Total ether supply may decrease after Ethereum 2.0 update

Charlie Taylor

Currently, there are more than 118 million ethers (ETH) in circulation. Even if there is no limit on the supply of cryptocurrency, don't expect this number to increase any further. According to simulations by Uasound Money, a website that tracks information from the Ethereum network, the supply of ether will decrease by 2% annually. If the current rate continues, […]

Post Total ether supply may decrease after Ethereum 2.0 update first appeared on Bitcoin Portal .

Currently, there are more than 118 million ethers (ETH) in circulation. Even if there is no limit on the supply of cryptocurrency, don't expect this number to increase any further.

According to simulations by Uasound Money , a website that tracks information from the Ethereum network, the supply of ether will decrease by 2% annually. If the current rate continues, the blockchain will start burning more ethers than the amount produced by each new block.

In early August, developers at Ethereum began one of the biggest changes ever made to the blockchain.

The drastic (or “hard fork”) London fork included EIP-1559, an enhancement proposal to Ethereum that increased the size per block to combat network congestion and proceeded to destroy transaction fees instead of sending them to miners .

The objective was to implement a deflationary pressure on an asset that already has an outstanding supply six times greater than that of bitcoin. That goal was achieved.

According to data from Watch the Burn website, there has been a 57% reduction in ether emissions so far. More than 1.1 million ETH were distributed as rewards per block to miners while more than 640,000 were burned.

However, when Ethereum completes its migration to Ethereum 2.0 , the deflationary pressure (decreased growth) should turn into a definite deflation (reduced supply).

At the moment, Ethereum relies on miners to validate and process transactions, just like bitcoin.

The proof of work (PoW) method will be replaced by the proof of stake (PoS) method in the not too distant future, when ether holders will lock their coins to ensure network security (and receive rewards in return).

Although PoS already technically exists in Ethereum's “beacon chain” (a semi-functional blockchain that doesn't allow for looting or application deployment), developers still need to “merge” it into the PoW blockchain.

When that happens, the threshold for reaching deflation decreases.

In August, Tim Beiko, who coordinates the work of Ethereum's main developers, told Decrypt that at the moment more ethers are being produced per block, except in cases of high congestion, when “gas” prices rise to around 150 gwei (gwei is used to measure gas and in the future it will be the cost of using the network).

"After the merger," he explained, "the base rate will burn more than the new issue between 15 to 45 gwei, depending on the amount being staking."

Why is there such a big difference?

The answer is simple. “The reason for this is that the rewards for staking are between five and ten times smaller than [proof of work] rewards,” Beiko said.

“Now, we have an emission of 2 ETH for each block [in the proof of work mechanism]. However, the broadcast on Beacon Chain is a fraction of that. So, after the merger, we'll just need to offset [the issue] so that it's deflationary.”

In other words, after implementing PoS, there will be less ethers being created per new block. If usage, measured by gas prices, remains relatively stable, we will have less ETH by the end of the year.

Beiko explained that it's difficult to define the exact limit because we still don't know how many people will staking on the network: "More people staking means more staking rewards."

*Translated and edited by Daniela Pereira do Nascimento with permission from Decrypt.co .

Post Total ether supply may decrease after Ethereum 2.0 update first appeared on Bitcoin Portal .

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