Ethereum currently validates transactions by using a Proof of Work algorithm, meaning that hashing power is necessary, not only for mining new coins but also for processing transactions and to keep the entire network operational.
To make the system scalable and decentralized, Ethereum will switch to a Proof of Stake protocol for validating transactions, where a lot less computational power is needed and miners can receive proceeds according to their balance. The Ethereum Foundation is still developing its Proof of Stake protocol, named Casper.
Casper, the Friendly Protocol?
Casper is still a work in progress and it’s not included in the release version of Ethereum, meaning that a hard-fork might be needed for the implementation of this change. A hard-fork generates an incompatibility between the preceding version and the newest, but there’s always the scenario where a “split” can occur in two blockchains, like the hard-fork for the refund of DAO token holders, which resulted in Ethereum Classic.
To make sure that such incident doesn’t take place and to allow the developers a time-frame to finalize Casper (allowing the community to become accustomed to the introduction of a hard fork in that particular time-frame), a Difficulty Time Bomb, also known as Ice Age was applied in Ethereum.
Winter is coming for Ethereum
The Ethereum Ice Age is a difficulty adjustment tactic which was implemented to make sure that everyone is motivated to transition to the new blockchain after the hard-fork takes place. It was announced on the 7th of September (2015-09-07), and it’s set to raise difficulty exponentially.
It’s difficult for miners to carry on with the intensification of difficulty which would increase block time and it would lead to the freezing of the blockchain, hence this period being dubbed the Ice Age.
Ice Age Should’ve Happened Earlier
In fact, the Ethereum Blockchain should have been virtually unusable since late 2016. But the developers observed that they had miscalculated Ethereum’s growth, making it impossible to keep the deadline for PoS.
Vitalik Buterin wrote about this phase a year ago:
“… the ice age will now be very slow.
… from Block 3.5 million, we will have an average block interval of 25 seconds for about 100.000 blocks (about 1 month).
Then we will have 35 seconds for the next 100.000 blocks (about 1.4 months),
then ~ 55 seconds for about 2.2 months, then ~95 sec. for about 3.8 months,
and so on until we reach ~ 655 seconds for about 26 months”
The final downfall will occur around 2021 when the network will be almost frozen.”
The Blockchain Chill
Since it’s taken around 1 year for 2 million blocks to be added, it should take another 1 year and 5 months until the effects of the ‘Time Bomb‘ become noticeable.
At the beginning of this year, the price of ETH surged dramatically. As expected, Ethereum has a hash rate and therefore it’s mining difficulty followed in its growth. But if you take a look at the historical charts, you will observe that the difficulty and the hash rate are gradually starting to distance themselves.
This would mean that, in 16-17 months, if the hashing power remains the same, we should start noticing the effects of this difficulty bomb. Ethereum will be obligated to either implement Proof of Stake, to eliminate this feature or to reset “the clock” of the time bomb.
With any luck Casper, the Proof of Stake Protocol, will be complete, or else a hard fork will be required in order to get rid of the Ice Age feature. This would enable developers to work on Casper without having to be pressured by time or to postpone the Difficulty Bomb.
It’s still yet unknown which one of these options, or even if a third one, will be selected by the developers.