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Difficulty Bomb and the Rising ETH

Ethereum has outperformed Bitcoin by 13% over the past few days (since Jan 18th). After being battered for the majority of 2018, the token of the leading smart contract platform is finally showing some signs of revival, possibly aided by the slash in block rewards after the difficulty bomb kicked in. On the one hand, it is easy to downplay the significance of ETH’s relative outperformance as one of a piece with the vagaries of the crypto markets, which we are at peace with. However, what is not so easy to ignore is the effects of the mining reward reduction on ETH’s price. The mining difficulty bomb, in theory, deters miners from mining ETH using PoW as part of ETH’s eventual transition to PoS and was supposed to be one of the key changes of Constantinople hard fork. The difficulty bomb kicked in despite the hard fork being called off at the eleventh hour. The difficulty bomb roughly doubles mining difficulty every 100,000 blocks and without a commensurate increase in hash rate, the block interval is expected to increase, resulting in a reduction of daily supply inflation. In the extreme, the mining difficulty bomb is expected to significantly increase the blocktime, which translates into lesser and lesser rewards for miners.

Block times could end up being as high as 14 minutes by 2025, and while this might not seem too different from Bitcoin’s 10-12 minute block times, 14 minutes block times will significantly slow down Dapps running on the Ethereum network. However, this should not be a concern for either miners or users. Miners are anyway only concerned about marginal return on hardware before the complete shift to POS, and whenever that shift to POS happens, they can always move over to mining other POW coins, such as ZCash or ETC. For applications, the transition to POS, though hotly debated in certain BTC maximalist and crypto-puritinanical circles, will significantly improve throughput.

In any event, for now, as we see from the figure below, there has been a steep increase in the average block interval shortly after the difficulty bomb kicked in. As a result, the average daily block rewards have decreased to 12,500 ETH per day, a 30% reduction from the rewards earlier.

Meanwhile in Crypto Wonderland….

“Spend Visa Card Adds XRP” The mobile crypto app Spend recently announced the implementation of the number three cryptocurrency, XRP on the Spend Visa Card. Spend.com has added support for the XRP coin, making it possible for XRP holders to instantly convert their XRP to fiat and load it onto their Visa card, which is accepted at over 40+ million locations. The mobile crypto app is currently only available on iOS and supports a total of 180 countries. In February the company added support for Tron, EOS, Binance Coin, Dash, Litecoin, and Bitcoin Cash.

“ShapeShift Looking at a Rebrand” Cryptocurrency exchange startup ShapeShift is planning a major rebrand this year. Announced at ETHDenver this weekend, ShapeShift CEO Erik Voorhees said that starting Monday the company will be opening up a closed beta period for selected users so they can try a new version of the cryptocurrency exchange platform focused on simplifying the user experience. Featuring greater interoperability with ShapeShift’s cryptocurrency hardware wallet KeepKey, the revitalized platform aims to bring together all of the company’s disparate products, including cryptocurrency pricing tracker CoinCap.

“Indian Police Nab Crypto Scammers” Law enforcement in Mumbai, India have exposed a group allegedly involved in a cryptocurrency scam that amassed an estimated 1 billion rupees (nearly $17 million), local media outlet The Times of India reports on Feb. 17. The case reportedly led to the freezing of several accounts in the country and to the arrest of four individuals. According to The Times of India, the police are also looking for the fifth suspect, who reportedly played a key role in the alleged scam.

“Rakuten App to Support Crypto”Japanese e-commerce firm Rakuten announced that a major update of its Rakuten Pay mobile app will be released on March 18. The app’s new structure appears to indicate that it will support cryptocurrency payments in addition to fiat. Rakuten had revealed a revision to its corporate structure earlier this year. The restructured company includes the firm’s cryptocurrency exchange “Everybody’s Bitcoin” as part of a newly established payments subsidiary, Rakuten Payment.

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