Ethereum Founder Proposes Hard Cap on ETH Supply

m, EtIn a post authored on GitHub, Ethereum founder Vitalik Buterin proposed a fixed supply cap on the total number of ether (ETH). Called the Ethereum improvement proposal (EIP), developers and software users were also asked their opinions about this proposal, which would cap Ether’s supply at 120,204,432.

Hard Cap to a Hard Question

The proposal puts to rest a long-time question posed for the Ethereum foundation: What is the total supply of ether?

After its launch in 2014, there has yet not been any official announcement on this topic, but the foundation has historically maintained that this would change as the fundamental design of the project is changed.

And after four years in the making, the Ethereum now has a much clearer direction which allows for such a discussion to take place.

For the years preceding 2018, Ethereum’s issuance terms dictated a total of 18 Million ether released each year. This feature is unlike bitcoin, of which there shall never be more than 21 Million units in the world.

Vitalik’s Proposal

In the proposal dated April 1, 2018, Buterin noted the project’s economic sustainability had to cover the “widest possible variety of circumstances.”

Buterin wrote:

“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.”

Simply put, the network rewards miners and node developers to ensure the network keeps on operating and supporting Ethereum’s vision.

However, with no hard cap, the rewards to miners would have decreased year on year, and it would prove to be less motivating for people who lend computing resources to continue working for the network’s benefit.

As for the number of coins, Buterin recommends a maximum supply of 120,204,432 ETH or precisely two times the amount of ETH sold in the original sale.

Developers Warmly Receive the Proposal

The post represented the first instance of addressing the monetary aspect of ether, as the foundation tends to focus more on the code and technology rather than price or reward.

*All* crypto communities, ethereum included, should heed these words of warning. Need to differentiate between getting hundreds of billions of dollars of digital paper wealth sloshing around and actually achieving something meaningful for society. https://t.co/aNpEnBNGsA

— vitalik.eth (@VitalikButerin) December 27, 2017

However, the network has come a long way since introduction, and critics were previously vocal about rewards on the platform, in exchange for their voluntary services.

Adding to this, an unclear supply cap also deters the general public from taking ETH as a more serious investment opportunity.

That said, the general mood from developers was positive.

“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!” wrote a developer.

Buterin was quick to add that the quoted number of 120 Million was not a final decision. The discussion is still ongoing at GitHub, and it is certain that a final consensus would take some time.

Open to the idea of a higher cap, Buterin wrote:

“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.”

Update

It appears that Buterin’s statement was some sort of an April fool’s joke, while not completely dismissing the idea of a fixed supply as indicated by a post from April 2. The prank was pulled not to convince people ether was changing to a fixed cap on its supply, but rather seeing people argue whether it was genuine:

For those still wondering whether or not https://t.co/z44anVrOuT was an April Fool's joke, the answer is: it was an April Fool's meta-joke. *The point* was seeing people argue about whether or not the proposal is "real".

— vitalik.eth (@VitalikButerin) April 2, 2018

The Ethereum co-founder went onto explain that there are very real arguments for introducing a cap (Ethereum Classic switched to a fixed supply in March 2017, after a proposal in late 2016) and the proposal has already been written in GitHub. Therefore, it is up to the community to decide on EIP 960, opening the door to a possibility of a fixed supply for ether, but maybe not as certain as indicated by Buterin’s tweets from April 1 alone.

I do now believe that fixed supply is worth considering. Arguments:

* With ASICs, PoW issuance fails at making coin distribution more egalitarian
* With PoS, PoW issuance not needed for security
* With rewards coming from rent+other burned fees, can have rewards without issuance

— vitalik.eth (@VitalikButerin) April 2, 2018

Finally, he stated that tokens that take an inflationary approach over the long run are a ‘bad idea’ because, as Buterin explains in a post from October 2017, “…relying purely on the medium-of-exchange argument to support a token value, while attractive because of its seeming ability to print money out of thin air, is ultimately quite brittle.”

Now it is up to the community to debate the merits and drawbacks of EIP 960. Only then will we see definitive action on the issue of a fixed supply for ether.

This article was updated April 2.