Ethereum, the second largest cryptocurrency in terms of its market cap, has recently seen a suggestion related to one of its core issues – the number of coins that can be found in the network through the mining process. The market cap in the sense of its tokens is exceedingly important for any cryptocurrency and ETH is an example of a digital currency that did not define it. Now, that process has begun and it should result in some kind of an agreement about the number of coins that can be created using the ethereum blockchain.
Any decision will have lasting implications for the cryptocurrency and the wider ecosystem. Here are the implications of this process and the possible scenarios about how could the setting of a final number of ETHs take place in the coming year.
Vitalik Buterin Proposal
The key man behind ethereum, Vitalik Buterin, has written a proposal about the question whether or not to limit the number of ether coins that can be created. In his new EIP or an ethereum improvement proposal, Buterin stated on April 1 that the network should limit the number of coins at 120,204,432.
This is the amount that is precisely twice what was provided at the ETH original sale that took place in 2014. This is the first time he ever directly talked about the monetary policy of the platform.
The same lack of clarity has often been described as the key problem of ethereum by its critics. Investors also regularly underlined their issues with the finite level of the network. Naturally, this uncertainty is what stopped many from investing in ETH, so right now there are high hopes that this would change the trend of the price of ether.
The Bitcoin Case
Bitcoin network, as defined by Satoshi Nakamoto defined the issue of the number of coins from the moment it went live. Now, as well as then, it was fully known that there will never be more than 21 million BTC.
The very protocol of the network includes this element and there have never been any relevant calls to change the limit. Today, it is one of the cornerstones of the network and the reason why so many long-term investors keep having faith in the networks, even with harsh slumps in the price.
A finite number of bitcoin tokens means that their value over a protected period of time will continue to rise. The rise might be gradual or it might be drastic, but on a year-to-year basis, the network should keep climbing up to its overall worth. This still looks like one of the biggest advantages that this digital currency has over its main rival, ether.
Changing the Setup
It looks like Buterin is thinking about changing the network setup with the purpose of attaining economic sustainability of the ETH platform. This happens as the network moves from the BTC-modeled proof-of-work to the proof-of-stake algorithm which is now called Casper.
In fact, Buterin views single the upcoming shift in the network and it would be very helpful if he could offer some insight into the problem of rewarding miners of the ethereum network. Now, with the proof-of-stake, the question is whether the rewards for mining will remain the same as they are in other cryptocurrencies.
Bitcoin, which is more widely used for everything from online betting to investment, has a clear vision for its miners. Ethereum has to be able to offer the same thing to those who support its network and allow it to exist.
Buterin’s proposal opens the option of leaving the monetary policy until the 120 million ETH has been issued. At that point, the alternative limit of 140 million could be put into place.
Right now, all of these factors are not actually agreed on points but simple ideas of Buterin. Like with any decentralized venture, there are both the miners, developers, and the users who would need to embrace the change.
Currently, the developers, in particular, are unsure how the code would work inside of the regular network operations. Naturally, no one would desire to disrupt the ETH procedures that allowed it to become the second most relevant cryptocurrency.
Here, like with eSports, social media and many other digital ventures, the proposal by Buterin can be seen as a call to a discussion, and not a definite trajectory the cryptocurrency would take. At the same time, even if all get behind it, the process would still demand months or even years of development and testing before it went live.
The ETH Future
All points towards the fact that 2018 will be a very important year for ethereum and its token. While its price had a huge breakout moment in 2017, it is still extremely volatile with the recent movements on the market taking it below its six-month low. Right now, there is no clear indication where the sell-off will end.
Still, the ICO craze of 2017 fed most of that activity, which is right now pretty clear for most analysts. There will be no such influx of funds in 2018 and ETH price could even find its bottom at around $300, so that all gains of the later 2017 are whipped clean.
However, the main catch of this cryptocurrency remains the same – its underlying technology. As Buterin showed recently, it has too many open questions and hard dilemmas ahead of it. But proof-of-stake is something BTC can never compete with (many would argue that it should not even try).
The technology angle is still completely in the ETH corner. The investors might latch on to this, but the current sell-off shows that most do not believe in it pass the quick ROI in a heavy bear market. This is the reason why ethereum will still need to do the hard sell approach and impress the users so much that they once more see it as a hot cryptocurrency option.
Buterin’s idea of setting the limit is a step in that direction. Now, many more similar steps have to be made to strengthen both the network and its token’s price.