Ethereum’s most well-known founder and, perhaps, most benevolent influence-wielder is starting April off the way he normally does: cracking jokes. But after the joke itself played out on Github via Buterin’s Ethereum Improvement Proposal (EIP) #960 — the joke being, according to Buterin, to laugh at how many people argued the “realness” of the proposal, rather than the proposal itself, things got interesting because Buterin volunteered that he had begun to change his feelings on the matter of Ethereum supply.
Buterin called this a “meta” joke, and did appear to illustrate an important point, that in the cryptocurrency community we often fail to address the matter at hand, but a lot of related issues instead. Within the discussion of the community leader’s proposal can be found discussion of Ethereum price, Buterin himself, other blockchain designs, and, of course, plenty of discussion about economic theory.
While we can appreciate the good-natured trolling, there certainly is news here: Buterin followed up his meta-joke by clarifying that he does in fact believe there is reason to consider capping the Ethereum supply. In the joking version of his EIP, Buterin even had a specific number in mind: 120 million Ether.
I recommend setting MAX_SUPPLY = 120,204,432, or exactly 2x the amount of ETH sold in the original ether sale.
We therefore thought our readers might be interested to understand what this would actually mean for Ethereum.
Limitless Inflation v. Limited Supply
For the uninitiated, cryptocurrencies are not, in fact, gold. (And for the truly novice, the “limited” nature of the supply of rare metals is not as important as the same in Bitcoin since said “limit” in metals is unknown.) Once mined they do not sit on a shelf until stolen, tampered with, or traded. They do quite the opposite. But it takes a great deal of effort to maintain this situation. In order to reach consensus on a public blockchain, you require some method of finding indisputable agreement. There are various methods of doing this.
In crypotcurrency, we have algorithms which increasingly high-powered computers can compete to satisfy — this is called proof-of-work. It is the first blockchain design in mass use and the one that both Ethereum and Bitcoin currently use. Necessarily, proof-of-stake requires a continuing supply of new tokens to enter the system and reward stakeholders. Stakeholders do the work of maintaining accurate records and publishing new transactions that miners do in a proof-of-work system, and Ethereum is currently planning to transition to such a system with the eventual Casper upgrade.
By design, Ethereum has never had a hard limit on its tokens, but instead has an in-built incentive in the form of a “difficulty ice age” which is meant to encourage developers to do what they are intending with Casper.
The original supply was based on how many tokens were distributed during the Ethereum Initial Coin Offering. In his “improvement proposal,” Buterin argues that “in light of the fact that issuing new coins to proof of work miners is no longer an effective way of promoting an egalitarian coin distribution or any other significant policy goal.”
120,204,432 Hard Cap
The proposal works as an addition to the Casper major upgrade. He makes the effective point that the system could, in the future, reach what amounts to a supply neutral status, where network fees and staking rewards cancel each other out, and throws out the number 120,204,432 (twice the number of Ether created during the ICO) as the ceiling.
The proposal might even later be considered and implemented down the road after the Casper protocol upgrade. That’s at the behest of the Ethereum community and its developer class. As for Buterin, it would seem to the honest journalist that with this activity he was either doing his normal routine to get some attention on Ethereum early this week or he legitimately wants there to be more discussion about the implications of a limitless supply proof-of-stake token underpinning one of the world’s most (exponentially) important blockchains.
To Buterin, it would seem, “egalitarianism” and community should be at the heart of all decisions.
Featured image from Flickr.
Last modified: March 4, 2021 5:06 PM