tl;dr Summary: Ethereum’s Ropsten testnet successfully completed its merge this week, in a major positive milestone for Ethereum’s upcoming transition to proof-of-stake. Just days later, $ETH price fell over 10% in just 24 hours, as developers agreed to delay Ethereum’s ‘difficulty bomb’ on the same day that inflation figures hit a 40-year high.
Ethereum’s highly anticipated transition from proof of work to proof of stake, known as the merge, continues to grow ever closer. On June 3rd, it was announced that the Ropsten testnet, Ethereum’s longest standing testnet, was to undergo its merge in the upcoming days. The Ropsten merge is significant as it replicates exactly the procedure for the mainnet merge, and thus any issues uncovered could potentially cause further unwanted delays.
On June 8th, at around 16:00 UTC, the terminal total difficulty (TTD) threshold was reached, triggering the chain to move to proof of stake. Fortunately, this process occurred without any major hiccups. Core developer Danny Ryan described the test merge as a “major success.” He identified that around 14% of validators suffered downtime at the transition, predominantly due to three minor glitches that were all easily ironed out. This was confirmed by fellow developer Parithosh Jayanthi in his comprehensive thread on Ropsten’s merge, which confirmed that 99% of validators were online shortly after the merge took place.
Ryan stated he would be “jumping for joy” if the real merge went as well as Wednesday’s test run. There are now only two further testnets to complete merge testing, Goerli and Sepolia. Once all testnet merges are complete, the stage is finally set for the mainnet to merge.
Jwo days later, June 10th, Ethereum’s weekly Core Developers meeting took place. The Ropsten merge was generally accepted to be a success, with any minor bugs discovered and discussed amongst the team. During the call, EIP 5133 was discussed, a controversial proposal to delay Ethereum’s difficulty bomb by 500,000 blocks—around two and a half months. The proposal sparked wide ranging discussion, but was eventually agreed upon. The developers were adamant that this delay would not delay the merge, however it was interpreted by many as setting the scene for yet another merge delay.
The difficulty bomb is code that increases the difficulty of mining on the Ethereum network. The idea is designed to discourage mining on the network and encourage adoption of the proof of stake chain. The bomb was previously scheduled to go off this month. Although the initial effect on mining difficulty is modest, the difficulty doubles every two weeks to create an exponential slowdown, eventually causing the network to freeze. A potential activation of the difficulty bomb prior to the proof-of-stake chain being ready would create a precarious situation for Ethereum developers, with the prospect of rendering the original chain useless without a viable alternative.
The potential negative effect of the bomb pressuring developers was acknowledged by core developer Tim Beiko during the call, explaining some of the rationale behind the delay:
These thoughts were echoed by fellow core dev Andrew Ashikhmin during the call:
Beiko then revealed on twitter that he believes the previously stated August-November range still remains in play, but rejected calls to be more specific, arguing that the nature of bugs etc means this is not possible, stating only:
News of the delay to the difficulty bomb could not have come at a worse time for $ETH holders. On the same day, the US Consumer Price Index (CPI) figures for May were released, and exceeded market expectations. Prices rose 8.6% in May compared to May 2021. This represents the highest year-on-year inflation figure since 1981, and unsurprisingly caused a sharp drop in the US stock market, with Wall Street suffering its worst week in months.
As per usual of late, the cryptocurrency markets followed Wall Street’s dump, however $ETH was a stand-out for the wrong reasons, down over 10% in a 24 hour period on Saturday. The addition of forced selling of Ether by over-leveraged traders and CeFi institutions lacking in liquidity may well be the factor leading to exaggerated losses for $ETH, yet with $ETH threatening to break through key support around the 2018 highs, holders will be desperately hoping for a reprieve at any cost.