Opinion: The inflation rate of ETH 2.0 is expected to drop to 1.58%
Overview Overview
Overview Overview
As a major upgrade of the Ethereum network, ETH 2.0 not only converts the consensus protocol from the previous PoW to PoS, but also has a major change, that is, the inflation rate of the entire network of ETH.
On April 28, 2020, Vitalik Buterin, the founder of Ethereum, said in an interview with POV Crypto Podcast: "One of the reasons for the implementation of proof of equity is that we have to reduce the circulation a lot. The current circulation is declining. If in fact With everyone participating, the theoretical maximum issuance would be around 2 million per year, calculations published in the ETH 2.0 specification.”
Vitalik said that based on the current staking data of the Topaz test network, the annual circulation is about 100,000 ETH, and it is estimated that after the launch of Ethereum 2.0, an additional 100,000 to 2 million ETH will be issued each year.
According to our calculations, after ETH 2.0 is completely converted to PoS, the additional issuance of ETH on the entire network will drop sharply, causing the inflation rate to drop from the current 4.54% to 1.58%, which is not only lower than the expected inflation rate of global currencies in 2021 value (3.29%) and will be lower than Bitcoin’s inflation rate (1.8%).
Report report
Report report
Current ETH additional issuance
In addition to the 72 million ETH pre-mined in the creation block of the current ETH network, other miners mainly generate new ETH through PoW mining. Token.
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Source: Etherscan
If we make statistics on the total amount of ETH at the beginning of the year and the new incremental data of ETH every year in units of years, we can calculate the annual inflation rate data of the ETH network.
in,
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Annual additional issuance = ETH year-end total amount - ETH total amount at the beginning of the year
ETH annual inflation rate statistics can be obtained, as shown in the table below:
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Source: Etherscan, Standard Consensus
It can be seen that the annual inflation rate of the ETH network is declining. The main reason is: on the one hand, the total amount of ETH is increasing, and on the other hand, the number of newly mined ETH is also decreasing. In 2016, the inflation rate of Ethereum was 14.91%; in 2019, the inflation rate of Ethereum dropped sharply to 4.76%, a decrease of about 68.1%.
From January 1st to July 1st in 2020, within half a year, the number of additional ETHs issued was 2.48 million, accounting for 2.27% of the total at the beginning of the year.
If calculated according to linear growth, the ETH inflation rate in 2020 will be about 4.54%.
Compared with Bitcoin's 1.8% annual inflation rate, ETH's inflation rate is greater than twice that of Bitcoin.
ETH issuance amount after switching to PoS
According to the ETH 2.0 PoS design mechanism, a block will be generated approximately every 12 seconds in the network, and the total number of validators participating in each block generation process, that is, the total number of ETH participating in Staking, determines the number of rewards for the block. The following figure shows the relationship between circulation and the number of verifiers:
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Source: Attestant
According to Vitalik's explanation, the maximum circulation of ETH 2.0 PoS mining is 2 million ETH, and the main influencing factors are:
The total amount of ETH participating in Staking;
The amount of ETH the validator was penalized for.
The former determines the upper limit of ETH2.0 inflation, while the latter determines the lower limit of ETH2.0 network inflation.
The verifier may be fined and confiscated part of the ETH reward income due to not being online 7x24 H, or doing evil. If calculated according to the 90% reward acquisition rate, the PoS mining upper limit of ETH2.0 is about 1.8 million per year.
That is, the inflation rate of the ETH2.0 network is not only lower than the expected inflation rate of global currencies in 2021 (3.29%), but also lower than the inflation rate of Bitcoin (1.8%).
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Source: Statista, Standards Consensus
At present, the miner fees paid by ETH network users when sending transactions are not destroyed, and the EIP-1559 proposal proposes to "destroy" the ETH generated by part of the transaction fees.
Conclusion
Conclusion
After ETH 2.0 is fully converted to PoS, the additional issuance of ETH on the entire network will drop sharply, causing the inflation rate to drop from the current 4.54% to 1.58%, which is not only lower than the expected inflation rate of global currencies in 2021, but also lower than Inflation rate relative to Bitcoin (1.8%).
