The second largest cryptocurrency by market capitalization underwent a significant upgrade on February 28, but the impact on the average ether (ETH) coin-holder is negligible.
So why does it matter?
Well, for a couple of reasons, chief among them that it paves the way for Casper, a far more significant upgrade scheduled for the first half of this year that will fundamentally change the way the Ethereum blockchain works, improving security, vastly reducing energy consumption, and changing the way new ETH coins are created from Proof of Work (PoW) to Proof of Stake (PoS).
The current upgrade, or hard fork, of the Ethereum network is called Constantinople and St. Petersburg, and does several things.
Along with some “under-the-hood” efficiency improvements, it also reduces the reward for mining ETH from three coins to two, and delays for about a year the so-called “difficulty bomb” that will force the switch to PoS by making it impossible to use PoW to mine ETH.
In addition, it will make the Ethereum blockchain faster by allowing the distributed apps (DApps) that each block contains work “off-chain” without compromising security. This is intended to solve the so-called scalability problem. Basically, the Ethereum blockchain is a platform to run DApps such as games, payment processing, and smart contracts. But because it can only process 15 transaction per second—Visa, for example, can process 24,000 per second—running multiple transactions in each block would slow it down past usefulness. Allowing off-chain transactions would let DApps function separately from the entire Ethereum blockchain.
Unlike past hard forks like the one in 2016 intended to reverse the $55 million DAO hack, which led to the creation of the breakaway Ethereum Classic blockchain, the Constantinople and St. Petersburg hard fork is not controversial and should not split the Ethereum blockchain.
What was the big delay?
Constantinople was originally scheduled to happen in January, but a last-second security flaw caused it to be delayed. As Constantinople contained several distinct upgrades, St. Petersburg essentially fixes Constantinople by undoing the flawed upgrade, which was intended to make certain transactions cheaper. Why not just rewrite Constantinople? Well, by the time the flaw was discovered—just one day before it was originally scheduled to go live—some miners and node operators (who host a copy of the full Ethereum blockchain) had already implemented it.
What is Casper?
Casper will switch the Ethereum blockchain from a PoW to a PoS model. In simple terms, that means new blocks will be created by a pool of validators, with the “winner” depending on random selection influenced by the number of ETH coins staked. Under Casper, validators will receive transaction fees rather than ETH coins from the newly generated block, and will be subject to forfeiture of the coins staked for bad actions.
This will end the use of PoW math puzzles solved by ever more powerful and energy sucking purpose-built computers, while making it harder for a small group of well-funded mining consortiums to gain too much power over the blockchain. If a single miner or group of miners gains control of more than half of the Ethereum network’s computing power (hashrate) under a PoW model, they gain control of the blockchain and the ability to fraudulently double-spend coins under what is known as a 51 percent attack.