A video meeting that was held by the Ethereum Core devs last Friday discussed the possibility of lower block rewards for miners. Ethereum is currently being mined on a proof-of-work algorithm in which miners who discover new blocks are rewarded with ETH. Because these rewards require more ETH to enter circulation, Ethereum suffers from inflation.
Lower block rewards reduce inflation but also discourage mining. Since the Metropolis hard fork last September, Ethereum’s block rewards have been reduced from 5 ETH to 3 ETH. By some calcuations, this still leaves Ethereum with an approximate yearly inflation rate of 7.4%.
This will all change in 2019 or 2020, when Casper introduces proof-of-stake and achieves an inflation rate between 0.5% and 1%. But a solution to reduce inflation is needed in the meantime, and that solution will likely be reduced block rewards.
Will Lower Rewards Hurt GPU Miners?
Although it was hosted by developers, the discussion was open to miners of all sizes, from large-scale mining operations in Asia to individuals mining on personal hardware. Needless to say, there were arguments from many perspectives.
Some opposition to reduced block rewards was due to a fear that GPU owners will leave the mining community, giving ASIC owners more control of the network. This leads to more centralization. According to one participant,
“I think that going from 3 to 2 [ETH] is … is basically going to force the GPU miners off of the network and the only thing that’s going to be … left behind is the ASIC community.”
One smaller miner didn’t feel threatened by smaller rewards and endorsed one of the most common mining strategies. This involves mining when it is profitable, but saving on electricity costs by buying crypto at market prices when mining is not profitable:
“I’m in favor of a block reward reduction… Depending on price fluctuation I might decide to … turn off the miners and just buy at the market [prices] … but beyond that … nothing is likely going to stop me from mining.”
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Should Miners Invest In ASICs?
As noted, inflation is a major motivation for reduced block rewards. But support for reduced block rewards also arose from the fact that staking will eventually render Ethereum mining obsolete.
A few participants noted that people will probably invest in Ethereum mining hardware until the bitter end and that ASIC sellers won’t try and stop them:
“The ASIC manufacturers … are not responsible to the miner … the future of mining does not really affect them … once it’s produced, once it’s designed [and] manufactured.”
In other words, those in favor of reduced rewards want to discourage people from investing in mining equipment that will soon be unprofitable. However, others want more specific anti-ASIC measures.
Decision On Friday
The developers did not make a decision on whether to reduce block rewards but stressed that time was of the essence due to the Constantinople hard fork that is scheduled for October 30th:
“We kind of need to make a decision for [Constantinople], and yeah, we’re on a time crunch … I don’t even know if we can wait two weeks.”
The end of the discussion established that a decision will be made this Friday (August 31).
In the meantime, the Ethereum community has been running a poll on the decision. Currently, about two-thirds of voters have voted to reduce block rewards to 1 ETH, and another quarter have voted to reduce block rewards to 2 ETH.
(The discussion and the poll also take into account a “difficulty bomb”, which would make mining increasingly difficult. This will probably be delayed.)
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