Ethereum's Difficulty Bomb is often misunderstood. Most explanations are convoluted and technical. This post is a simple & quick explanation of what is the Ethereum Difficulty Bomb. Shawn also explains it's relation to the block reward reduction in Ethereum and the Constantinople update!
What Is The Ethereum Difficulty Bomb?
With Ethereum's Constantinople update coming up on January 16th 2019, there have been an increasing number of questions regarding Ethereum's "Difficulty Bomb". Most other explanations out there are either far too complex are simply wrong. In this post I will give you guys a simple and clear explanation of what Ethereum's Difficulty Bomb really is and why it was put in place.
Ethereum Difficulty Bomb: The Simple Explanation
The Ethereum Difficulty Bomb simply refers to a tool within Ethereum. This tool allows the core Ethereum developers to adjust how difficulty it is for a miner to win a reward. Miners win rewards each time they create a new block and add it to the blockchain.
When the Ethereum Difficulty Bomb is set to "detonate", it will get exponentially difficult for miners to win rewards via mining. But why would the developers want this? Because eventually they will want miners to stop mining and start validating. Remember, Ethereum is set to transition from Proof of Work to Proof of Stake. There is no mining in Proof Of Stake. We will have validators instead.
Ethereum Difficulty Bomb: A Dis-Incentive For Miners
Even though Ethereum may switch to the Proof of Stake chain, the miners may continue mining on the Proof Of Work chain if not properly incentivised. In order to avoid security issues (like a fork), the developers wanted to give the miners a little "nudge" to switch to Proof Of Stake. The Ethereum's Difficulty Bomb would reduce their rewards on the Proof Of Work chain, and thus incentivise them to switch to the Proof Of Stake Chain.
Why Was The Ethereum Difficulty Bomb Delayed
Unfortunately, there was a delay in the upgrade to Proof Of Stake. And the entire point of the Difficulty Bomb was to incentivise miners to switch to Proof of Stake. So the Ethereum team decided to delay the difficulty bomb until Casper was ready.
Ethereum Difficulty Bomb Reduces Block Reward
Ethereum Inflation Rate & Difficulty Bomb
The delay, however, did not sit well with long term investors. Long term investors were looking forward to the difficulty bomb (and Proof of Stake). Why? Because lower Block Rewards would mean a lower Inflation Rate. This was going to be a very bullish update for long-term investors. Since people Difficulty Bomb was delayed, the Ethereum team decided to add a Block Reward Reduction to the Ethereum's Constantinople network upgrade!
Follow Up Reads:
Ethereum's Issuance & Inflation Rate Explained