Ethereum to Slash Inflation by 90%, Down to Just 0.5% a Year Says Buterin

Ethereum will become a lot more scarce once Proof of Stake Casper and sharding is fully implemented according to a statement by Vitalik Buterin, Ethereum’s co-founder.

“Currently, an expected value is 10 million ETH staking at 5% interest, which is 500,000 ETH per year (~0.22 ETH per block),” he said.

Those numbers seem to be based on the same 15 seconds per block, which currently rewards miners 3eth per block.

That will be significantly reduced to just 0.22 eth per block, giving an initial inflationary yearly rate of only 0.5%.

As the new eth amount is somewhat fixed, that percentage will continue to go down, compared to the total amount of coins, until eventually it is as good as zero.

But new eth will always be created to reward verifiers known as stakers or miners, yet that will be at an ever decreasing percentage rate of the total eth supply.

The above does not seem to be fully finalized at this stage with Buterin’s comment made in the context of a rent scheme of sorts for data storage.

He seems to be thinking of charging not just per transaction, but also per storage, although it isn’t clear whether there is any real difference between the two.

One difference seems to be potentially yearly storage fees, as opposed to one off transaction fees, presumably so as to incentivize thrifty usage of blockchain space and/or potentially to incentivize node runners.

He calls it renting, which implies at some point that storage space would be vacated, but it isn’t currently quite clear what exactly this rent proposal may be, with it all seemingly targeting significant long term developments and research.

While Casper and sharding are more medium term or even near term. Hybrid Casper is already on the testnet, with sharding now top priority according to Buterin. So parts of it might go live even this year, with Sharding more likely next year or 2020.

It is probable this reduction in inflation will be gradual, potentially starting with hybrid Casper and then more fully with the complete Proof of Stake, which remains in research for now as far as we are aware.

Then, once it is all implemented, ethereum will become in effect deflationary, with new amounts issued probably at a rate just about sufficient to cover lost or burnt eth.