Ethereum’s Vitalik Buterin May Get His Way on Ether Supply Cap — 5 Years Late

In 2018, Vitalik Buterin’s proposal to cap the supply of ether at 120 million ETH was dismissed as a joke

article-image

Alexey Smyshlyaev/Shutterstock modified by Blockworks

share

Ethereum has no formal cap on the supply of ether, but it looks to be getting an informal one thanks to the burn.

The total ether supply is now projected to have peaked in March at 120.5 million ETH, and has declined by about 100,000 ETH since then, according to data from Ultrasound Money.

Some observers note the historical irony of that 120 million number; Ethereum co-founder Vitalik Buterin proposed it as a hard cap back in April 2018. To be fair, it was the first day of April, and Buterin confessed the following day that his suggestion was an April Fools’ prank of sorts — though he did intend to encourage a very real debate on the subject.

Still — joke or not — Buterin’s suggestion was generally dismissed on the merits, as unhelpful and unworkable.

At the time, the circulating supply of ether — due to its genesis allocations and subsequent proof-of-work issuance — stood at about 98.5 million. It would be 32 more months before long-term holders could start locking 32 ETH in the Beacon Chain’s validator deposit contract, and longer still before the London hard fork introduced the concept of burning a portion of Ethereum transaction fees with EIP-1559.

A year later, the Merge further bent the curve of ether supply towards deflation, as it instantly reduced the rate of issuance — the supply previously required, under proof-of-work, for the network to operate.

Source: Ultrasound.Money

The purpose of EIP-1559 was not to reduce transaction fees, but for them to become “more predictable and thereby make the fee estimation problem — the problem of choosing the optimal gas price for a transaction — as straightforward as possible,” according to the December 2020 research paper by Tim Roughgarden detailing the concept.

For many ether holders, the more long-term ramification, however, may be the de facto supply cap, which was considered a “side benefit” at the time of its introduction.

Buried on page 52 of the 58-page paper, Roughgarden wrote, “because burned fees are effectively a lump sum refund to ETH holders, the value of ETH would be tied directly to the intensity of network usage.”

Three and a half years later, the price is about half what it was when the network’s London hard fork took effect near the height of the previous bull market euphoria. But ether’s supply has been undergoing deflation for 5 months straight, fueled by all kinds of network usage, from rollups to meme tokens.

On top of that, the amount of ether staked has been trending steadily higher, reaching an all-time high Thursday, with upwards of 566,000 validators.

Around 3,100 metric tons of gold will be mined in 2023, resulting in between 2-3% supply inflation. 

Bitcoin’s inflation rate stands at 1.74%. Ether’s supply, meanwhile, has fallen 1.07% since the burn began.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Unlocked by Template.png

Research

With the spot ETH ETF approval, the institutions are coming. stETH - given its dominance in marketshare, existing liquid market structures, and highly desirable properties - is poised for institutions.

article-image

Launching cryptocurrencies the old fashioned way may soon make a return

article-image

Kraken and CertiK brought their beef to social media after Kraken said researchers exploited $3 million through a bug

article-image

NVIDIA’s historic run is only deepening the divide between mega-cap tech stocks and the rest of the market.

article-image

EIP-7702 was quickly adopted for the next Ethereum upgrade, but developers haven’t quite locked it down