Ethereum 2.0 will lower ETH inflation by over 50%

Ethereum 2.0 is expected to be one of the most important technical upgrades in the blockchain space.

Vitalik Buterin, founder of the blockchain, told Token2049’s 2019 iteration in front of thousands of viewers that he expects the upgrade to transform Ethereum into a next-generation blockchain that will be hundreds of times faster and more functional than the current iteration.

Exciting for sure, but what many don’t forget is that the blockchain upgrade will also irreparably change Ethereum’s monetary policy, which has long been questioned as the black sheep of crypto monetary policy.

According to Buterin, who spoke on the subject in a recent interview, Ether’s inflation rate could drop by as much as 50% if the upgrade is rolled out.

Ethereum inflation could decrease after the introduction of 2.0

Bitcoin maximalists have long condemned the Ethereum community for the variable and relatively simple monetary policy of ETH.

In contrast to BTC, whose monetary base is controlled by a public formula integrated by Satoshi Nakamoto, the rate of inflation at ETH was somewhat variable for a long time and did not change predictably over the months due to “difficulty bombs” and changing block rewards.

The introduction of the stakeout consensus mechanism through Ethereum 2.0 will ensure that the inflation rate of the cryptocurrency supply, while remaining somewhat variable, will be much lower than it is now.

In an episode of the POV Crypto Podcast titled “Internet Money,” Buterin stated:

“One of the reasons we do Proof of Stake is because we want to significantly reduce emissions. In the specifications for ETH 2.0, I think we calculated that the theoretical maximum emission would be around 2 million per year if literally everyone participated. “

In some cases, two million coins minted per year will cause the rate of ether inflation to decrease by more than 50%, and this is the worst-case scenario. There’s a good chance the stake will spend less than a million coins a year, which will dramatically slow the growth of the cryptocurrency supply.

For those who don’t know, staking Ethereum 2.0 is the process that will replace mining ETH blocks. In order to wager, committed users must put their coins (at least 32) in for the stake, for which they will receive small rewards (approximately 4-5%) for their commitment.

Could increase ether prices in the long term

Given the sharp reduction in Ether’s monetary base following the introduction of Ethereum 2.0, many have begun to speculate about the impact of the upgrade on the price of the cryptocurrency.

According to Adam Cochran, a partner at MetaCartel Ventures, when the stake is introduced, investors will quickly buy 32 ethers to get a return on their holdings. He estimated that 10 to 30 million ethers could be withdrawn from the open market, causing a dramatic supply shock that would likely drive prices up, he said.

Cochran added that with the technical advantages that make Ethereum much more user-friendly, the demand for cryptocurrency should increase, resulting in a positive demand shock that would amplify the effects of the supply shock.

Ethereum 2.0, at least its first phase (called phase zero), is currently a few months away. Justin Drake, a person who led much of the development of this upgrade, mentioned June 30th as the possible date for the first phase to roll out.

Since Prysmatic Labs is introducing the “Topaz” test network with great acceptance and recognition from the Ethereum community, this start date seems plausible.


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