What's the Supply: An Ethereum monetary policy?
Bitcoin maximalists and ETC pumpers will go on and on about how the supply of ETH is not capped and how terrible that is. What is the monetary policy of Ethereum? How many coins will there be in 6 months? 20 years? Has the Ethereum foundation wavered on the future Ether issuance?
Bitcoin is special. There will only ever be 21 million bitcoins in circulation. This point is central to the core monetary consensus around Bitcoin as a whole. The total issuance and inflation rate over time were parameters known from day one. These were both important properties for Bitcoin investors. Deflationary assets with very public inflation rates are rare; Bitcoin fills an extremely unique store of value property not necessarily found in other markets.
Not all assets need a strictly defined monetary policy in the same way as Bitcoin. Even gold differs with the ability to mine at different rates. With Ethereum, these monetary supply parameters were not set in stone in the same way as Bitcoin. Consensus formed around a model with an essentially undetermined cap. Ethereum's vision and the ultimate issuance mechanism were unknowns at the start of the project. The Proof-of-Stake consensus Ethereum hoped to transition to was uncharted waters. Early investors understood this uncertainty and the undetermined supply cap.
Well undetermined is not entirely true; the current Ethereum Ice Age implemented as
calcDifficultyDiehard in the Homestead release essentially limits the coin supply to just slightly over 100 million. By 2018 the blocktimes will be hundreds of seconds and increase rapidly. However, the implication of the Ice Age or 'Difficulty Bomb' is such that the community must form consensus on how to evolve the monetary policy at a certain point in time, otherwise the blocktimes will grow so long that the system becomes unusable. If people want to keep using Ethereum, there must be a hardfork to change the mining difficulty and thus the inflation rate. Consensus must be formed by the community as to how best to evolve the economics.
Ethereum is a system built with problems hinging on problems with unknown solutions. There is even uncertainty that Proof-of-Stake and the implementation of Slasher consensus will be possible in the first place. Casper (the PoS algorithm) represents a significant area of economic and technical uncertainty around the Ethereum project.
Vitalik and representatives from the Ethereum Foundation have been pretty clear that issuance under Casper (PoS) will be much lower than the current mining curve. While zero (or even negative from fee-burning) inflation rates have been mentioned as potentially possible, it has been made clear that it unknown what the exact rate will be. This coin emission rate will be determined by the lowest amount needed to have a secure PoS consensus.
Vitalik Buterin writes:
I think we've been consistent on the issuance question. The issuance is whatever it needs to be to ensure reasonable lvl of security.
Based on further comments by Vitalik, it looks like the initial version of Casper can expect to dole out .5-2% inflation. It will be interesting to see how this inflation rate marriages with the burning of Ether and the loss of coins that will come with a heavily utilized system.
Once Casper comes out, ~0.5-2% annual seems feasible. Once we add partial tx fee burning and if fees go up, may go to 0 or lower.
World GDP growth represents a realistic long-term cap on inflation. I do not think a higher rate of inflation is sustainable long term. This hovers around 2.5 percent this year but historically annual rates between 2 and 5 percent were common.
As the Ethereum Foundation continues their groundbreaking work on PoS consensus and protocol validation, users will get a much better view of what the long term monetary supply will be. A 1% annual inflation still represents an unlimited coin supply. Negative inflation is interesting. We just don't know.
The monetary policy is not the hot topic for today.
What about Ethereum Classic
Well not to mention anything about the stark contradiction to their immutability claims but Ethereum classic has implemented and finalized a monetary policy.
Barry Silbert likes to poke and prod on twitter about Ethereum being 'uncapped' and the Silbert-owned Grayscale investments blabs on about this in their 'Investment Thesis'. Going so far as to post graphs comparing ETC and ETH without even following the code as implemented today: with the difficulty bomb. Ethereum Classic makes false statements about ETH supply not consistent with the Ethereum Foundation's roadmap or guidance. This is misleading and frustrating from an asset with a monetary policy designed especially to be attractive to institutional investors through the shady Ethereum Investment Fund.
ETC is not moving to PoS consensus so this discussion is not entirely relevant; only Ethereum Classic pumpers misleading others about the monetary policy of Ethereum. None of them know what they are talking about. They just want their classic coins to be worth something, maybe they will be.