This past week saw a significant spike in the price of Ether. Following a protocol upgrade announcement and the stabilizing of the Bitcoin price, Ethereum investors came out in full swing. As we touch on what these announcements mean for the network, we’re going to explore why the network didn’t opt for an Ethereum maximum supply and just how many Ethereum are there.
Ethereum’s Latest Protocol Announcement
Ethereum is currently implementing changes that support a move from a Proof-of-Work to a Proof-of-Stake consensus, more commonly referred to as ETH 2.0. The next two updates involve the London hard fork and the Merge, the final step in the ETH 2.0 transition.
The London hard fork launch was announced by Ethereum developer Tim Beiko in June and is set to launch in August. The upgrade will implement five separate Ethereum Improvement Proposals (EIPs) which create changes in the blockchain code. These must then be agreed upon by the community before being integrated into the Ethereum mainnet.
EIP-1559 is the most controversial EIP in the upgrade, and one getting a lot of attention, as it changes how miners get rewarded. Originally floated by Vitalik Buterin, the creator of the network, the EIP involves introducing a base fee to all network transactions (the minimum amount required for a network fee) and then burning it.
As the whole amount of the fee used to be paid to miners for executing the transaction, many miners are up in arms about the proposed upgrade while others have chosen to accept it. After the Merge upgrade when the network transitions to a Proof-of-Stake consensus, miners will be redundant and instead replaced with validators holding a stake in the network.
How Many Ethereum Are There?
When Bitcoin was created, Satoshi Nakamoto designed the network to have a maximum supply of coins. This was implemented so that the digital currency would be deflationary in nature, instead of inflationary like its fiat counterparts. Over the years, as the supply has become smaller the price has increased, exactly as Satoshi Nakamoto intended.
However, when Vitalik Buterin created Ethereum, he chose not to create an Ethereum maximum supply and instead made the network with an unlimited amount of coins. According to founders this is due to not wanting Ethereum to have a “fixed security budget”.
In July 2021 there were over 116.8 million ETH in circulation of which just over 60% were initially released when the network launched. The first block in the Ethereum blockchain, known as the genesis block, minted 72 million coins in 2015. These coins were then used in the 2014 crowd sale, as well as given to the development fund. The rest of the coins in circulation have been issued as block rewards, given to miners for executing transactions and adding them to blocks on the blockchain. Every two years the block reward reduces, with the current reward at 2 ETH (plus network fees paid for each transaction).
Ethereum blocks are mined on average in 13 - 15 seconds. When compared to Bitcoin’s 10 minutes for block creation, this illustrates that Ethereum is able to grow substantially faster. Based on their fundamental product offering, this makes sense. Ethereum provides users with a network on which decentralized apps (dapps) and smart contracts can be created, while Bitcoin provides a medium of exchange and store of value. As a developmental platform, it seems only right that the platform has room to grow and allow new users to enter the system.
Ethereum Supply And The Future
From the network’s perspective, the EIP-1559 adds an element of deflation to the coin, something seen in Bitcoin and many other cryptocurrencies. Due to the nature of Ethereum having an unlimited amount of ETH, this creates what industry insiders are calling a “deflationary pressure”.
Without a fixed supply, Ethereum is able to continue expanding as demand increases. With these new proposed upgrades, the network is able to create a “taming” of the price, without affecting the Ethereum maximum supply. As the network proceeds to grow and more ETH enter circulation, the platform will continue to offer a viable and hugely popular cryptocurrency.
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