Ethereum
Why is Ethereum co-founder proposing a hard cap?
The 1st of April, ethereum Co-founder Vitalik Buterin played a “meta joke” on the cryptocurrency community by to propose a 120 million cap on the number of coins issued for ether. It turns out that the meta joke wasn’t a joke at all. Buterin is now suggesting that the community consider the pros and cons of his Ethereum Improvement Proposal (EIP). He has also proposed a revised issuance number of 144 million, in case it’s too late to enforce the 120 million cap.
Ethereum currently has no issuance limit or monetary policy set for Ether. During its initial presale in 2014, Ether capped its limit at 18 million per year. Ether follows the same principles as Bitcoin as its rewards and distribution are regulated on an annual basis. “This means that even if the absolute emission is fixed, the relative inflation will decrease each year,” the cryptocurrency’s developers wrote in 2014.
But the imminence Casper update, which involves a passage of Proof of Work (PoW) has Proof of Stake (PoS)sparked some soul-searching about governance and emission limits for Ethereum.
Arguments for a fixed offer
There are two main arguments in favor of establishing a hard cap for Ethereum. The first is centralization. Proof of work The algorithm, currently used by Ethereum, could end up consolidating mining operations for cryptocurrency Among the selected companies. Bitcoin is already experiencing a similar situation. Indeed, solving the problems of earning ether requires expensive systems with powerful processors that may be out of reach of average miners. As Ethereum moves to PoS, establishing a fixed supply will help avoid such a situation by calibrating the emission at a variable rate and, thus, preventing the concentration of mining revenues with powerful machines. (See also: Are Large Mining Pools Bad for Cryptocurrencies?)
The second factor, linked to the first, is inflationIntroducing a fixed supply for Ether’s issuance limit will increase its inflation rate. This will make Ether a lucrative source of income for miners. Other recent governance proposals, such as charging rent for user data on Ethereum, blockchainwill further diversify revenue streams. For investors, putting a hard cap on Ether’s limit could drive up its price and translate into significant gains for Ether in the cryptocurrency markets.
Certainly, Buterin too sharp to a counter-essay he wrote earlier in which he opposed the development of inflationary tokens because the practice encourages the holding of coins rather than their use in everyday transactions. Ethereum has positioned itself as a smart contract platform that has applications in many industries and everyday use. (See also: Is it possible that Ethereum is not a bubble?)
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