Categories: Ethereum

Ethereum (ETH) Scarcity: By 2021, Daily Emission May Drop 10X

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Time is running out if you want to lay your hands on a piece of Ethereum (ETH). ETH, the second largest crypto by market capitalization, may be scarce by 2021. This piece of news came from, Justin Drake, a researcher at the Ethereum Foundation. In a statement he said:

“Here’s a possible timeline (dates likely totally wrong!) highlighting the key milestones: January 2020: Beacon chain launch. June 2020: ETH2 light clients production-ready. November 2020: ETH1 fork #1 to have its fork choice rule honor ETH2 finality (conservatively, no issuance reduced). March 2021: ETH1 fork #2 to reduce issuance by 10X.”

Some Events Are Hard to Predict

While it seems that Drake has it all figured out, the researcher acknowledged that some events, although they will ultimately come to pass, they are harder to predict. Some of these things include, but not limited to, the rate at which 2,000,000 ETH or 65,000 validators will be achieved “for the beacon chain launch” and “how fast ETH1 governance is willing to move with the two hard forks.”

With the reduction in issuance, the amount will change from 2 to 0.22 ETH per block although this will be influenced by the staked coins since the Ethereum blockchain will have shifted from the Proof of Work (PoW) to the Proof of Stake (PoS) algorithm.

Unfortunately, the shift from Pow to PoS may not happen until past 2021 since there has to be a transition period which includes fully migrating to the beacon chain.

From the onset, the ETH community is already embracing the probability that the issuance will be reduced. For example, Stobie, a Redditor, while contributing to a thread about ETH scarcity kicking in in 2021, said:

“In this case, with finality occurring every 6 minutes mining on the PoW chain becomes far less important, so issuance should be reduced. This has not been decided yet, it’s just one researcher estimate of what will happen. Ethereum’s governance process is similar to BTC in that it is informal and off chain.”

Inflation Pain Points

For some time now, the inflation rate on the Ethereum blockchain has been a hot topic. In April last year, the creator of Ethereum, Vitalik Buterin, proposed that Ethereum (ETH) should have a hard capitalization of about 120 million coins. Currently, ETH does not have a hard cap further fueling the inflation rate.

According to Buterin:

“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.”

The creator of Ethereum further proposed that the supply of ETH should either be capped at 120 million or “exactly twice the amount of ETH sold in the original Ether sale.”

Migrating to Pos Will Automatically Cap Issuance

Although Buterin’s proposal has not yet been implemented, the opinion of the researcher at the Ethereum Foundation adds fuel to the discussion. While some in the crypto community support the idea of intentionally reducing the issuance, some have the opinion that migrating from PoW to PoS will automatically reduce the issuance.

For instance, Redditors noted:

“Dynamics of inflation via staking are different than via mining. Traditional miners have huge cost overhead, so they’re forced to sell constantly to pay the bills, that’s why halvings drastically cut new market supply. Staking has low-cost overhead so people can just hoard their coins anyways. So you’ll probably see a supply drop long before this change in issuance occurs… I expect a significant supply shock in Jan 2020.”

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