- Ethereum 2.0 will see massive reduction in token issuance
- Move from Proof-of-Work to Proof-of-Stake fulcrum of the reduction
- Reduced output will likely have impact on price long term
Ethereum’s shift from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism with Ethereum 2.0 could see the amount of ETH mined each year more than halved, according to founder Vitalik Buterin. Buterin said in a recent interview that one of the reasons behind the move to PoS was to “greatly reduce the issuance” of new tokens, with the move set to limit the maximum annual issuance to two million ETH.
“Greatly Reduced Issuance”
Currently, Ethereum is mined in the same way as Bitcoin, with ASIC miners fighting it out over hashrate dominion. This results in approximately 4.7 million ETH being introduced into the market each year, but with no Bitcoin-style halving in place, this rate would increase over time as ASIC miners become more efficient and powerful.
This means an increasing amount of ETH would find its way into the market each year, diluting the value of each token. Buterin clearly wants to avoid this eventuality, with the design of Ethereum 2.0 being baking this into its design:
One of the reasons why we’re doing Proof of Stake is because we want to greatly reduce the issuance. So in the specs for ETH 2.0 I think we have put out a calculation that the theoretical maximum issuance would be something like 2 million a year if literally everyone participates.
From 4.7 million to 100,000 ETH?
Incorporating such a measure would be akin to Ethereum having its own halving, except rather than the reward being halved, the amount mined is halved instead (at least). As Buterin points out however, the 2 million number is at the very upper end, with the actual issuance probably being around the 1 million figure. At the bottom end the number could be as low as 100,000 per year, although this is as unlikely as the 2 million figure at the other end.
Assuming that 1 million is the likely figure, this represents a 78% reduction in annual ETH supply, a factor that could have a huge impact on the price once the supply shock is realized. Development of Ethereum 2.0 is ongoing, although the Ethereum Foundation are yet to announce a tentative launch timeframe.