Estimated reading time: 3 minutes, 55 seconds
On April 1, Vitalik Buterin, founder of Ethereum and head of the Ethereum Foundation, tweeted to a GitHub proposal that would create a Ether supply limit. This was all done on April Fool’s Day, so of course, everyone took to the crypto-sphere to figure out if this was a joke or a serious Ethereum Improval Proposal, or E-I-P or “eep”.
By the next day we got the answer. It was both. This was a meta joke designed to get discussion going. The next day Vitalik said that it was a legitimate proposal, and if the community thinks it has merit it should be voted in.
We give you the rundown of what EIP-960 entails, and what exactly is being proposed for changes to the Ethereum . Check out our video or continue reading below!
A fixed Ether supply
There’s several details to the proposal, but the most important thing is it was a proposed fixed Ether supply near 120 million . This number would be exactly double the supply of Ether in circulation at the platform launch (although, keep in mind there was no cap then either, as more Ether are created as mining continues every day).
The main question that came from this proposal is would introducing a supply cap make Ether a deflationary asset?
Historically stores of values with hard caps have had some issues. You might assume that a restricted supply would increase price, since you are introducing scarcity. But something interesting happens when a capped asset approaches that cap. Everyone knows the cap is being approached as the asset will be harder to come by. So instead of spending the asset, they hoard it in the hopes of that it will rise in value. The lack of transfers using the store of value causes the value to decrease, and hopefully reach an equilibrium.
Some are arguing that this will happen to Ether. In order to institute the capped system, you’re going to have to end up greatly reducing block rewards. And if transaction fees are not high enough there is not enough incentive for to mine. This means there are less nodes securing the network, therefore making the network more susceptible to 51% attacks.
Changes already in the works
However, there are many in the community with a very different opinion. This potential supply cap isn’t really news for anyone who has been following Ethereum‘s roadmap. While no explicit supply cap has ever been thrown out there, the plans to adopt Casper and a move towards (PoS) mining, it could be deduced that this block reward cut was going to happen, effectively placing a highly restrictive limit on how much Ether would be produced.
And while block rewards for Proof-of-Work (PoW) mining will be greatly reduced, we’re still not exactly sure what the incentives are that come with staking tokens. If those incentives are enough to keep nodes validating, well, then the security of the network will be maintained. Especially if the price of Ether increases. Since the amount of staked Ether doesn’t change, the price of what is at stake will be increased, further discouraging bad actors since they lose their stake if they act maliciously.
They also propose a pretty simple answer. Moving the decimal place. There are many sub-units of Ether and the idea is that as the supply is reached, people will just move the decimal place and work in tenths of ETH or hundreds of ETH. There are actually specific sub-units of Ether named after pioneers in the space. Would this support transaction volumes? Who knows, but the flexibility that Ether has allows it to be spent even if it increases in value greatly. We’re not even close to using the smallest denomination of ether.
Who knows… This technology is new and Ethereum is blazing ahead into uncharted territory.
That’s our rundown of EIP-960. Time will tell what changes will come! You can check out the proposal on GitHub here. It’s a new proposal, so if you have any questions or comments let us know on YouTube! While you’re there hit that thumbs up and subscribe to keep up to date an all things blockchain.
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