Ethereum Inflation Rate Could Plummet (And That’s Good)
OK, let’s set the record straight: cryptocurrencies, be it Bitcoin, Ethereum, or otherwise, often sport inflation rates. Save for some select cryptocurrencies, the growth of Bitcoin’s supply is the lowest, and has thus remained a benchmark for other cryptocurrencies to try and reach.
Some have gone as far as to say that digital assets that don’t match Bitcoin’s inflation rate, which currently sits at around a notional 3.5% (higher than the U.S.’ reported 2% inflation), is inferior, and doesn’t have the capabilities to become a viable form of digital money.
This has even been the case for Ethereum, which many staunch Bitcoin proponents bash for its lack of mathematically-enforced supply cap and its ever-changing issuance rate, which is currently predicated on block times and uncle rates. But, this may soon change.
According to a recent report from CoinTelegraph, the core group of Ethereum developers working on the Serenity upgrade is looking to drastically looking to reduce the amount of ETH issued. In fact, Justin Drake, a researcher at the Ethereum Foundation, explained that the inflation rate of Ethereum (around 4% to 5%) may be reduced by upwards of 90% by March 2021. He stated:
“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.”
Such a reduction is, of course, dependent on how willing community members (miners, most importantly) are to accept Ethereum 2.0, the blockchain’s first massive upgrade, one that will end the use of Proof of Work on the chain, impacting the lives of some funds and firms.
(A brief aside, Ethereum creator and Canadian wunderkind Vitalik Buterin describes Serenity as “a way to bring technical improvements, like PoS and sharding, together to improve the Virtual Machine, Merkle Trees, the efficiency of the protocol, and a whole bunch of small technical things that you have never heard of.” Per Buterin, all this is being done in a bid to create a “next-generation blockchain” that will be hundreds of times faster and scalable than Ethereum’s current iteration.)
According to a Twitter user going by “Token State”, this reduction will reduce Ethereum’s inflation to 0.5%, which is, by many standards, extremely low and even negligible from a short-term perspective. This is so low that from a standpoint of pure percentages, less Ethereum will be issued than Bitcoin, even after 2020’s auspicious halving event. In other words, as long as demand for ETH is maintained or even grows, the planned upgrade should be crazy bullish for the asset’s price.
This news comes shortly after Ethereum 2.0’s phase zero saw its first code specification freeze, of which the full version is expected to launch by early-2020.
Photo by Andreas Weiland on Unsplash