Vitalik Buterin, co-founder of ethereum, made a “meta-joke”, imposing a hard limit of 120 million on the number coins that can be issued for ether on April 1. The meta-joke was not a joke, it turned out. Buterin now suggests that the community weigh the pros and cons to his Ethereum Improvement Proposal. In case 120 million liit is not feasible, he has also proposed a revised number of 144,000,000.
Monetary Policy
Ethereum doesn’t currently have a monetary policy or an issuance limit. In 2014, ether set a limit of 18 million per annum for its initial presale. Ether is regulated annually on a year-to-year basis, following the same principles as bitcoin. “This means that although absolute issuance is fixed the relative inflation will decrease every year,” wrote the cryptocurrency’s developers in 2014.
The Casper update, which will see Proof of Work (PoW), become Proof of Stake(PoS) has prompted reflection about governance and ethereum’s issuance limits.
Fixed Supply
Arguments in favor of a Fixed Supply. There are two main reasons to establish a hard cap on ethereum. Centralization is the first. The Proof of Work algorithm, currently used by ethereum to mine cryptocurrency, could consolidate mining operations among selected outfits. Bitcoin is already experiencing a similar situation. Because solving problems to earn ether requires expensive systems that have powerful CPUs, which may not be affordable for average miners. By establishing a fixed supply, ethereum will not move to PoS. This is because it will be difficult to prevent a situation like this by calibrating the issuance at a variable rate. This will prevent mining revenue from being concentrated with powerful machines. (See also: Are Large Mining Pools Good for Cryptocurrencies?)
Inflation is the second factor, which is closely related to the first. This will make ether a lucrative revenue source for miners. Inflation rates will be boosted by introducing a fixed supply limit for ether’s issuance. Other governance proposals, such as charging rent to users for data on ethereum’s blockchain, have been made recently. This will diversify revenue sources. Investors could see significant gains in crypto markets if ether’s price is increased by imposing a hard cap.
Buterin
Buterin also referred to a counter-essay that he had written earlier, in which he opposed the development of inflationary tokens. This was because it encourages the keeping of coins rather than their use in daily transactions. Ethereum has been positioned as a smart contract platform with applications in multiple industries and daily use.