Ethereum’s new supply has nearly halved, falling to circa 13,000 eth a day from 20,000 as the ice age kicks in to make mining more difficult.
For the first time this Sunday, ethereum miners are producing less eth than ever. Some 2,000 lower than even when the difficulty bomb briefly sent new supply down to 15,000 in September 2017.
Ethereum’s new supply will now remain at this level until the Proof of Stake (PoS) Beacon chain fully launches by the end of the year, at which point it will more than halve again.
In the near future, it might drop close to ◊10,000, but that would be for a very brief period as the Constantinople fork will delay the difficulty bomb while setting new issuance at roughly 13,400 eth a day.
That would bring it in line with bitcoin’s current inflation rate of circa 4%. Eth’s new supply will then fall to about 2% by the end of the year, as will bitcoin after the halving in 2020.
Until now, eth’s inflation rate has been at 7%, a factor blamed by some for a steeper price fall than in any other major coin.
The reduced supply might be playing a role in a recent price rise of 20%, sending eth back to number two as it flips ripple.
We can see eth has risen this month from a low of $100 to now about $120, with shorts down from ◊320,000 to ◊214,00, while longs are up a bit from ◊400,000 to ◊460,000.
Ethereum’s block times have increased as well to above 21 seconds per block. That may have led to a decrease in transaction numbers from 580,000 to now 380,000. Yet ETH Gas Station says fees are at sub-penny and capacity is at only 60%.
Keeping Miners in Check
The protocol level difficulty bomb is a tool to effectively destroy the Proof of Work (PoW) chain in order to avoid any potential fight with miners once it’s time to move to Proof of Stake (PoS).
Once the ice age kicks in, difficulty starts slowly increasing in an exponential manner. As time goes by, the difficulty increases become bigger and the times between difficulty increases become shorter to the point where it is effectively impossible to mine an eth block.
PoS has been delayed, so the ice age was pushed back twice. Once in September 2017 and now at the end of the month once the Constantinople upgrade goes through around February 26th.
At that point, the network returns to normal operations, back to circa 14 seconds per block, but with a reduced issuance of 13,400 eth from 20,000 eth a day.
This will continue for a year. Then in February 2020, the difficulty bomb will kick-in again. That will be just about in time for the deployment of the PoS Beacon Chain which will reduce new issuance to about 0.82 eth per block.
As miners naturally want the highest reward possible, they might resist, but due to the difficulty bomb there is little they can do but to follow the protocol with the reduced issuance as otherwise the difficulty bomb will reduce issuance even more as may happen this month if there is another difficulty increase prior to Constantinople.
Supply and Price Relations
Supply and demand is a fundamental premise in economics. The lower the supply while demand remains constant or increases, the higher the price.
From observation, there tends to be a lag in crypto between lower supply and an increased price. The latter is not guaranteed as it would depend on demand, but where supply is concerned it doesn’t practically lower instantly.
That could be because some industrial miners might hold some of the new coins, instead of insta-selling them. What they sell now, for example, might have been mined a few months ago.
As that reserve starts dwindling, the new lower supply then might be felt in the market. In anticipation, some might try to price it in, but the pricing in theory doesn’t account for uninformed participants or for the lack of full information.
Thus it is only after the fact that one can establish whether there was any relationship, with the unknown factor being demand. While the known parameter is that less demand is now needed for eth’s price to remain stable or to increase due to miners having less eth to supply.