Vitalik Buterin: “2/3 Reduction End of Next Year Absolutely Viable”

Vitalik Buterin, Ethereum’s founder, has stated “a ~2/3 reduction around the end of next year and a further reduction a bit later would be absolutely viable,” in an ask me anything session of ethereum 2.0 researchers.

That’s when the Proof of Work (PoW) chain starts “talking” to the Beacon chain with Justin Drake estimating that will be around November 2020.

In Drake’s view, issuance would then be reduced a bit later in 2021. A newcomer, Carl Beekhuizen, says:

“In order for Eth2 to finalise Eth1, 2 things are needed, Eth2 must vote on Eth1 (as is implemented as you point out) and Eth1 must change its fork rule to follow the finalised blocks on Eth1.

The latter requirement requires an Eth1 hardfork. It is therefore easier to just have validator finalise the things you mention for now and later on add in Eth1 finalisation.

Additionally, it is safer to launch without Eth1 finalisation in case of a Eth2 black-swan event in the early days.”

Initially the Beacon will be aware of the PoW chain by incorporating block headers, with the network to run that way for a few months whereby the PoW chain is effectively not affected at all by the Beacon.

Then, once the changes are made as stated by Beekhuizen above, the Beacon stakers will coordinate decentralized checkpoints on the PoW blockchain.

That’s kind of a genesis block. Instead of going all the way back to 2015, the decentralized checkpoints sort of create a new “genesis” block say 100 blocks ago.

As that will increase the PoW security considerably, there would be less need for hash, and thus PoW issuance can be reduced to about 0.7 eth per block.

Eventually the PoW chain will be integrated into the PoS Beacon, at which point there would no longer be any Proof of Work, thus issuance would fall accordingly to about just 0.22 eth per block.

Drake has previously suggested that 10x reduction may happen in 2021, but it’s not quite clear by how much it may be reduced.

What does appear to be clear, however, is that checkpoints will be implemented sometime in autumn next year or spring 2021 and at that point ethereum’s new supply will be reduced between 0.7 – 0.22 eth.

Drake further says “it’s possible Eth2 will cause net-negative issuance. The reason is that ETH gets burned via transaction fees. Pushing code to the beacon chain will also burn ETH. Finality, the penalties also burns ETH.”

There’s a few proposals and suggestions to create a better fee charging mechanism with a set protocol level transaction fee which is burned, incentivizing inclusion in a block by adding more eth on top of the base fee.

Slashing penalties are applied for misbehaving stakers who can lose anywhere from one eth to all the staked eth depending on the severity of misbehavior and the number of stakers that are misbehaving.

Attacking the network, thus, would lead to gifting all eth holders your funds, with Buterin suggesting in combination with the fee burn, ethereum’s total supply may decrease once much of the above is implemented.