On April 1st, 2018, Ethereum founder Vitalik Buterin announced a proposal that he now terms a “meta-joke”. In a surprise, Ethereum improvement proposal (EIP) Buterin suggested a hard cap for currently uncapped Ether (ETH) of 120 million coins.
“In order to ensure the economic sustainability of the platform under the widest possible variety of circumstances, and 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, I propose that we agree on a hard cap for the total quantity of ETH,” said Buterin.
The Ethereum community immediately began to discuss the EIP with many wondering if it was an April fools joke, or if Buterin was actually serious. Nevertheless, the arguments for and against began to appear.
“We don’t know what Ether supply model is optimal,” answers Zamfir, project lead for the Casper Update in a Medium post on April 15th, 2018. “It’s still unclear today how much issuance will be required (if any) for the security of the consensus protocol. This is true today with PoW, and in the future with Casper and sharding.”
Zamfir is the project lead for the Casper update, which as part of the Constantinople upgrade will likely hard fork Ethereum and change the consensus algorithm from proof of work (POW) to proof of stake (POS). He calculates that Ethereum has around $10 million USD per day of issuance for miners and questions the correct rate to achieve consensus, saying he is confident the price is not right.
“Is Vitalik’s proposed amount of issuance (another 22M ETH, and then no more) the correct amount? We don’t know that. But today we’re talking about giving miners/validators a pile of ETH valued at market at over 11B USD. But I suppose that Vitalik did not say what the ETH should be issued for!”
He goes on to point out “we don’t know” what the optimal supply of Ether will be or what publicly beneficial supply numbers should be. He doesn’t believe that the Ethereum community has enough understanding of Ethereum’s future economic realities to make a decision on an Ethereum hard cap.
“Do we know what public goods we collectively will be willing to issue ETH to fund? Can we forecast the cost of those goods today? Is it more or less than 22M ETH? Are there publicly beneficial supply numbers?”
Buterin is known to not focus on Ethereum’s price. Zamfir appears to share that sentiment stating his main reason for opposing the hard cap proposal is that speculators are seeking scarcity. A hard cap would limit supply, producing a finite number of coins and potentially attracting buyers who are seeking a capped asset to invest in.
“The perception of scarcity of a good makes it more psychologically appealing to potential buyers. Indeed, the powerful behavioural effect of perceived scarcity has taken the altcoin space by storm, where nearly every altcoin is advertised with their finite supply model, and where the norm is for “scarcity-buyers” to know the supply model before purchasing.
Another Ethereum developer, Nick Johnson tweeted his support for Zamfir’s arguments.
Zamfir concludes that the EIP discussion is premature and an “artifact” of broader cryptocurrency culture which expects supply models to be part of a blockchain’s social contract. Complying with this norm for the benefit of coin holders and minors/validators doesn’t make sense to Zamfir “especially given the current state of our knowledge about the amount of issuance that would be required (nevermind ideal) for consensus or for other purposes.”