to solve a mathematical puzzle with increasing complexity. This makes it quite difficult (though not impossible, as seen from the recent attack on Ethereum Classic) to modify the Ethereum blockchain, but it is also wasting an enormous amount of energy.
Unlike Bitcoin, the Ethereum plan from the beginning was the transition to a different consensus mechanism called proof-of-stake. With PoS, there is no mining in the traditional sense; instead, holders of aether coins can "point them" to participate in a sort of lottery, in which the winners "create" the next block. And this passage is not just a future fable; will happen in an update called Casper on which you are actively working and which is scheduled to start in 2019 (Casper, you guessed it, it will be a much more significant update of Constantinople).
Switching from PoW to PoS is not easy. This is partly due to the large mining ecosystem that has developed around the popular cryptocurrencies like Ethereum, and partly because not all the nodes of how PoS should have worked have not yet been adequately ironed.
But there is another problem. Ethereum has something called "difficulty bomb" embedded in its set of rules. It is a timer that makes the work of miners progressively more difficult. This reduces the influx of new ether and makes the ETH mining less profitable. It is a bit of a stick that chases away the "old" miners and introduces the new mentality of coins that stake out to "extract" new blocks.
This is where EIP 1234 comes in. Since Casper is not yet ready, this change will delay the 12-month trouble bomb. But since everyone knew the difficulty bomb timer for a while, its effects were calculated in mining profits. So EIP 1234 makes another change: it reduces the extraction prizes of 3 ETH blocks per block to 2 ETH per block.
So, after January 16, it will take about the same time for an Ethereum miner to extract a block, but their reward for doing so will be reduced from 3 ETH to 2 ETH. It is not very complicated, but will have lasting consequences on Ethereum.
And the price?
Again, EIP 1234 does not change much for most users of Ethereum, but it's a big change for people who extract ether. Some may go through the extraction of other cryptocurrencies, but due to the way Ethereum was designed, mining will still remain profitable for the most part.
Of course, a question many landowners ask themselves is: what happens to the price of the ether after this change?
It is difficult to answer. Ethereum has been extremely volatile in the last two years, with the price falling from a high of around $ 1,400 in January 2018 to a minimum of $ 85 in December and all that has happened without a significant update of the network. In other words, if the price jumps up and down like crazy (the price has dropped more than 20% in the last two days, for example) for little or no reason, trying to evaluate the effects of Constantinople is madness.
Still, there are reasons for cautious optimism. Reducing the influx of ether should, in theory, drive up prices, although the effect will probably be mild. Also, if the update goes as planned, it reduces uncertainty, which is generally good for the price.
Again, the TLDR on this it is simple: if you own ETH, you do not need to do anything in advance, during or after the update of Constantinople. It is hoped that the upgrade will go as planned and will open the way to Casper by the end of the year.
Disclosure: the author of this text has, or has recently owned, a number of cryptocurrencies, including BTC and ETH.