Meta: cap total ether supply at ~120 million
vbuterin opened this issue Β· 187 comments
Author: Vitalik Buterin
Category: Meta
Published: 2018 Apr 1
In order to ensure the economic sustainability of the platform under the widest possible variety of circumstances, and in light of the fact that issuing new coins to proof of work miners is no longer an effective way of promoting an egalitarian coin distribution or any other significant policy goal, I propose that we agree on a hard cap for the total quantity of ETH.
During the next hard fork that alters reward distributions (likely phase 1 Casper), this proposal requires redenominating all in-protocol rewards, including mining rewards, staking interest, staking rewards in the sharding system and any other future rewards that may be devised, in "reward units", where the definition of reward units is:
1 RU = (1 - CURRENT_SUPPLY / MAX_SUPPLY) ETH
I recommend setting MAX_SUPPLY = 120,204,432, or exactly 2x the amount of ETH sold in the original ether sale.
Assuming MAX_SUPPLY = 120 million, and given the current supply of 98.5 million, that means that 1 RU is now equal to 1 - 98.5m/120m ~= 0.1792 ETH, so if a hard fork were to be implemented today, the 3 ETH block reward would become 16.74 RU. In one month, the ETH supply will grow to ~99.1 million, so 1 RU will reduce to 0.1742 ETH, and so the block reward in ETH would be 16.74 * 0.1742 = 2.91555.
In the longer term, the supply would exponentially approach the max cap and the rewards would exponentially approach zero, so if hypothetically Ethereum stays with proof of work forever, this would halve rewards every 744 days. In reality, however, rewards will decrease greatly with the switch to proof of stake, and fees such as rent (as well as slashed validators) will decrease the ETH supply, so the actual ETH supply will reach some equilibrium below MAX_SUPPLY where rewards and penalties/fees cancel out, and so rewards will always remain at some positive level above zero.
If for some reason this EIP is adopted at a point where it is too late to set a max cap at 120 million, it is also possible to set a higher max cap. I would recommend 144,052,828 ETH, or exactly 2x the total amount released in the genesis block including both the sale and premines.
This is a huge sign of the project's maturity! However, I'm not sure that I see a substantial advantage to fixing the supply. Is it simply to introduce monetary scarcity, or am I missing a key component?
I think a round number such as 120,000,000 would be easier for people to calculate, similar to Bitcoins 21,000,000. Not sure if exactly 2x is entirely necessary. But I think it's great to have a proposal discussing economic suggestions of this sort!
140M might be seen as too high in some cases. For example BTC circulating supply is currently 16,951,300 with a max of 21,000,000. That is 23.88% more in total inflation from todays numbers.
ETH circulating supply is 98,545,046 with a theoretical max supply of 120,000,000 would mean a total of 21.77% more in total inflation.
140M would give us 42.06% more inflation (close to double the rate of BTC)
I read an article quoting you as saying: βIntroducing some kind of sinks into ethereum is definitely something weβre looking at. By sinks, I mean fees that lead to the token actually being destroyed.β
Is this something that could still potentially become apart of Casper? Wouldn't this then lead to a decreasing supply over time determined by how much the network is being used?
I like this idea a lot personally because it could be said that this would give ETH the properties of increased security based on the network usage increase. The more Ethereum is being used you would have some baked in security increase going hand and hand with this.
As the incentive to 51% attack might increase from more value being placed on the network through more transactions, the more difficult it would become on its own as ETH becomes scarcer.
Why not obtain a banking license and stop messing with chains?
yes. what I am curious about is, what motivated you to request a cap now and not at the beginning?
what changed your mind? @vbuterin
It's only because ETH price is tanking
April's fool?
Please excuse my ignorance on the topic: what are the arguments for either side?
ik
Needs to be Standards Track EIP rather than Meta per EIP 1.
a great idea, it will give an opportunity to correctly distribute the rewards of all participants in the network
@ButtaTRiBot
I have seen this suggestion several times now. I think it makes sense as it adds an easy social contract. A hard number that's not really subjective.
@OperationNine: 123,456,789 would be easier to remember.
ΠΠΈΡΠ°Π»ΡΠΊΠ° , ΠΏΠ΅ΡΠ΅Ρ ΠΎΠ΄ΠΈ ΠΊ Π΄Π΅Π»Ρ.
Once estabished a non controversial MAX_SUPPLY, we could further reduce it by a % (from 0 to 100) of empty blocks mined. Must define what is an empty block (% of full capacity).
It's great that ETH community is discussing about a hard cap. This will ensure better economic incentives and propagation. I propose halving built into this at 91st day of the year. So somewhere around 1st April
I don't see this have any to do with "price".
Also, this is not decided until now because PoS economics are not yet defined.
This is important for the economics, specially for the case of "burned ether for paying storage" that can be "reissued" by validators, and together with the rent fee is a brilliant way to solving, seems like going to work!
There's not currently any in-protocol mechanism for determining current supply. How would this work?
April fools I think?
Stop the troll plz =.=
First, I would like the confirmation that this is not due to April's fool. I do not think it is but anyways.
Second, I think it is a must for any cryptoasset to decide the Total cap (or if there will not be a Total cap, then decide the number of tokens to be created yearly as soon as possible). It is not "serious" (maybe not the correct word) to have an asset with intrinsic value without knowking how or at which pace it will be created. That is actually what current FIAT does.
Regards.
How about bringing out Casper first Vitalik? That should solve your issues, not a hard cap.
Itβs April 1
This, the ether sinks, and casper, all three are needed imo.
PoS will may calibrate another parametrs, but fix 120m supply more clearly for innoncent-crypto-minds. In another case I would suggest building Bitcoin emission on erc20 token format. eBitcoin but with PoS emitation of Bitcoin PoW, nice joke for 1apr)
@Arachnid nodes evaluate the state and reject chains that violate the max supply condition.
It must be possible if etherscan and others can determine total supply.
@prestonvanloon There is no consensus figure for total supply at present. Etherscan et al compute it for themselves based on historical block rewards (not practical for a fast-synced node).
@Arachnid I agree. Maybe we could add supply property to new blocks.
The full/fast sync nodes could agree that block N+1 increased the supply by X and block N had a supply of M and M+X does not violate the total supply. However, it would be difficult for non-archival nodes to reach consensus about the established supply.
Regarding the idea as a whole (and treating it as serious for the moment): I think introducing a hard cap needs better justification than this.
The way I see it, network costs (eg, security) can be paid for out of inflation or fees, or a combination of both. Paying costs out of inflation encourages use and discourages HODLing, while paying costs with fees has the opposite effect, disincentivising transacting. All else aside, I'd prefer to fund using inflation for that reason.
@prestonvanloon Is the increase in supply not linked to the number of uncles the block has? So it would be a non-constant amount, meaning a fast node needs to verify each block and the uncles?
I'm assuming this is a total joke. You would need a new opcode like #700 and nearly completely revise how block reward is calculated at the same time. Non-trivial tasks. Also doesn't account for stuck or burned ether.
Edit: For clarity, having a hard capped supply is an incredibly bad idea and is only good for pumping the price of a coin because of 'muh scarcity' . Unless a method can be articulated of the knowing exact consumption statistics of ether in the year 2053 on March 2nd(or any arbitrarily selected day) it is foolish/ponzi-ish to suggest that they will only need n tokens especially with >50% of the tokens already having been premined.
Not sure if this is a serious proposal, but I will bite....
This would be a major change to the platform, the OP does not seem to provide any specific reasons for wanting this change to the platform, other then a general statement about economic sustainability.
What are the primary effects on the economic sustainability of the platform vis-a-vis a max supply of MAX_SUPPLY = 120,204,432 vs. MAX_SUPPLY = 144,052,828, would it make sense to agree on any alternate number(s) for any reason? If no change is adopted, what are the drawbacks as to economic sustainability? What is total supply and how is it determined currently?
@DanielRX I don't know the correlation of uncles to supply, but I imagine they are related. It would always be a non-constant amount since transaction fees would differ each time.
I am glad you published this on April 1st, @vbuterin. I hope you are just kidding because this is going to be a very crucial decision for Ethereum. I do not agree that this will be good for Ethereum, unless you want ethers to have the same fate as bitcoins. Bitcoins can never become a medium of exchange because its exchange rate with respect to commodities will always be trending up, with occasional corrections. The same thing will happen to ethers if the quantity is fixed. The question for you is this: do you want the currently most popular cryptocurrency to be elitist, forever an object of speculation, or do you want it to become a common medium of exchange, something we all can use in our daily lives, to buy lunch, to buy groceries, to pay for rent, etc?
Related article in Medium:
https://medium.com/@carlostapang_15490/cryptocurrency-as-media-of-exchange-761dce398517
In order to ensure the economic sustainability of the platform under the widest possible variety of circumstances
I would like some examples so I can better understand how a hard cap would help achieve this
april fools still not done yet??
Why not just keep ether capless and use tokens as a medium of exchange with scarcity? For example use scarce/capped PoW mined decentralized tokens or even PoS scarce/capped tokens. If you need an example, a few already exist. That way ether can be the network security mechanism and won't need to also fill the role as a monetary exchange mechanism / scarce speculation asset. I think trying to make Ether more like Bitcoin may detract from it's ability to secure the network. It's hard to engineer something to fit many roles. It's easy to engineer something to fit a very specific role. This topic requires more research however.
I wonder what will happen if the MAX_SUPPLY = 1.000,000,000
1 RU = (1 - CURRENT_SUPPLY / MAX_SUPPLY) ETH
| EIP | CURRENT_SUPPLY | MAX_SUPPLY | RU | ETH |
|---|---|---|---|---|
| EIP 0.1 | 98,500,000 | 120,204,432 | 0.1806 | ETH |
| EIP 0.2 | 98,500,000 | 120,000,000 | 0.1792 | ETH |
| EIP 0.3 | 98,500,000 | 1,000,000,000 | 0.9015 | ETH |
I am in support of a hard cap of 120 million because it will increase the profile of projects on the ethereum network by introducing value and scarcity. Anything that has limited supply by virtue of there being a finite number will mean only quality projects will be supported and rise to the top. Frivolous projects will be squeezed out.
In short having a hard cap will have the effect of decreasing scammy ICOs and ponzi schemes and only the best projects will be funded. This solves multiple current issues with one stone.
Excuse me,can you tell me the EIP is a new coin?
@johnEth , I don't see how "Anything that has limited supply by virtue of there being a finite number will mean only quality projects will be supported and rise to the top." Are you saying that there are no expensive scams, that people who invest large amounts of money are not subject to fraud?
Another perhaps unintended consequence of limiting the supply is to decrease the network traffic and load. By limiting the supply people will want to make wiser decisions before sending their ether over the network. Charging people to use the network will only make them choose another chain but limiting the supply will positively have the same effect without scaring people off.
@ctapang, no. This is simple economics 101. When you cap the amount of fuel (ether) over time, people are more careful where they spend their fuel. Thus they will due better due diligence, think before sending their limited supply of fuel. So over time quality projects will rise to the top.
In effect, this is brilliant. Only the best and worth while projects will be funded and used. Ethereum will be the best quality network and all everyone will want to use it of course but only the best will be able to afford to be on the network.
Limiting quantity makes sense only in the beginning, when a cryptocurrency is attracting attention and subsequent holders. As soon as a cryptocurrency has achieved popularity and has gained so must trust (as Ethereum has), then its quantity should be determined by its velocity, or how much it is used in daily commerce. I believe the timing for going into Proof of Stake is perfect: Ethereum has gained the most number of adherents, and now its quantity must be determined by velocity alone. Proof of Stake (PoS) should allow the network to pay "interest" on ethers that are parked in PoS "bonded validators" that confirm transactions. These parked ethers represent economic activity: when a merchant accepts ethers, she deposits extra ethers earned in such accounts, when we get paid in ethers in our jobs, we also deposit extra ethers we earn in such PoS accounts, etc. The more ethers we earn, the more ethers can be parked in bonded validators, and more NEW ethers are introduced into the Ethereum economy.
Putting a hard limit on quantity (like in Bitcoin) makes a cryptocurrency volatile and unfit to be a medium of exchange. Nobody wants to spend (nor accept) a currency that changes its value drastically on a daily basis. Stability is a requirement for any medium of exchange.
A capped supply confers value in the medium of exchange, eth. Supply is a non issue even with a cap because each eth can be broken down to a million pieces so there will be plenty of eth to do what ctapang wants to do.
I believe the Proof of Stake and a cap of 120 million eth combination will knock down multiple issues with one stone. This actually is an incredible brilliant idea from Mr. Buterin.
@johnEth , I've heard your reasoning before, from Bitcoin enthusiasts. Yes, it is true that an ether is fungible into smaller units, wei being the smallest unit. However, that is a solution to something that is not a problem. It is possible to move the decimal point either way, and that is as expected. The problem is volatility versus stability. All currencies are also subject to the law of supply and demand: if you limit the supply in an environment with an ever-increasing demand, naturally the exchange rate will always trend upwards, with occasional, violent corrections along the way.
Volatility is not due to limited supply. Fiat, gold, silver they all have a limited finite supply. The American dollar has a certain number of units circulating around the globe so volatility is not the result of limited supply. Volatility is due to a rapidly growing space.
In the end, it's up to the Ethereum leadership how they envision the ether cryptocurrency to be: do they want it to be a medium of exchange, like most fiat money is now, or do they want it to be a store of value, like gold or bitcoins? I would like to use ethers to pay for my lunch, groceries, rent, etc. I would like to receive my pay in ethers also. But if it becomes like Bitcoin, then it cannot be a medium of exchange.
Note that many companies have tried to use Bitcoin as medium of exchange, and it has not become one, after almost nine years.
Yes, ideally limiting quantity should not be cause for volatility, and that would be nice. The reality is that, when you limit the quantity of anything, demand cannot grow in an orderly fashion. People are mostly driven by emotion, and seldom by logic. The result is an exchange-rate graph like we have now, for all cryptocurrencies: a steep climb up, and then a violent drop down like an avalanche. Do you see such drastic changes in the daily exchange rates of the most widely used fiat money (like USD is currently now)? When you buy bananas at the grocery, do you expect it to double in price (with respect to USD) tomorrow?
It's not the finite supply of Bitcoin that confers it the store of value and not a medium of exchange, but the coding behind Bitcoin. Eth on the other hand will not have this problem because we implement a Turing-complete language on our blockchain, a smart contract framework so by its very nature will be a medium of exchange and many other things not conceived yet.
Just so you know even with an eth cap at 120 million the supply will be:
120,000,000 x 1,000,000 or an incredible number of 120,000,000,000,000 (120 Trillion) I think that is more than the US $1 in circulation around the globe, plus the value of gold, and the value of the US stock market combined. No need to worry about not having enough eth.
Wow no! This very bad way!
The model of emission and de-emission of a coin as in Novacoin.
Vitalik Buterin mentioned the idea of de-emission coins through the destruction of the commission some month ago. Idea's great. Immediately recalled the economic model in Novacoin. In addition to the fact that the commission is being destroyed, but not going to POS miners, the current emission size is affected by the PoS complexity.
When little money is burned in the economy, the coin holders do not invest them in the work of contracts, distributed applications and organizations, and the minibuses. This increases the difficulty by lowering the reward (the percentage of the output that the unit is catching). Thus, the total money supply arrives more slowly or even decreases or stays in one place.
When coins begin to be used in a real economy, they can not mine. The complexity decreases and the emission increases.
Thus, it is possible to ensure minimum or maximum inflation, depending on the state of the domestic economy. You can think through and configure the rules for changing such parameters.
Also from Novacoin you can take the principles of mining for an eccolator society. PoS mining is available to everyone even with small outlets. Everyone has a chance to catch the block, although it depends on the size of the exit. The size of the award can be limited from above.
With a good medium of exchange, you want to get rid of it before it loses too much value compared to other assets. Now a subtle equilibrium has to be found between the stakers' interests and the users' willingness to part from their ether, but please consider a lot of ether will be lost anyway, stakes will be burned, etc. A hard cap on supply would put too much weight on the hoarding side.
I like the 2x original issuance. I don't believe the extra ~53,000 will cause issue, as I foresee most in general public would have little issue rounding to 140MM.
I think the 120 million hard cap is a great idea and would definitely support it.
Should have been implemented already if you asked me.
why to delete these comments?
They are scams or spam. For example "vbuterln" (notice the l instead of an i) was telling people to send them eth and he would send some back.
This is not April fools joke. This proposal is too well thought out to be an elaborate joke. Just because couple pro-mining people here said it must be April fools. Vitalik would not have gone through an intricate detailing of how this would be done if it was an April fools. This proposal makes too much sense. Whether we like it or not development, engagement, interest, all of which we need, is driven by money. One thing that does concern me is that Vitalik doesn't have that killer instinct like say Bill Gates had when Microsoft came to dominate the software industry. In a way he's giving a window of opportunity to eos, stellar, etc. This is concerning to me and a lot of other silent people. Having a cap would do wonders to accelerate development on Eth.
Another thing, I don't know too much about this rent thing over on ethresearch, but thinking of charging fees for usage of our network will kill ethereum and drive people over to eos, stellar and other chains.
Another thing, I don't know too much about this rent thing over on ethresearch, but thinking of charging fees for usage of our network will kill ethereum and drive people over to eos, stellar and other chains.
I disagree.. users will not really be affected by this as they just use smart contracts, not deploy them / keep them running. I think rent fees are a nice mechanism. Its just fact that occupying state creates costs so someone has to pay for it. Using these fees to have a steady stream of block rewards and at the same time a fixed supply max cap is a very elegant solution IMO.
I think the idea proposed by Vitalik seems to be a solution. We should, however, look for other options, such as the payment of rent through Wallet's capacity and even limit the wallet. That way we can avoid or at least reduce the likely manipulation and speculation, as well as contributing to the egalitarian sustainability of the Net.
There are others ways for april fool than polluting github.
In my opinion it's a way to allow vitalik to throw something at the community and see how it bounce. If the reaction is good => it's serious, if not: it was a joke.
I don't like that kind of things at all. That's very manipulative.
And in my opinion, 2x the amount of the original ICO in light of the switch to PoS with Casper is way too low. it potentially allows the initial participant to control 50% of the network validators.
I don't have a strong opinion on rent vs. inflation, but I think we need to go with one or the other rather than a combination. It is also very important for people to see that we have a solution to pay for a secure network in all situations we may come by in the future.
On Inflation and Destruction of Fees Paid
I understand the cryptocurrency communities' distrust of inflation, inflation having been the main method that governments steal money from the people surreptitiously. However, inflation itself is not bad. I use the word "inflation" here the way our cryptocurrency community would, as any increase in money (cryptocurrency supply, in our case ether supply). Money inflation is not bad, and in fact is necessary, for a currency (crypto or otherwise) to be a medium of exchange. In order to be a medium of exchange, a currency has to have some level of stability with respect to the value of other commodities. Of course, the price of anything depends on the supply and demand of that thing. And so we expect prices to fluctuate by a certain percentage on a daily basis. What we don't want is extreme fluctuation, as is happening right now with ALL of the top 20 cryptocurrency, in which exchange rates with USD can fluctuate by as much as 100% in a single day.
The USD fiat currency is the best-managed currency in the world, and that's why it is most popular as medium of exchange. (We know that it has been inflated so much by recent quantitative easing, but nonetheless in the world of fiat, USD is the best currency.) The reason the USD is most popular is because it is very stable, and if it fluctuates in value with respect to a bag of other fiats by more than 1% in a day, that would be big news indeed. So in terms of being a good medium of exchange, nothing beats the USD. However, as George Selgin notes, all is not well with the USD as long as it is under the control of a government central entity like the Fed. Fiat money like the USD is not "free" (as in the word "freedom", not as in zero price) because it is under strict control of the Fed. In contrast, all cryptocurrencies are free money because the people control these.
For me, cryptocurrencies represent a way for the people to free themselves from central bank control, and I think a lot of you look at cryptos the same way. However, this new tool can be rendered useless as a free medium of exchange if we don't learn how to harness its power. We need to allow for controlled inflation. If we don't, then for me cryptos are nothing but another vehicle for speculators to bet where the crowd is going; forever trending up, but in a wildly circuitous manner.
Now I understand that the motivation for destroying fees is also the fear of inflation. If we can see that inflation is not bad per se, that cryptos affords us the possibility for controlled inflation, then I see no problem in collecting fees. I have no problem with those who start a cryptocurrency collecting fees related to confirming transactions in that blockchain, aside from those received by miners. For me, the situation is akin to building a highway across a desert: the organization that builds it must be compensated, even if that compensation is amortized over a long period of time, through fees.
I'm strongly against fixing the supply. Not speaking about mining incentivization: Coins lost over time, people make mistakes sending their coins to nowhere, forget their passphrases and pass away without handing their keys to their children. A fixed supply coin is deemed to vanish in a couple of centuries.
@AliAshrafD If it's fixed, people will become more aware and careful with passing things down, keeping them safe etc
Guys.. Even if the supply was 120 million and 119999999 would get lost then still 1 ether would be enough for the whole world to operate.. it's just numbers and they are divisible
@tbrannt Ethereum is not Bitcoin. It's main purpose is to be currency for paying for gas. More expensive ether, more expensive transaction cost. Do we really want that?
@chompomonim the whole point of gas is to decouple cost for computational steps from the eth price.. if only 1 eth would exist then obviously that eth would have a very high value. That means that people would pay with tiny fractions of it and the gas price would be lower by the proportion the eth price would be higher.
I'm not saying we should burn all but 1 ether.. it's just an example. Its just a number. We could make 1 million ether out of every ether so that there are 98 trillion ether in existence right now. Basically nothing would change.. the ether price would be one millionth of the current and the gas price would be one million times more.
Same goes for the other direction if we make every ether in existence one millionth then there are 98 ether, everyone would hold a millionth as much as before but every ether would have one million times the value.. It simply doesn't matter.... so being scared of the situation that all ether could get lost is just a mental trap you fell into. If every person on earth loses his private keys than all ether is lost, regardless of which numbers are in existence.
If every person on earth loses his private keys than all ether is lost, regardless of which numbers are in existence.
I'm not afraid of such situation, @vbuterin would create hard fork to fix that ;)
Let's think strategically. Neither Ether nor any other crypto is being designed and promised for a short period of time, putting a fixed boundary on the cap is not a good idea because of what I've mentioned above concerning unavoidable casual losses of coins that can accumulate to the whole cap, plus an even more critical problem with rising prices due to scarcity which is not a good thing for a handful of reasons when it comes to day-to-day usages.
I think it has always been a flaw in Nakamoto's initial proposal for bitcoin as an 'electronic payment system' (his words), the flaw that leaded bitcoin to where it is: just a store of value, kinda digital gold.
I have a question for us, especially for the leaders of Ethereum: what is the vision for ethers? Do we want it to become a medium of exchange and a standard measure of value? Or do we want it to be like gold or bitcoin?
Ethereum has surpassed Bitcoin in popularity in only three years. This achievement makes it a viable medium of exchange, because this is an important requirement for any medium of exchange: a large number of people who hold it. A currency cannot be a medium of exchange without first being in the hands of at least a certain percentage of the population. There have been several companies started with the idea of using cryptos for medium of exchange that have failed, all because they tried to introduce a new currency at the same time that they are starting. Well, a new currency cannot become a medium of exchange just like that; it has to be in the hands of a certain population first before it can become a medium of exchange. Ethereum has achieved this first requirement.
There have also been a number of cryptocurrencies introduced with the purpose of being media of exchange from the get-go. Just as an example, there is Bitshares (BTS), which is right now not even in the top 20 cryptos in terms of market cap. The focus of BTS has been on stability of market value, and that's fine, but if only a few people hold your crypto, it cannot become a medium of exchange.
Another requirement for a medium of exchange is stability of value, but you can't start aiming for that at the beginning, just as BTS has proven. There are now probably two thousand cryptos, and these have given us lots of exemplars to study. What is clear at this point is that, to become a medium of exchange, a currency has first to aim for popularity before it can then aim for stability. In order to be popular, any crypto has to have increasing market value, and this is achievable by limiting its quantity. Once a crypto has gained a certain level of interest (measured by number of Google searches), keeping its quantity limited will naturally increase its market value due to high demand. Ethereum has done this, and that's why ethers has skyrocketed in market value (until January of this year) and is now the most popular crypto in terms of number of people holding it (counted roughly by way of Ethereum addresses that hold ethers).
Now having achieved popularity by way of increasing demand without increasing its quantity by much (through mining), the next step should then be to achieve a relative calm in value. We cannot aim to be as stable as the US dollar at this point, because it requires much more popularity and general use to get there, but a relative calm in exchange rate should do. This relative calm in value can be achieved by ALLOWING ITS QUANTITY TO INCREASE (inflate) in a controlled manner. I believe that PoS, if done with a generous allowance for increase in quantity, can allow ethers to inflate in a controlled manner. The increase in quantity should be relative to a fraction of current quantity, and I believe PoS is a mechanism by which this can be achieved. It would be like depositing money in the bank: it earns interest. By parking part of our ether earnings in one of those "bonded validators" that will sprout into existence, we can earn "interest" with the ethers we save. We will then have established a real Ethereum monetary system, with a shot at being as stable as the USD is now.
There is no other way to stability other than to allow for increase in quantity. Money has been in existence for so long in history, and monetary economists have established this lesson in history.
Of course, a corollary lesson to increasing market value by limiting quantity is that, by allowing uncontrolled increase in quantity of any currency, market value can decrease as what has been proven a number of times in the history of fiat currencies. There have been several instances in history (and in fact it is happening in Venezuela right now), in which a sovereign government, through its central bank, has created money out of thin air for that government to spend, and the result has invariably been "hyper-inflation".
The PoS mechanism allows for controlled inflation. Hyper-inflation cannot result from PoS because the increase will always be proportional to a fraction of ethers already in existence. The increase in quantity will be somewhat relative to the count of people holding ethers, and therefore somewhat relative to activity in the Ethereum economy (money velocity).
At some point in the future, we will have understood the relationship between interest rate (ethers paid for parking in a bonded validator) and market value. We can then have a precise formula for that interest rate that would decrease it in times of Ethereum economic boom (to prevent overheating), and increase it in times when the Ethereum economy is sluggish (to increase the "animal spirits"). In other words, we will then have an economy with money that is truly "rules based" in that inflation/deflation is precisely calculated and executed instead of being decided by a few central bank individuals as it is done now.
@tbrannt of course, we should be able to move the decimal point, but that does not solve the real increase in value when demand goes up. The creators of Bitcoin had this idea that because the decimal point can move anyway, why can't we allow deflation? The problem is that demand is not something we can control directly. It is erratic at best, and so your decimal point will continue to move either to the left or right, which would render ethers unusable as medium of exchange.
there are two threats:
- increasing computing powers.
- banker/governments/billionaires that are trying to dominating the ether network. we saw it on Bitcoin.
1# to solve this problem we should move to PoS sooner.
2# sadly some banker/governments and even some billionaire guys trying to dominate the Ethereum network, to solve it, Ethereum should be very expensive. a proper price is $1.5M to $2M per ether. expensive coins prevent dominating by rich players like bankers or governments or companies. we shouldn't worry about fee. fortunately an Ethereum transaction can be very small(wei).
Of course fee must be set smaller than the transaction value.
I am against introducing a hard cap. Not only that it will narrow down the scope of the project, but also it will lead to mistrust by common people. Making fundamental changes, such as this one, can break down all the trust we built around the project.
Let me add one argument for a hard cap that I think I didn't see yet:
A fixed cap of let's say 120 million is an easy to communicate and distinct social contract. In the end it probably wont matter whether the protocol runs with a small inflation or a fixed supply with rewards being paid by rent. My fear in the small inflation scenario is that it is not so clear when this agreement is broken. Miners could vote the issuance rate up, starting with very small steps.
It's easier for the community to coordinate a rebellion against breaking a 120 million limit as it is to rebel against a 0.001% increase in inflation..
In our heads zero is easier to separate from something than something from something plus a bit more.
@tbrannt,
I can't support your idea about forking being easier to break a 'zero inflation wall' compared to making minor adjustments to a limited rate.
Contrariwise, I think it is more cumbersome to convince people to participate in such a rebellion (and taking the risk of being abandoned) for breaking a sacred wall. The oligarchy who owns the majority of coins and wealth will argue that the rebellions are violating a very crucial social contract and are nothing more than a bunch of poor scammers.
Your hypothetical rebel will be going to happen when Vitalik has passed away and can't take care of his mess/legacy (PoS) that has eliminated miners (real miners who own and have invested something other than their coins).
Think about it, if you got a lot of coins right now (and no mining hardware) wouldn't you vote for an immediate shutdown of the coin issuance mechanism in the network right now?
If you are actually in such a situation, like Vitalik and .org guys, don't worry 'they' are taking care of it for you: PoS will give you the voice and eliminate real miners, and this proposal is preparing the ground for the pol:
To the beloved stakeholders: Do you agree with putting a limit on the cap, preserving (our) coin's current value and turning it to an antique piece of jewellery or something? Yes sir, we do!
Wait! What about the people who have not been around the last couple of decades (not born at all or living in Syria, Afghanistan, Central Africa, ... )? Is it how we are democratizing money?
I know, I know, Vitalik recently mocks such fantasies too much, but, he is a kid for the god sake, it is what they do, they make jokes about everything :))
@tbrannt Issuance rate is not under the control of miners; they can't vote it up or down.
@Arachnid, Under whose control is it? Wallet service providers? Exchanges? Developers? Who?
@AliAshrafD Changing the issuance rate requires a hard fork.
Re: to ensure the economic sustainability of the platform under the widest possible variety of circumstances
A more detailed risk assessment would be welcome.
@Arachnid, And harforks are kinda 'up-voted' by miners who have devoted their resources to them, after launch. There may be a pre-fork signaling mechanism as well. right?
@AliAshrafD Not really. Relative hashpower between forks does not matter to the consensus protocol, so miners have no control over which fork users choose to run.
@Arachnid In my scenario validators did a hard fork. All I say is that a hf that changes a bit to a bit more will be less controversial than a hf that changes nothing to a bit.
@Arachnid , More dedicated mining resources => more security => more user reliance. Plus users (owners) keep both coins in their wallets anyway, but the less secure coins will be dumped more easily for a little, if not zero, price.
So, in practice, there is no essential difference between a voting mechanism and a hard forking process.
@tbrannt
My apologies, I was totally confused about your 'side' about the rebellion (hf) thing, yet my comment is valid besides that. After PoS, incentivizing 'stakeholders' to vote (dedicate their 'stakes' to new chain) for an inflationary hardfork is very 'hard', if not impossible.
In my scenario validators did a hard fork. All I say is that a hf that changes a bit to a bit more will be less controversial than a hf that changes nothing to a bit.
Why would anyone adopt a hard fork promoted by miners that increases issuance at all? The default option, of not adopting the fork, is easier.
So, in practice, there is no essential difference between a voting mechanism and a hard forking process.
...what?
Why would anyone adopt a hard fork promoted by miners that increases issuance at all? The default option, of not adopting the fork, is easier.
Maybe. But can you predict which portion of the network will run light clients just following the validator majority? There's some inertia in big masses and for some it might be easier to just go with whatever the validator majority dictates.
@Arachnid
Better to let this topic : 'Is adopting hard forks essentially comparable to voting or not? ' be discussed somewhere else and focus on the limited cap proposal @tbrannt says the depressive consequences of this proposal and any proposal that considerably reduces the supply to a very low amount (he is in favor of the later, because it more easily) can be cured by doing hard forks. I'm against both and I don't believe hard fork (in such a circumstance) will be supported, because of PoS.
I listened to the dev call today and personally think more formal research is needed on this topic. This is an important topic and I'm not sure the implications have been fully explored.
In order for the community to fully understand the implications, it would really help to see research on this topic looking at both sides of the debate. Or at least clear discussion of pros and cons.
As others have pointed out, network security can be paid for out of i) inflation or ii) fees or iii) a combination of both.
- paying costs out of inflation encourages use and discourages hodling
- paying costs out of fees has the opposite effect
From the call:
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NJ argued that paying out of tx fees encourages holding and discourages an active ecosystem (ETH is important as an MOE within the Ethereum ecosystem so pushing it too far into SOV range may have unforeseen implications or it may not matter). NJ also mentions deflationary spiral in the sense that high tx cost leads to fewer tx which leads to less security.
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VB argues that tx costs are in the long-term proportional to supply and demand. Problem with this is that currently and for the foreseeable future, price dictates the # of tx (https://bit.ly/2EpvGaq). They are highly correlated and reflexive for all crypto. This is explained by Metcalfe's Law. If price goes up (even for an exogenous reason) demand will follow and fees will rise. In the long-run this may not be an issue but "long-run" is vague and not definable.
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VB explains that in the long-term if this change were implemented the money will come from lower revenue paid to participants who provide security (miners and eventually Casper validators). And there is a risk that an inflationary crypto may have lower price which equals less capital securing the network.
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VB admits it's hard in the long run to figure this all out which is why I argue for more formal research.
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VB thinks there is evidence that tx fee levels are capable of providing enough revenue (source) and if not how valuable is a system that is being built in the first place? But if everyone is incentivized to hodl then what is the incentive to perform tx?
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NJ doesn't believe that tx alone need to support a blockchain. Believes its more useful to take from inflation because it takes it from everyone in the system not just those performing tx.
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VB counters that if you use inflation then every ERC20 token becomes a better SOV than ETH. Would like to see more explanation/evidence on this. Speaking practically I'm not sure that investors will flock towards the hundreds/thousands of ERC20 tokens as a SOV over ETH. And at what % inflation does this become true? 2%, 1%, 0.5%, only 0%?
Supply cap will obviously favor price but I worry that long-term implications are unclear. Hope I caught all of the above correctly!
One final threat to consider is exogenous perception. If ETH's supply cap is changed (seemingly) on the whim of an April Fool's joke, the PR from that doesn't look great and suggests that something as important as monetary policy is mutable without formal research or full community consensus (I recognize that community consensus is nearly impossible to achieve and likely counter-productive to even try). That alone could impact price significantly and lower security so this topic deserves careful handling.
A hard cap on currency combined with Casper (PoS) encourages centralization due to the fact that the only way to get new coins will be to enter into a PoS contract to vote on blocks to get new coins and the bigger share will lead to more coins being issued to the betters .This concept is Wall Street's wet dream with Crypto, turning Ether into a better Store Value asset than gold OR Bitcoin. Why? It's simple if one understands how gold back currencies of the past fluctuated in value, the tragedy of the commons (due to mining and open source platform, eth is a like a common asset), and how mutual funds work.
My theory is that once PoS is implemented, 10-30% of the eth supply in circulation will vanish over right, but the lead up to PoS will cause a DRAMATIC rise in price. The reason behind this is that PoS encourages people to hoard in order to generate more coins, changing the money spent on electricity and capital good's (mining) to transfer to the asset itself because it becomes a self-perpetuating asset, kind of like a stock that pays out dividends. This makes it a GREAT vehicle for a mutual fund set up, where a trusted broker will pull in, lets say 200 people with 1000 coins minimum buy in and rolling it over block over block (expect Ponzi sachems).
If you also use this entire system with a eth destroying fee, that creates deflationary pressure and encourages MORE hoarding. This will make the Eth network useless for anything other an a asset and currency class, making dapps pointless to play expect as a rich person novelty (it's already prohibitive expensive to play cryptokitties casually).
You should think about all this vary carefully. I don't want to discourage PoS, I think that is environmentally sound solution to chain processing; however, you must understand what that means to eth's ecosystem on the whole. Once PoS goes live, dapp creators will be stupid not to also transition over into brokers, Wall Street will create eth mutual funds, and eth's stakeholder share (and possibly user) will likely decline. A hard cap on coin issuance will accelerate centralization, encourage bad actors to scam people, and reduce practical usage of eth
Definitely need to cap it. Transaction fees should be determined by market forces of the transaction fees, by the users. Eth price is determined by Eth price market which is governed by Eth players and hodlers. Two different markets here.
It really depends on what we want ethers to be: a medium of exchange (MOE) or store of value (SOV). If we want it to be a MOE, then its quantity should grow according to usage. If we keep its quantity constant, then we know for sure (based on BTC history) that it will trend up in price or exchange rate, with occasional market corrections (like what is happening right now).
Network effects notwithstanding, the law of supply and demand still holds. If you limit supply in the face of growing demand, then the exchange rate of ANY currency goes up. Of course, there must be demand, and that demand can be caused by anything (even exogenous). We don't need to understand why there is demand, but if there is growing demand, if we keep quantity constant, price goes up.
This is a tricky subject because part of that demand is also caused by increasing price. In other words, demand can feed on itself, as more speculators get attracted to anything that goes up in price.
If there is no demand, increasing the quantity can get the price (or exchange value) down to zero. This is amply demonstrated by startups that have tried simply "depositing" their tokens into every known user (not smart contract) addresses. This is akin to "helicopter money" in the fiat world, in which the central bank simply distributes money to everybody. Naturally the market value of that money or tokens goes down to zero, and people won't even bother either spending nor accepting it.
The ideal for MOE will always be a stable exchange rate with most commodities. Right now the most stable currency is the USD, so it is easy to measure stability by how much the exchange rate changes with respect to USD.
There is no other way to keep the exchange rate stable other than to control the quantity. In the case of any currency, monetary economists have long known that a monetary policy can concern itself solely with quantity of money in circulation. "In circulation" used to mean only physical form of money (coins or bills), then later it included money stored in banks, and money lent out; nowadays in includes all forms of money, including account balances (numbers) stored in bank computers everywhere, all managed by a central bank.
Soon we may witness a big downslide in the value of USD. At that point it will cease to be a standard by which all other values are measured. There will be general confusion (as expected from any absence of a standard) because, while we may see a price explosion of cryptos with respect to fiats, it will not be obvious that such price explosion would be caused by fiat crashing, and not crypto bubble.
Now you may ask, why is USD still stable after the Fed (US central bank) has injected huge quantities of USD into the world economy? The effect can be a long-drawn process resulting from the cause (increase in quantity). Or maybe the quantity injected is just enough to satisfy demand. During the past decades, several third-world countries (China, Vietnam, and others) have allowed their citizens to participate in the world economy. This has resulted in a huge increase in demand for money. This can explain why, in the face of humungous increases in the quantity of USD (and other major fiat currencies like the Euro and Yen), the market value of such currencies have not crashed. Supply has simply met demand. There is a possibility, however, that central banks overreacted to the sudden onslaught in demand; there may currently be an oversupply. If this is the case, then fiat money value can crash. I am speculating that, even if this happens, there would not be the usual resulting world economic cataclysm, because now we have hundreds, maybe thousands, of cryptocurrency alternatives.
Eth price has nothing to do with transaction cost after each market reaches equilibrium separately. Ether price is driven by factors including scarcity. Transaction cost/fee is governed by usefulness of the Ethereum platform and how much people appreciate using the platform. Now, ether price not falling is important for network security. So hard cap can help.
@cyphergaiden
I strongly support your argument above regarding the dangerous nature of the combination of PoS and cap but I afraid Vitalik or other supporters of Pos has no other agenda.
Let's have enough courage and face it. They have started with this so called 'environmental friendly' proposal, Casper, and now they are revealing the complete strategy.
It is a socioeconomic game, players (including VB and Ethereum Foundation) are following their basic incentives as a major stakeholder. It is not (can not be) a neutralized/unbiased discussion.
As a PoW miner, I'm playing my game too, I need Casper to go to the hell and the price being low enough to discourage mining craze (you want to preserve environment? keep prices low) and high enough to justify my operations with a reasonable interest threshold.
The first agenda, (Casper +/- Cap) is a dead end in long term (as you have thoroughly analysed but didn't finalize) but mine is practical because it has a feedback circuit which without any protocol manipulation can lead to an equilibrium (moderate price <=> moderate difficulty == limited environmental hazards) any argument regarding scalability is irrelevant here, failing to address a problem is not an excuse for ruining a system.