🕌 Ethereum Constantinople Upgrade is around the corner 🕌 Proof-of-Stake changes token valuation 📈

Ethereum's Constantinople upgrade is around the corner, and it's likely to have a big effect on the price of the ETH token. This much anticipated network upgrade will bring about many efficiency upgrades, delay the difficulty-bomb and reduce the amount of ETH mined per block by a significant amount.

Ethereum Constantinople, Metropolis, Byzantium, Casper

With so many names for Ethereum upgrades being thrown about, it gets confusing to figure out what each of them entail and what it's all about. Fortunately, it's less complex than it appears and in many cases these names actually refer to different portions of what is essentially the same upgrade.

Ethereum's roadmap has several 'phases', so to speak, before reaching it's end. It started with it's initial inception called 'Frontier', which was then followed by 'Homestead'. We are currently in the process of upgrading to the next step in evolution called Metropolis, after which eventually the final version called 'Serenity' will be released.

The main thing to remember is that the current upgrade process that we are in is called Metropolis, which is divided up into two parts: Byzantium, and Constantinople. We've already seen the first part of this Metropolis upgrade, Byzantium, go into effect last year. This upgrade included several optimizations as well as a lowered ETH-release rate per block. Now we are on the verge of seeing the second part of the Metropolis upgrade go into testing: Constantinople.

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Proof-of-Stake

Constantinople will expand on the groundwork laid by the Byzantium upgrade, and will/may include several upgrades, of which one is the much anticipated Casper upgrade. Casper is the work of Ethereum developer Vlad Zamfir, and it will enable the Ethereum network to start using the Proof-of-Stake (PoS) consensus mechanism side-by-side with the existing Proof-of-Work (PoW). The intention is to gradually shift from PoW to PoS over time (months/years). This is done by a so-called 'difficulty bomb', which is coded into the mining algorithm and causes the difficulty to slowly but surely keep increasing over time until mining essentially becomes impractical, or atleast economically unwise. By then the entire network should be running on PoS.

The Constantinople upgrade will also, again, change the ETH issuance rate. Currently the aim is to decrease it from 3 ETH per block to 2 ETH per block, although some voices in the community are still argueing for 1 ETH per block.

Additional enhancements that Constantinople bring are improvements that will facilitate scaling solutions by allowing an easier and quicker method of extracting data from the blockchain. This will be important for second-layer scaling solutions and side-chains.

Implications of PoW/PoS switch and lower ETH issuance

Constantinople, and in particular Casper, are sure to have an enormous impact on the Ethereum economy and ecosystem. Lowering the issuance rate by 30% alone should certainly have a positive effect on the market price, much in the way that a Bitcoin halving event has. Basic supply vs demand implies that if a lower supply of ETH enters the markets, it should lead to a higher price per ETH.

But the ETH token itself also undergoes a massive change through the introduction of PoS. From an investor's point of view the token valuation increases significantly if it suddenly starts to reward holders with 'dividends', when before it didn't. I am certain that many of you have come across 'passive income' tokens before, and felt their attractiveness - and not without good reason. Much of the popularity of coins such as Dash, NEO, PivX and others is in fact due to their PoS and reward-giving structures - after all, why simply hold Coin X when you can also hold Coin Y and get rewarded for holding it? The fact that this system is now coming to Ethereum, the number two crypto on the market, is significant because whereas competitors are struggling to be taken seriously it is becoming increasingly hard to dismiss Ethereum as a 'shitcoin', if such a thing is possible at all.

Only for the big boys

Don't get too excited, though! The chances that you will be able to stake your ETH and earn rewards within any foreseeable future is still very small, unless you own a sizeable stack of them. Last I checked, discussions were ongoing and heading toward a 32 ETH minimum for staking a node. Even at today's 'low' prices that's still about $7000 USD in order to operate an Ethereum node.

The good news is that much like how mining pools operate by pooling their mining power together, it will also be possible to pool your stakes together in order to stake from within a staking pool. Through this method even smaller holders will be able to pool their ETH together in order to reap the benefits of PoS - albeit by (probably) paying a small percentage to the pool operator, as is common with mining pools as well. How this will work and when it will be usable is yet to be seen - and quite frankly, to be coded. It's going to take a while before the code is reliable enough as well, obviously, before anybody is willing to risk their ETH on it.

Timeframe

Development is slow, and development on Ethereum doubly so - at least that's what it seems. The Ethereum dev team is taking security seriously and as a result are in no great rush to implement upgrades. After all, Ethereum is a machine that's already running and upgrading it is much like upgrading a car engine that's still running. One mistake and the whole thing could come grinding down to a halt - with billions of dollars at risk in the process.

Constantinople is expected to be released on a testnet in October, with it's live-release as soon as November. I wouldn't hold your breath for November, however. Like I said, the Ethereum development team has no intention of rushing anything and they have pushed back upgrades before. Let's not forget that Constantinople was originally scheduled to go live last year. Perhaps it is more safe to expect a testnet version within the next month, and a live-release perhaps in the new year.

I think Constantinople is an exciting upgrade for sure and I certainly get excited about the prospect of PoS increasing the token valuation. At the same time I also remember the Byzantium upgrade last year which did lower the ETH issuance rate also, from 5 to 3 ETH per block, and that hardly did anything at all. In fact, Bitcoin stole the show and took us all to $20K right after. Although Ethereum did not do bad at all in the slightest when it hit $1300 I tend to attribute that to the overall market upswing rather than as a result of the Byzantium upgrade and issuance rate. On the other hand, the introduction of PoS isn't completely the same as merely changing the issuance rate and may have a more significant market effect than it did with the earlier Byzantium upgrade.

I also found this cool (but maybe not so clear!) visual representation of Ethereum upgrades:

_{(Art by: Roy Lichtenstein)}