Ethereum’s new supply has seen a second drop to its lowest level ever, circa 11,800 eth, down from around ◊12,600.
Block times are up too, rising to around 15 seconds for the time in about a year since the difficulty was delayed.
This is the second time ethereum’s new supply has fallen in the past month when the difficulty bomb began, falling from 13,500 eth to now ◊11,800.
That makes it a 13% fall in inflation in just around a month, reducing ethereum’s new supply by a tenth, with it continuing to reduce further every circa two weeks.
By mid-December thus ethereum might be producing just 10,000 eth a day, with no stated plans to delay the difficulty bomb.
That means ethereum might see a halvening before bitcoin as the difficulty of finding an eth block gradually increases, so increasing block times and thus lowering supply.
Proof of Staking Supply
This is in preparation for Proof of Stake (PoS), ethereum’s biggest upgrade yet which partially replaces miners with eth holders who lock their eth assets in a sort of time-locked crypto savings account which act as an unfakable identity that can vouch a transaction is not a double spend.
The simple PoS upgrade is awaiting for the launch of the deposit contract which should be out now as all is pretty much finalized, and then the circa three months testnet.
Meaning its launch can be estimated for spring, with the finality gadget to then follow maybe in autumn next year.
The finality gadget brings holders’ validation to the miner’s current Proof of Work (PoW) blockchain where holders, acting as stakers, periodically create a genesis block like finalization of the PoW blockchain through decentralized checkpoints.
At that stage issuance is to be reduced by 2/3rd from the ◊13,500 prior to the difficulty bomb kicking in, lowering ethereum’s inflation to below bitcoin for the first time.
It may be that instead of a big drop after a block like in bitcoin, ethereum’s 2/3rd reduction will be gradual by just letting the difficulty bomb run for some months.
By next autumn ethereum’s block times should have reached one minute, if not a bit more, with its inflation rate at that point down 2/3rds or so from current levels.
Meaning ethereum might now be running a bit more slowly, but still way faster than bitcoin which has block times of ten minutes.
It also means however ethereum’s capacity will be reduced if the gas limit (the blocksize-like limit) is maintained at current levels by miners who can change it with a simple vote.
You’d expect them to increase it to maintain the same data levels, but whether they will remains to be seen.
It would all only be temporary however as the aim is obviously to get out the finality gadget and bring block times to normal, in addition to of course sharding which increases capacity considerably.
Yet devs might also delay the difficulty bomb again for the third time, but a gas upgrade that is meant to be completed on the 7th of December does not include a difficulty bomb delay as far as publicly has been stated, with the next upgrade probably during summer which then would be a bit too late to delay without the finality gadget.
The Price Equation
The final aspect is of course price because as much as the above is predictable, price isn’t.
Price does not necessarily depend on supply only, but if demand remains the same, then price should either fall less as there is still inflation which has to be covered with a demand increase, or price should increase.
Going by past events, a lag should be expected for price to respond, with the lag in our estimate being around three months.
That’s for bitcoin where miners can’t quite move new blocks for circa 90 days, which might explain the lag. But it may also be because of how miners manage the new assets.
That bit can get complicated, but logically you’d think some of the new coins go to cover plain costs and thus are pretty much insta sold. Some go towards profits, and for the smart miners some presumably go to a savings fund to account for price fluctuations.
Because of that savings fund, new supply on the market might continue at the same level even if new supply produced has reduced. With it unclear how long it would continue at the same level, but three months is a good enough estimate.
In three months block times should be at around 20 seconds, with supply reduced to perhaps 8,000-9,000, making it a fairly big drop from a month ago.
Presuming all else is equal, then the ratio against bitcoin should be changing and quite a bit, making the eth drop irrelevant for miners as it may be compensated by a usd price rise or lesser fall.
For all else to be equal then miners have to play ball and keep capacity at the same level by increasing the gas limit accordingly. In which case the only difference would be block times, but presuming capacity is maintained then probably no one would care about a few more seconds.
Leaving then the other unknown: whether devs can do what needs to be done under an algorithmically set time-line at the protocol level by the difficulty bomb.
Here it is easy to say they have to, but we certainly don’t want any burn out. Still there’s plenty of time as previously it took six months to get to 30 seconds, and the network worked fine without any problems.
Yet it would certainly be in miners’ interest to support devs by at the very least not attempting to delay things and preferably by funding some devs.
Because now with PoS around the corner it probably wouldn’t be very easy to sell another difficulty delay, and the previous experience in the reduction from 3 to 2 instead of to 1 eth may make both miners and the rest think it is best to first see how this difficulty progresses.
Something that does need to be kept an eye on, but ethereans arguably have never had a better Christmas present with calculations now changing considerably as the foresight shown years ago starts bearing fruits.