Ethereum May Reduce Mining Reward and Inflation by 40%

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Ethereum developers are considering splitting the next big upgrade, Metropolis, into two hardforks, with the first hardfork expected sometime in September.

That hardfork may reduce mining reward, and thus inflation, by around 40%, from 5 eth per block to 3 eth per block, while at the same time delaying what is called a difficulty bomb as Casper is not yet quite ready.

The difficulty bomb is an automatic increase of ethereum’s mining difficult which has the effect of increasing block times with¬†Hudson Jameson, an ethereum developer, estimating they would rise to 45 second per block by November from what used to be around 15 seconds.

That difficulty/time bomb was place in there to give miners no choice during the Proof of Stake upgrade known as Casper, but that has apparently been delayed.

As such, the developers are proposing that the difficult bomb is delayed too, but to keep mining reward somewhat in line with what it would have been had the difficulty bomb proceeded, they are proposing to reduce block rewards from 5 to 3.

The proposal appears popular, not least because if demand remains the same then a reduced supply may lead to a price increase, but some are concerned about the interference with fundamental parameters.

Moreover, miners will need to upgrade and if they fail to do so it may lead to another chain-split. But if the proposal is indeed popular, then most eth users will probably value the reduced block reward chain higher.

In any event, as a price rise to compensate for the reduced supply should be expected, it may be the case that miners are not actually affected by the change.

Ethereum’s recent price action.

Which raises the question of why do it at all, with the main reason appearing to be concerns over an increased miners power due to an increased ethereum price and how that may affect the upgrade to proof of stake.

But, if price does indeed compensate, then the mining power would remain intact. On the other hand, holders may be rewarded with a higher price, thus higher resources in case miners do decide to make the Proof of Stake upgrade controversial.

Which is unlikely as miners would have no say in the Proof of Stake upgrade, but they may have quite a lot of say in the September fork, which will probably be a flag-day fork.

So we’ll have to wait and see how this develops, with the Parity client apparently in agreement, so the upgrade should go smoothly, but its nature may give detractors a reason to make it a bit controversial.

 

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