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Meta: cap total ether supply at ~120 million #960

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vbuterin opened this Issue Apr 1, 2018 · 176 comments

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vbuterin commented Apr 1, 2018

Author: Vitalik Buterin
Category: Meta
Published: 2018 Apr 1

In order to ensure the economic sustainability of the platform under the widest possible variety of circumstances, and in light of the fact that issuing new coins to proof of work miners is no longer an effective way of promoting an egalitarian coin distribution or any other significant policy goal, I propose that we agree on a hard cap for the total quantity of ETH.

During the next hard fork that alters reward distributions (likely phase 1 Casper), this proposal requires redenominating all in-protocol rewards, including mining rewards, staking interest, staking rewards in the sharding system and any other future rewards that may be devised, in "reward units", where the definition of reward units is:

1 RU = (1 - CURRENT_SUPPLY / MAX_SUPPLY) ETH

I recommend setting MAX_SUPPLY = 120,204,432, or exactly 2x the amount of ETH sold in the original ether sale.

Assuming MAX_SUPPLY = 120 million, and given the current supply of 98.5 million, that means that 1 RU is now equal to 1 - 98.5m/120m ~= 0.1792 ETH, so if a hard fork were to be implemented today, the 3 ETH block reward would become 16.74 RU. In one month, the ETH supply will grow to ~99.1 million, so 1 RU will reduce to 0.1742 ETH, and so the block reward in ETH would be 16.74 * 0.1742 = 2.91555.

In the longer term, the supply would exponentially approach the max cap and the rewards would exponentially approach zero, so if hypothetically Ethereum stays with proof of work forever, this would halve rewards every 744 days. In reality, however, rewards will decrease greatly with the switch to proof of stake, and fees such as rent (as well as slashed validators) will decrease the ETH supply, so the actual ETH supply will reach some equilibrium below MAX_SUPPLY where rewards and penalties/fees cancel out, and so rewards will always remain at some positive level above zero.

If for some reason this EIP is adopted at a point where it is too late to set a max cap at 120 million, it is also possible to set a higher max cap. I would recommend 144,052,828 ETH, or exactly 2x the total amount released in the genesis block including both the sale and premines.

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aunyks Apr 1, 2018

This is a huge sign of the project's maturity! However, I'm not sure that I see a substantial advantage to fixing the supply. Is it simply to introduce scarcity of coins, or am I missing a key component? I ask this, because I'm not knowledgeable of coin distribution that's not egalitarian.

aunyks commented Apr 1, 2018

This is a huge sign of the project's maturity! However, I'm not sure that I see a substantial advantage to fixing the supply. Is it simply to introduce scarcity of coins, or am I missing a key component? I ask this, because I'm not knowledgeable of coin distribution that's not egalitarian.

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OperationNine Apr 1, 2018

I think a round number such as 120,000,000 would be easier for people to calculate, similar to Bitcoins 21,000,000. Not sure if exactly 2x is entirely necessary. But I think it's great to have a proposal discussing economic suggestions of this sort!

140M might be seen as too high in some cases. For example BTC circulating supply is currently 16,951,300 with a max of 21,000,000. That is 23.88% more in total inflation from todays numbers.

ETH circulating supply is 98,545,046 with a theoretical max supply of 120,000,000 would mean a total of 21.77% more in total inflation.

140M would give us 42.06% more inflation (close to double the rate of BTC)

I read an article quoting you as saying: “Introducing some kind of sinks into ethereum is definitely something we’re looking at. By sinks, I mean fees that lead to the token actually being destroyed.”

Is this something that could still potentially become apart of Casper? Wouldn't this then lead to a decreasing supply over time determined by how much the network is being used?

I like this idea a lot personally because it could be said that this would give ETH the properties of increased security based on the network usage increase. The more Ethereum is being used you would have some baked in security increase going hand and hand with this.

As the incentive to 51% attack might increase from more value being placed on the network through more transactions, the more difficult it would become on its own as ETH becomes scarcer.

OperationNine commented Apr 1, 2018

I think a round number such as 120,000,000 would be easier for people to calculate, similar to Bitcoins 21,000,000. Not sure if exactly 2x is entirely necessary. But I think it's great to have a proposal discussing economic suggestions of this sort!

140M might be seen as too high in some cases. For example BTC circulating supply is currently 16,951,300 with a max of 21,000,000. That is 23.88% more in total inflation from todays numbers.

ETH circulating supply is 98,545,046 with a theoretical max supply of 120,000,000 would mean a total of 21.77% more in total inflation.

140M would give us 42.06% more inflation (close to double the rate of BTC)

I read an article quoting you as saying: “Introducing some kind of sinks into ethereum is definitely something we’re looking at. By sinks, I mean fees that lead to the token actually being destroyed.”

Is this something that could still potentially become apart of Casper? Wouldn't this then lead to a decreasing supply over time determined by how much the network is being used?

I like this idea a lot personally because it could be said that this would give ETH the properties of increased security based on the network usage increase. The more Ethereum is being used you would have some baked in security increase going hand and hand with this.

As the incentive to 51% attack might increase from more value being placed on the network through more transactions, the more difficult it would become on its own as ETH becomes scarcer.

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sammy007 Apr 1, 2018

Why not obtain a banking license and stop messing with chains?

sammy007 commented Apr 1, 2018

Why not obtain a banking license and stop messing with chains?

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ButtaTRiBot Apr 1, 2018

yes. what I am curious about is, what motivated you to request a cap now and not at the beginning?
what changed your mind? @vbuterin

ButtaTRiBot commented Apr 1, 2018

yes. what I am curious about is, what motivated you to request a cap now and not at the beginning?
what changed your mind? @vbuterin

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bokkypoobah Apr 1, 2018

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It's only because ETH price is tanking

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bokkypoobah commented Apr 1, 2018

It's only because ETH price is tanking

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thojest Apr 1, 2018

April's fool?

thojest commented Apr 1, 2018

April's fool?

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kfichter Apr 1, 2018

Please excuse my ignorance on the topic: what are the arguments for either side?

kfichter commented Apr 1, 2018

Please excuse my ignorance on the topic: what are the arguments for either side?

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WowSyler commented Apr 1, 2018

ik

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Souptacular Apr 1, 2018

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Needs to be Standards Track EIP rather than Meta per EIP 1.

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Souptacular commented Apr 1, 2018

Needs to be Standards Track EIP rather than Meta per EIP 1.

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bumerang007 Apr 1, 2018

a great idea, it will give an opportunity to correctly distribute the rewards of all participants in the network

bumerang007 commented Apr 1, 2018

a great idea, it will give an opportunity to correctly distribute the rewards of all participants in the network

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tbrannt Apr 1, 2018

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I have seen this suggestion several times now. I think it makes sense as it adds an easy social contract. A hard number that's not really subjective.

tbrannt commented Apr 1, 2018

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I have seen this suggestion several times now. I think it makes sense as it adds an easy social contract. A hard number that's not really subjective.

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ProkhorZ Apr 1, 2018

@OperationNine: 123,456,789 would be easier to remember.

ProkhorZ commented Apr 1, 2018

@OperationNine: 123,456,789 would be easier to remember.

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lichnosam Apr 1, 2018

Виталька , переходи к делу.

lichnosam commented Apr 1, 2018

Виталька , переходи к делу.

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zangheri Apr 1, 2018

Once estabished a non controversial MAX_SUPPLY, we could further reduce it by a % (from 0 to 100) of empty blocks mined. Must define what is an empty block (% of full capacity).

zangheri commented Apr 1, 2018

Once estabished a non controversial MAX_SUPPLY, we could further reduce it by a % (from 0 to 100) of empty blocks mined. Must define what is an empty block (% of full capacity).

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negamax Apr 1, 2018

It's great that ETH community is discussing about a hard cap. This will ensure better economic incentives and propagation. I propose halving built into this at 91st day of the year. So somewhere around 1st April

negamax commented Apr 1, 2018

It's great that ETH community is discussing about a hard cap. This will ensure better economic incentives and propagation. I propose halving built into this at 91st day of the year. So somewhere around 1st April

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3esmit Apr 1, 2018

I don't see this have any to do with "price".
Also, this is not decided until now because PoS economics are not yet defined.
This is important for the economics, specially for the case of "burned ether for paying storage" that can be "reissued" by validators, and together with the rent fee is a brilliant way to solving, seems like going to work!

3esmit commented Apr 1, 2018

I don't see this have any to do with "price".
Also, this is not decided until now because PoS economics are not yet defined.
This is important for the economics, specially for the case of "burned ether for paying storage" that can be "reissued" by validators, and together with the rent fee is a brilliant way to solving, seems like going to work!

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Arachnid Apr 1, 2018

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There's not currently any in-protocol mechanism for determining current supply. How would this work?

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Arachnid commented Apr 1, 2018

There's not currently any in-protocol mechanism for determining current supply. How would this work?

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ktechmidas Apr 1, 2018

April fools I think?

ktechmidas commented Apr 1, 2018

April fools I think?

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nyancodex Apr 1, 2018

Stop the troll plz =.=

nyancodex commented Apr 1, 2018

Stop the troll plz =.=

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Chemavb Apr 1, 2018

First, I would like the confirmation that this is not due to April's fool. I do not think it is but anyways.

Second, I think it is a must for any cryptoasset to decide the Total cap (or if there will not be a Total cap, then decide the number of tokens to be created yearly as soon as possible). It is not "serious" (maybe not the correct word) to have an asset with intrinsic value without knowking how or at which pace it will be created. That is actually what current FIAT does.

Regards.

Chemavb commented Apr 1, 2018

First, I would like the confirmation that this is not due to April's fool. I do not think it is but anyways.

Second, I think it is a must for any cryptoasset to decide the Total cap (or if there will not be a Total cap, then decide the number of tokens to be created yearly as soon as possible). It is not "serious" (maybe not the correct word) to have an asset with intrinsic value without knowking how or at which pace it will be created. That is actually what current FIAT does.

Regards.

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blocxsjm Apr 1, 2018

How about bringing out Casper first Vitalik? That should solve your issues, not a hard cap.

blocxsjm commented Apr 1, 2018

How about bringing out Casper first Vitalik? That should solve your issues, not a hard cap.

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narmirzaei Apr 1, 2018

It’s April 1

narmirzaei commented Apr 1, 2018

It’s April 1

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mohsenghajar Apr 1, 2018

This, the ether sinks, and casper, all three are needed imo.

mohsenghajar commented Apr 1, 2018

This, the ether sinks, and casper, all three are needed imo.

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kubrickk Apr 1, 2018

PoS will may calibrate another parametrs, but fix 120m supply more clearly for innoncent-crypto-minds. In another case I would suggest building Bitcoin emission on erc20 token format. eBitcoin but with PoS emitation of Bitcoin PoW, nice joke for 1apr)

kubrickk commented Apr 1, 2018

PoS will may calibrate another parametrs, but fix 120m supply more clearly for innoncent-crypto-minds. In another case I would suggest building Bitcoin emission on erc20 token format. eBitcoin but with PoS emitation of Bitcoin PoW, nice joke for 1apr)

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prestonvanloon Apr 1, 2018

@Arachnid nodes evaluate the state and reject chains that violate the max supply condition.
It must be possible if etherscan and others can determine total supply.

prestonvanloon commented Apr 1, 2018

@Arachnid nodes evaluate the state and reject chains that violate the max supply condition.
It must be possible if etherscan and others can determine total supply.

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@prestonvanloon There is no consensus figure for total supply at present. Etherscan et al compute it for themselves based on historical block rewards (not practical for a fast-synced node).

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Arachnid commented Apr 1, 2018

@prestonvanloon There is no consensus figure for total supply at present. Etherscan et al compute it for themselves based on historical block rewards (not practical for a fast-synced node).

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prestonvanloon Apr 1, 2018

@Arachnid I agree. Maybe we could add supply property to new blocks.
The full/fast sync nodes could agree that block N+1 increased the supply by X and block N had a supply of M and M+X does not violate the total supply. However, it would be difficult for non-archival nodes to reach consensus about the established supply.

prestonvanloon commented Apr 1, 2018

@Arachnid I agree. Maybe we could add supply property to new blocks.
The full/fast sync nodes could agree that block N+1 increased the supply by X and block N had a supply of M and M+X does not violate the total supply. However, it would be difficult for non-archival nodes to reach consensus about the established supply.

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Regarding the idea as a whole (and treating it as serious for the moment): I think introducing a hard cap needs better justification than this.

The way I see it, network costs (eg, security) can be paid for out of inflation or fees, or a combination of both. Paying costs out of inflation encourages use and discourages HODLing, while paying costs with fees has the opposite effect, disincentivising transacting. All else aside, I'd prefer to fund using inflation for that reason.

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Arachnid commented Apr 1, 2018

Regarding the idea as a whole (and treating it as serious for the moment): I think introducing a hard cap needs better justification than this.

The way I see it, network costs (eg, security) can be paid for out of inflation or fees, or a combination of both. Paying costs out of inflation encourages use and discourages HODLing, while paying costs with fees has the opposite effect, disincentivising transacting. All else aside, I'd prefer to fund using inflation for that reason.

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DanielRX Apr 1, 2018

@prestonvanloon Is the increase in supply not linked to the number of uncles the block has? So it would be a non-constant amount, meaning a fast node needs to verify each block and the uncles?

DanielRX commented Apr 1, 2018

@prestonvanloon Is the increase in supply not linked to the number of uncles the block has? So it would be a non-constant amount, meaning a fast node needs to verify each block and the uncles?

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realcodywburns Apr 1, 2018

I'm assuming this is a total joke. You would need a new opcode like #700 and nearly completely revise how block reward is calculated at the same time. Non-trivial tasks. Also doesn't account for stuck or burned ether.

Edit: For clarity, having a hard capped supply is an incredibly bad idea and is only good for pumping the price of a coin because of 'muh scarcity' . Unless a method can be articulated of the knowing exact consumption statistics of ether in the year 2053 on March 2nd(or any arbitrarily selected day) it is foolish/ponzi-ish to suggest that they will only need n tokens especially with >50% of the tokens already having been premined.

realcodywburns commented Apr 1, 2018

I'm assuming this is a total joke. You would need a new opcode like #700 and nearly completely revise how block reward is calculated at the same time. Non-trivial tasks. Also doesn't account for stuck or burned ether.

Edit: For clarity, having a hard capped supply is an incredibly bad idea and is only good for pumping the price of a coin because of 'muh scarcity' . Unless a method can be articulated of the knowing exact consumption statistics of ether in the year 2053 on March 2nd(or any arbitrarily selected day) it is foolish/ponzi-ish to suggest that they will only need n tokens especially with >50% of the tokens already having been premined.

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AliAshrafD Apr 17, 2018

@mohsenghajar It is nonsense. Having enough education and general knowledge and experience is a must for socioeconomics alone and there is more than socioeconomics. Elders are always better, they are source of wisdom and knowledge ... it is just crazy to say such things about Vitalik and the more crazy thing is his participation in this dangerous irresponsible game with the community.

It is not a summer camp experience for the christ sake, it is not a tv show, people's lives and assets are in stake here, nobody should make 'meta jokes' about a hard cap, Vitalik has not a right to play with Eth it is not a toy.

Recently Bitmain announced E3 which puts Eth security in a serious danger and at the same time we have this cap issue that shows the most threatening vulnerability, being led by a 24 year old boy who dares to say and to do everything other than what he is good at: improving the possibly breached Ethash code.

Ruining Ethereum, is nothing less than ruining the whole cryptocurrency movement or putting its momentum in a serious risk of being postponed for a couple of years. Jobs will be lost, many people will suffer losing their savings ... It is obviously a high stake game.

As an elder you should beware of time and the fact that you got much less of that resource (compared to Vitali) you can't play the same game as him, find another leader please, or better advise, stick with your own rights and knowledge because we are decentralized for the god sake!

AliAshrafD commented Apr 17, 2018

@mohsenghajar It is nonsense. Having enough education and general knowledge and experience is a must for socioeconomics alone and there is more than socioeconomics. Elders are always better, they are source of wisdom and knowledge ... it is just crazy to say such things about Vitalik and the more crazy thing is his participation in this dangerous irresponsible game with the community.

It is not a summer camp experience for the christ sake, it is not a tv show, people's lives and assets are in stake here, nobody should make 'meta jokes' about a hard cap, Vitalik has not a right to play with Eth it is not a toy.

Recently Bitmain announced E3 which puts Eth security in a serious danger and at the same time we have this cap issue that shows the most threatening vulnerability, being led by a 24 year old boy who dares to say and to do everything other than what he is good at: improving the possibly breached Ethash code.

Ruining Ethereum, is nothing less than ruining the whole cryptocurrency movement or putting its momentum in a serious risk of being postponed for a couple of years. Jobs will be lost, many people will suffer losing their savings ... It is obviously a high stake game.

As an elder you should beware of time and the fact that you got much less of that resource (compared to Vitali) you can't play the same game as him, find another leader please, or better advise, stick with your own rights and knowledge because we are decentralized for the god sake!

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Arachnid Apr 17, 2018

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Please keep discussions to the point of the EIP. Ad-hominem attacks will not be tolerated.

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Arachnid commented Apr 17, 2018

Please keep discussions to the point of the EIP. Ad-hominem attacks will not be tolerated.

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AliAshrafD Apr 17, 2018

@Arachnid Vitalik is part of this, isn't he?

Through my criticism, besides my general objection to the 'Vitalik knows better' discourse that people use here. I'm trying to show a very important and critical point about this EIP:

Despite the belief that it helps the price, it won't! It just puts the reliability of Eth in serious danger of being suspected to be governed inappropriately in a way that resembles cults and sects.

I have no choice other than discussing Vitalik situation explicitly because it is the most important factor for the failure

AliAshrafD commented Apr 17, 2018

@Arachnid Vitalik is part of this, isn't he?

Through my criticism, besides my general objection to the 'Vitalik knows better' discourse that people use here. I'm trying to show a very important and critical point about this EIP:

Despite the belief that it helps the price, it won't! It just puts the reliability of Eth in serious danger of being suspected to be governed inappropriately in a way that resembles cults and sects.

I have no choice other than discussing Vitalik situation explicitly because it is the most important factor for the failure

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Arachnid Apr 17, 2018

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Vitalik is part of this, isn't he?

Who made the argument is not relevant to the validity of the argument. Comments on the people discussing an argument are irrelevant appeals to authority or attempts to poison the well. The point of discussion here is the proposal itself.

Through my criticism, besides my general objection to the 'Vitalik knows better' discourse that people use here. I'm trying to show a very important and critical point about this EIP:

If someone makes an argument to authority, feel free to point it out as such. That doesn't invite you to engage in ad-hominem attacks against anyone.

I have no choice other than discussing Vitalik situation explicitly because it is the most important factor for the failure

You have plenty of choice.

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Arachnid commented Apr 17, 2018

Vitalik is part of this, isn't he?

Who made the argument is not relevant to the validity of the argument. Comments on the people discussing an argument are irrelevant appeals to authority or attempts to poison the well. The point of discussion here is the proposal itself.

Through my criticism, besides my general objection to the 'Vitalik knows better' discourse that people use here. I'm trying to show a very important and critical point about this EIP:

If someone makes an argument to authority, feel free to point it out as such. That doesn't invite you to engage in ad-hominem attacks against anyone.

I have no choice other than discussing Vitalik situation explicitly because it is the most important factor for the failure

You have plenty of choice.

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amchercashin Apr 17, 2018

Could we, both cap supporters, their opponents and others agree that

  1. This question is vital for the long term Ethereum success.

  2. It can't be right now resolved by community. There are plenty of opinions and selfish reasons.

  3. So there should be in-depth study. Better from several independent, free from selfish reasons, professionals (all this as much as it could be).

The community could evaluate the results and start the conversation again.

EF have funds, could it spend some of it and maybe ask economists maybe from well known schools (I'm pretty sure there are some in USA for example) to make a research about different issuance policies(constant, linear or more sophisticated) and what they likely lead to?

We can discuss the framework and constraints of this problem separately. Something like: it should be function, there are only several macroeconomic variables this function have access to (like maybe total money mass as time t, or amount at stake), everybody can fork or make his own crypto and try to convince to use it , lot's of important chain security things.

amchercashin commented Apr 17, 2018

Could we, both cap supporters, their opponents and others agree that

  1. This question is vital for the long term Ethereum success.

  2. It can't be right now resolved by community. There are plenty of opinions and selfish reasons.

  3. So there should be in-depth study. Better from several independent, free from selfish reasons, professionals (all this as much as it could be).

The community could evaluate the results and start the conversation again.

EF have funds, could it spend some of it and maybe ask economists maybe from well known schools (I'm pretty sure there are some in USA for example) to make a research about different issuance policies(constant, linear or more sophisticated) and what they likely lead to?

We can discuss the framework and constraints of this problem separately. Something like: it should be function, there are only several macroeconomic variables this function have access to (like maybe total money mass as time t, or amount at stake), everybody can fork or make his own crypto and try to convince to use it , lot's of important chain security things.

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AliAshrafD Apr 17, 2018

@Arachnid ad-hominem attack is an irrelevant acquisition in the context of this EIP, imo my reasoning:

  • It is a political proposal not a technical one. Issued by a politician with a history and a future.
  • searching this page would reveal that many people are arguing on the topic by using 'Vitalik knows better' thing in mind.
  • It is public sphere, people are watching, they will judge.
    -The most complicated part of the story is how the above facts will hurt the EIP's goal and neutralize it, given it would be committed: People won't trust such a centralized community and the price slips instead.
    -Market won't appreciate such an artificial 'cap' decided by one person who happens to be a youngster with lots of surprises and unforeseeable 'evolutions'. People will rather neglect the whole scarcity consequences and stick just to centralization signals.

Have I any legitimate right to mention these facts? If the answer is no, no worries, I'll quit this discussion because i don't know how to express my ideas without feeling free to discuss 'Vitalik phenomenon' even in such a case that I find it relevant.

AliAshrafD commented Apr 17, 2018

@Arachnid ad-hominem attack is an irrelevant acquisition in the context of this EIP, imo my reasoning:

  • It is a political proposal not a technical one. Issued by a politician with a history and a future.
  • searching this page would reveal that many people are arguing on the topic by using 'Vitalik knows better' thing in mind.
  • It is public sphere, people are watching, they will judge.
    -The most complicated part of the story is how the above facts will hurt the EIP's goal and neutralize it, given it would be committed: People won't trust such a centralized community and the price slips instead.
    -Market won't appreciate such an artificial 'cap' decided by one person who happens to be a youngster with lots of surprises and unforeseeable 'evolutions'. People will rather neglect the whole scarcity consequences and stick just to centralization signals.

Have I any legitimate right to mention these facts? If the answer is no, no worries, I'll quit this discussion because i don't know how to express my ideas without feeling free to discuss 'Vitalik phenomenon' even in such a case that I find it relevant.

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Arachnid Apr 17, 2018

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@AliAshrafD It's not complicated: Argue about the proposal, not the person who proposed it. The personal attributes of the proposer are completely irrelevant.

If you see other people making ad-homs or appeals to authority, feel free to call them out on it too.

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Arachnid commented Apr 17, 2018

@AliAshrafD It's not complicated: Argue about the proposal, not the person who proposed it. The personal attributes of the proposer are completely irrelevant.

If you see other people making ad-homs or appeals to authority, feel free to call them out on it too.

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ctapang Apr 17, 2018

I want to understand Vitalik's reasoning as expressed less than a year ago:
https://vitalik.ca/general/2017/10/17/moe.html

In this blog, Vitalik (and please don't take this as a criticism -- I just want to understand) says that
"Now, let’s look at the story with a “medium of exchange” token. N people value a product that will exist in a decentralized network at $x; the product will be sold at a price of $w < x. They each buy $w of tokens in the sale. The developer builds the network. Some sellers come in, and offer the product inside the network for $w. The buyers use their tokens to purchase this product, spending $w of tokens and getting $x of value. The sellers spend $v < w of resources and effort producing this product, and they now have $w worth of tokens."

What I don't understand is $v -- it got introduced in this paragraph as something the sellers spend, without further explanation of what it is. I believe what he's trying to say here is that the sellers bought the tokens for $v each, and sold each for $w. If so, are the sellers in this case not part of the original N people? If not, then how did this new sellers get their tokens? Maybe these are the miners?

ctapang commented Apr 17, 2018

I want to understand Vitalik's reasoning as expressed less than a year ago:
https://vitalik.ca/general/2017/10/17/moe.html

In this blog, Vitalik (and please don't take this as a criticism -- I just want to understand) says that
"Now, let’s look at the story with a “medium of exchange” token. N people value a product that will exist in a decentralized network at $x; the product will be sold at a price of $w < x. They each buy $w of tokens in the sale. The developer builds the network. Some sellers come in, and offer the product inside the network for $w. The buyers use their tokens to purchase this product, spending $w of tokens and getting $x of value. The sellers spend $v < w of resources and effort producing this product, and they now have $w worth of tokens."

What I don't understand is $v -- it got introduced in this paragraph as something the sellers spend, without further explanation of what it is. I believe what he's trying to say here is that the sellers bought the tokens for $v each, and sold each for $w. If so, are the sellers in this case not part of the original N people? If not, then how did this new sellers get their tokens? Maybe these are the miners?

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AliAshrafD Apr 17, 2018

I think any proposal regarding changing strategic attributes of any cryptocurrency, should be considered as a breach of the protocol and shouldn't be considered as an 'improvement proposal'.

The author has rights to propose whatever s/he likes, but when it comes to 'constitutional' law breach. it would be more fair to start a new coin or to fork with a new name, unless the hypothetical proposal is made by someone who (wrongly) thinks s/he has some mysterious right.

AliAshrafD commented Apr 17, 2018

I think any proposal regarding changing strategic attributes of any cryptocurrency, should be considered as a breach of the protocol and shouldn't be considered as an 'improvement proposal'.

The author has rights to propose whatever s/he likes, but when it comes to 'constitutional' law breach. it would be more fair to start a new coin or to fork with a new name, unless the hypothetical proposal is made by someone who (wrongly) thinks s/he has some mysterious right.

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ctapang Apr 17, 2018

@AliAshrafD , a system can be decentralized and yet be governed centrally. It is a matter of which powers are devolved (decentralized) and which ones remain in the center. There are basic principles (say "monetary policy") that can be decided centrally, but things like how any transaction gets confirmed should remain decentralized.

In other words, decentralization is a matter of degree. Total decentralization I think leads to chaos. There has to be certain things that are left to the leaders to decide. What those things are -- are already pre-determined. When Ethereum was started, I accept that there are initial leaders of the movement (and yes, we can think of it as a political movement).

ctapang commented Apr 17, 2018

@AliAshrafD , a system can be decentralized and yet be governed centrally. It is a matter of which powers are devolved (decentralized) and which ones remain in the center. There are basic principles (say "monetary policy") that can be decided centrally, but things like how any transaction gets confirmed should remain decentralized.

In other words, decentralization is a matter of degree. Total decentralization I think leads to chaos. There has to be certain things that are left to the leaders to decide. What those things are -- are already pre-determined. When Ethereum was started, I accept that there are initial leaders of the movement (and yes, we can think of it as a political movement).

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tbrannt Apr 17, 2018

IMO longterm there are mainly 2 possible scenarios:

  1. ETH is capped, many people hold ETH, some stake, but not all of them
  2. ETH is not capped, almost all ETH is exclusively distributed among the validator set.

Both might be possible the question is whether we prefer one of both scenarios and why.

tbrannt commented Apr 17, 2018

IMO longterm there are mainly 2 possible scenarios:

  1. ETH is capped, many people hold ETH, some stake, but not all of them
  2. ETH is not capped, almost all ETH is exclusively distributed among the validator set.

Both might be possible the question is whether we prefer one of both scenarios and why.

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AliAshrafD Apr 17, 2018

@ctpang A centralized (or a semi-centralized system, whatever) is deemed to extinction and is not part of the cryptocurrency agenda.

The very first purpose of any cryptocurrency is to get rid of centralized monetary policy. There will be no decentralized transaction processing when it comes to centralized monetary policy.

It is nothing new, we have USD experience ...
USD began with little or zero intervention in how people transact using it (USA was a free country, the first free country) and look where it has ended right now. You got AML discourse which is totally meaningless and full of hypocrisies, lies and being abused as a surveillance tool to breach people's privacy and yet new developments every year or so to prove how void and at the same time dangerous is the situation with this currency.
The latest example: Iran sanctions issued by US Federal Reserves(!) that governed one very important revelation: possession of US dollars in banking system (and the right to transact with it) is just an illusion, they are all properties of US FR and under the control of people like Donald Trump :D

To have an exact picture: In the last 4-5 years they have sued European banks billions of Dollars because there exists US regulations (not a UN or international one ) that the European banks just didn't follow the way the American regulators wished.
And guess what? The poor European banks payed the bills, no choice, no question, it is 'their' currency, issued by 'them', legitimized by 'them', 'they' can void every single dollar the poor bankers have reserved for their banking operations, they are issuers of US Dollars, gods of the finance, don't mess with 'them', the US federal Reserves.

It is more than nosens, pure garbage, to induce such ingredients into any cryptocurrency. Avoid it!

AliAshrafD commented Apr 17, 2018

@ctpang A centralized (or a semi-centralized system, whatever) is deemed to extinction and is not part of the cryptocurrency agenda.

The very first purpose of any cryptocurrency is to get rid of centralized monetary policy. There will be no decentralized transaction processing when it comes to centralized monetary policy.

It is nothing new, we have USD experience ...
USD began with little or zero intervention in how people transact using it (USA was a free country, the first free country) and look where it has ended right now. You got AML discourse which is totally meaningless and full of hypocrisies, lies and being abused as a surveillance tool to breach people's privacy and yet new developments every year or so to prove how void and at the same time dangerous is the situation with this currency.
The latest example: Iran sanctions issued by US Federal Reserves(!) that governed one very important revelation: possession of US dollars in banking system (and the right to transact with it) is just an illusion, they are all properties of US FR and under the control of people like Donald Trump :D

To have an exact picture: In the last 4-5 years they have sued European banks billions of Dollars because there exists US regulations (not a UN or international one ) that the European banks just didn't follow the way the American regulators wished.
And guess what? The poor European banks payed the bills, no choice, no question, it is 'their' currency, issued by 'them', legitimized by 'them', 'they' can void every single dollar the poor bankers have reserved for their banking operations, they are issuers of US Dollars, gods of the finance, don't mess with 'them', the US federal Reserves.

It is more than nosens, pure garbage, to induce such ingredients into any cryptocurrency. Avoid it!

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ctapang Apr 17, 2018

I understand that "decentralization" has become a battle cry among cryptocurrency advocates, so much so that it has sort of become the end all and be all of all things. It is no panacea, and in fact no human organization can last long without some level of centralized decision making.

Money (not just crypto money) by itself is a decentralizing force. It has allowed us to specialize and not be as regimented as "orders-from-above" as an army. Money has done away with slave drivers who use the fear of pain to goad slaves to action. Money has made us all free in more sense than one. However, we all still form groups because being part of a group or a team affords us more than the sum of our efforts. And by forming groups freely, we agree to follow this leader or that leader freely. If we can't agree with any group we have joined, each one of us has the freedom to leave and join another group. If I am unhappy with Ethereum, I reserve the right to work for another movement like EOS.

All I am saying is this: decentralization works not by removing the necessity for leaders, but rather by allowing us to choose our leaders and the groups we work with.

ctapang commented Apr 17, 2018

I understand that "decentralization" has become a battle cry among cryptocurrency advocates, so much so that it has sort of become the end all and be all of all things. It is no panacea, and in fact no human organization can last long without some level of centralized decision making.

Money (not just crypto money) by itself is a decentralizing force. It has allowed us to specialize and not be as regimented as "orders-from-above" as an army. Money has done away with slave drivers who use the fear of pain to goad slaves to action. Money has made us all free in more sense than one. However, we all still form groups because being part of a group or a team affords us more than the sum of our efforts. And by forming groups freely, we agree to follow this leader or that leader freely. If we can't agree with any group we have joined, each one of us has the freedom to leave and join another group. If I am unhappy with Ethereum, I reserve the right to work for another movement like EOS.

All I am saying is this: decentralization works not by removing the necessity for leaders, but rather by allowing us to choose our leaders and the groups we work with.

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ctapang Apr 17, 2018

I want to get back to my discussion of Vitalik's point about MOE. One thing we can say, and that Vitalik I am sure can agree with, is that no crypto-economy is closed: everyday the number of people holding (or hodling) any one currency is increasing. N is an increasing number. Each person may not hold much on average, but as N increases, demand goes up.

Now if we don't increase the quantity of crypto money M as N grows, the value of each unit of money has to go up. N does not grow smoothly, of course, and so demand for the crypto money can lag at times. What you get is volatility. We have already seen that any "target price" $x is an illusion. If I am a presale investor and my target price relative to USD has been realized, I can sell (savvy traders do), and I would earn the difference between $x and $w, the price I originally paid. It doesn't mean however, that the price $x is the final price. I would consider myself lucky if the price came down from $x right after I sold, but it can continue to go up also. Instantaneous price $z is always a function of demand, but demand is not easy to measure, much less predict. We can only say that demand is a roughly an increasing function of N, and N is roughly an increasing function of $z (price), which increases with demand, so what you have is a positive feedback system which is very unstable.

Any system that is unstable ceases to grow at some point. Besides, the movability of decimal points notwithstanding, market size is constrained by price. If you want N to grow, $z cannot be very high. There is some price $z that allows N to grow indefinitely. A corollary seems to be that there is some fixed N that can allow $z to grow indefinitely. Now the nice thing about the quantity theory of money is that we can actually let N grow by simply increasing M proportionately, and this will naturally keep the "price" $z stable.

Think about it: has there been anything, any product, any work of art, any piece of music, that has become part of history if N were small? Actually, N for any cryptocurrency right now is still very small. I do not think any crypto money right now is in the hands of 3% of world population. Crypto money is still insignificant, and the danger is NOT: dying because $z is kept small; the danger, rather, is keeping N small.

ctapang commented Apr 17, 2018

I want to get back to my discussion of Vitalik's point about MOE. One thing we can say, and that Vitalik I am sure can agree with, is that no crypto-economy is closed: everyday the number of people holding (or hodling) any one currency is increasing. N is an increasing number. Each person may not hold much on average, but as N increases, demand goes up.

Now if we don't increase the quantity of crypto money M as N grows, the value of each unit of money has to go up. N does not grow smoothly, of course, and so demand for the crypto money can lag at times. What you get is volatility. We have already seen that any "target price" $x is an illusion. If I am a presale investor and my target price relative to USD has been realized, I can sell (savvy traders do), and I would earn the difference between $x and $w, the price I originally paid. It doesn't mean however, that the price $x is the final price. I would consider myself lucky if the price came down from $x right after I sold, but it can continue to go up also. Instantaneous price $z is always a function of demand, but demand is not easy to measure, much less predict. We can only say that demand is a roughly an increasing function of N, and N is roughly an increasing function of $z (price), which increases with demand, so what you have is a positive feedback system which is very unstable.

Any system that is unstable ceases to grow at some point. Besides, the movability of decimal points notwithstanding, market size is constrained by price. If you want N to grow, $z cannot be very high. There is some price $z that allows N to grow indefinitely. A corollary seems to be that there is some fixed N that can allow $z to grow indefinitely. Now the nice thing about the quantity theory of money is that we can actually let N grow by simply increasing M proportionately, and this will naturally keep the "price" $z stable.

Think about it: has there been anything, any product, any work of art, any piece of music, that has become part of history if N were small? Actually, N for any cryptocurrency right now is still very small. I do not think any crypto money right now is in the hands of 3% of world population. Crypto money is still insignificant, and the danger is NOT: dying because $z is kept small; the danger, rather, is keeping N small.

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AliAshrafD Apr 18, 2018

@ctpang I afraid you are not adhering to the basic idea of what is the mission for cryptocurrencies and this discussion is not for changing your mind about the freedom to choose your center instead of(or as an interpretation of) decentralization.

The thing is, officially Ethereum is part of a movement that doesn't comply with your idea. It is not a community made of users who eagerly have chosen a cult with a charismatic spiritual leader to join, again officially.

It is promised to be decentralized and the current situation with Ethereum Foundation should be changed.

I am against any strategic manipulation of the code and I know much of the community is not pleased by such manipulations.

Experimental proposals should be tried as an experimental alternative and definitely not an improvement.

Improving an ecosystem by means of a disruptive approach dictated by any form of authority, (even in the case that authority is built around some kind of sectarian belief in some kind of god or goddess or prophet) doesn't make any sense and yields no meaning other than centralization.

Please stop manipulating the strategic characteristics of the protocol!

AliAshrafD commented Apr 18, 2018

@ctpang I afraid you are not adhering to the basic idea of what is the mission for cryptocurrencies and this discussion is not for changing your mind about the freedom to choose your center instead of(or as an interpretation of) decentralization.

The thing is, officially Ethereum is part of a movement that doesn't comply with your idea. It is not a community made of users who eagerly have chosen a cult with a charismatic spiritual leader to join, again officially.

It is promised to be decentralized and the current situation with Ethereum Foundation should be changed.

I am against any strategic manipulation of the code and I know much of the community is not pleased by such manipulations.

Experimental proposals should be tried as an experimental alternative and definitely not an improvement.

Improving an ecosystem by means of a disruptive approach dictated by any form of authority, (even in the case that authority is built around some kind of sectarian belief in some kind of god or goddess or prophet) doesn't make any sense and yields no meaning other than centralization.

Please stop manipulating the strategic characteristics of the protocol!

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ctapang Apr 18, 2018

@AliAshrafD you have as much floor as I have in this forum. You can't make me stop as much as I can't stop you. We can only try to convince, and that's it. I rest my case. I don't want to waste my time any further.

ctapang commented Apr 18, 2018

@AliAshrafD you have as much floor as I have in this forum. You can't make me stop as much as I can't stop you. We can only try to convince, and that's it. I rest my case. I don't want to waste my time any further.

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AliAshrafD Apr 18, 2018

Disclaimer:
@ctpang my latest paragraph, asking for putting an end to protocol manipulation was not meant to hurt you, not even about you. Obviously you are not the one who is about to committing such a manipulation and as I understand you are against the idea of putting a cap.

It was an official request issued on behalf of the majority of Ethereum community, or at least an important fraction of it, to Ethereum Foundation and VB.

AliAshrafD commented Apr 18, 2018

Disclaimer:
@ctpang my latest paragraph, asking for putting an end to protocol manipulation was not meant to hurt you, not even about you. Obviously you are not the one who is about to committing such a manipulation and as I understand you are against the idea of putting a cap.

It was an official request issued on behalf of the majority of Ethereum community, or at least an important fraction of it, to Ethereum Foundation and VB.

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amchercashin Apr 18, 2018

I think we can't avoid protocol manipulation because monetary inflation is not resolved problem.

At the start of the ethereum the model with constant positive monetary inflation was chosen, like 18m of coins annually. I can understand reasons behind this: the lack of knowledge of system behavior and lack of time to make decision.

Maybe that's not bad for the start. But this is the delay of problem. Constant positive monetary inflation effectively leads to zero monetary inflation in the future. So it's not that different from this proposal to make it zero much faster.

I will say again, I think everybody would agree that monetary inflation policy is critical question for all the possible risks to the Ethereum: from blockchain security to people and companys incentives to actually use Ethereum.

Why the policy should be chosen arbitrary, like let's change from constant to decreasing? Why the parameters chosen arbitrary like let's decrease it to zero this exact pace? This question should be studied at least with the same effort like secure of PoS or Sharding implementration.

Ethereum has advantage to be not the first concurrency. We can observe how earlier crypto like bitcoin behave (from mine narrow point of view it's 99% speculation, 0.9% illegal goods (and there is better crypto for that already) and 0.1% - pizza buying accident : ) rtally I doubt the amount actually used to buy goods. but i happily change my mind if there are different statistics)

Isn't it better to brainstorm all available options like:

  • constant, with different k

  • decreasing

  • linear dependency on available variables, for example why not to tie it to transaction fees: like miner gets fee from user and the same (or not same) amount from issuance so everybody pays: like half who made transaction and half all other except this miner (actually the intention for this to make that second part balance the increase in "production", so nobody "pays"). So more transaction means more issuance, zero means zero. Or maybe better not to fees but to transacted value? of both?

  • or some non linear dependency?

Write out pros and cons. And maybe then discuss what's better?

amchercashin commented Apr 18, 2018

I think we can't avoid protocol manipulation because monetary inflation is not resolved problem.

At the start of the ethereum the model with constant positive monetary inflation was chosen, like 18m of coins annually. I can understand reasons behind this: the lack of knowledge of system behavior and lack of time to make decision.

Maybe that's not bad for the start. But this is the delay of problem. Constant positive monetary inflation effectively leads to zero monetary inflation in the future. So it's not that different from this proposal to make it zero much faster.

I will say again, I think everybody would agree that monetary inflation policy is critical question for all the possible risks to the Ethereum: from blockchain security to people and companys incentives to actually use Ethereum.

Why the policy should be chosen arbitrary, like let's change from constant to decreasing? Why the parameters chosen arbitrary like let's decrease it to zero this exact pace? This question should be studied at least with the same effort like secure of PoS or Sharding implementration.

Ethereum has advantage to be not the first concurrency. We can observe how earlier crypto like bitcoin behave (from mine narrow point of view it's 99% speculation, 0.9% illegal goods (and there is better crypto for that already) and 0.1% - pizza buying accident : ) rtally I doubt the amount actually used to buy goods. but i happily change my mind if there are different statistics)

Isn't it better to brainstorm all available options like:

  • constant, with different k

  • decreasing

  • linear dependency on available variables, for example why not to tie it to transaction fees: like miner gets fee from user and the same (or not same) amount from issuance so everybody pays: like half who made transaction and half all other except this miner (actually the intention for this to make that second part balance the increase in "production", so nobody "pays"). So more transaction means more issuance, zero means zero. Or maybe better not to fees but to transacted value? of both?

  • or some non linear dependency?

Write out pros and cons. And maybe then discuss what's better?

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AliAshrafD Apr 18, 2018

A wise man has said:

A system is called persistent if it can survive in spite of the infinite absence of its creator(s).

I'm not sure who is that wise man and I appreciate any help to find him. Wanna make a temple in his name ;)

Ethereum, a persistent system or an under development experimental project , subject to deconstructionism? This is the question!

Just one comment to be taken in consideration: Those who reject the first in favor of the second option, defining Ethereum as a project, have the least right to use this EIP as an evidence for their commitment to help the price to go to the moon. Other than members of a closed circle, the believers, who else would buy such a coin with no promise and commitment to a protocole? The currency of an un-persistent crypto system.

AliAshrafD commented Apr 18, 2018

A wise man has said:

A system is called persistent if it can survive in spite of the infinite absence of its creator(s).

I'm not sure who is that wise man and I appreciate any help to find him. Wanna make a temple in his name ;)

Ethereum, a persistent system or an under development experimental project , subject to deconstructionism? This is the question!

Just one comment to be taken in consideration: Those who reject the first in favor of the second option, defining Ethereum as a project, have the least right to use this EIP as an evidence for their commitment to help the price to go to the moon. Other than members of a closed circle, the believers, who else would buy such a coin with no promise and commitment to a protocole? The currency of an un-persistent crypto system.

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dsyeag Apr 29, 2018

I agree with @Arachnid 's point that funding network costs through issuance is desirable to avoid ETH hoarding. In the interest of the long-term development of the protocol, I think adding an issuance-based reward for the development team makes sense as well. ETH hodlers should be happy to be diluted by some small % a year for development efforts that add significant value to the network.

The tough part is clearly developing governance around distribution of the developer reward, but I think it's a problem that could eventually be solved (through a DAO mechanism or maybe a competing node implementation model where different dev teams reap reward proportionate to blocks mined using their implementation). Anyway, I think once a hard cap is introduced, it will be very difficult to remove from a political perspective, so long-term development sustainability is worth considering here.

dsyeag commented Apr 29, 2018

I agree with @Arachnid 's point that funding network costs through issuance is desirable to avoid ETH hoarding. In the interest of the long-term development of the protocol, I think adding an issuance-based reward for the development team makes sense as well. ETH hodlers should be happy to be diluted by some small % a year for development efforts that add significant value to the network.

The tough part is clearly developing governance around distribution of the developer reward, but I think it's a problem that could eventually be solved (through a DAO mechanism or maybe a competing node implementation model where different dev teams reap reward proportionate to blocks mined using their implementation). Anyway, I think once a hard cap is introduced, it will be very difficult to remove from a political perspective, so long-term development sustainability is worth considering here.

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unknown1235 May 16, 2018

I strongly believe having a 120 million hard cap will be a great benefit for the Ethereum community and developers in the long run.
It will keep inflation down and reduce the high volatility that we are currently experiencing. Overall this will strengthen Ethereum Community and developers as a whole.

unknown1235 commented May 16, 2018

I strongly believe having a 120 million hard cap will be a great benefit for the Ethereum community and developers in the long run.
It will keep inflation down and reduce the high volatility that we are currently experiencing. Overall this will strengthen Ethereum Community and developers as a whole.

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kameir Jun 14, 2018

The question will always be whether a value is being created (or represented) through new ETH. I get that functioning as currency was not the initial purpose of ETH but it is the de-facto currency for virtual assets today. From a practical standpoint, ETH might, therefore, benefit from relating more to the current implementations of money. This way it seems more likely to find widespread adoption. The most obvious shortcoming for the later is ETH's divisibility into 18 decimal places. It would be impractical at this point to create price-labels for everyday items - which would be great to see.

kameir commented Jun 14, 2018

The question will always be whether a value is being created (or represented) through new ETH. I get that functioning as currency was not the initial purpose of ETH but it is the de-facto currency for virtual assets today. From a practical standpoint, ETH might, therefore, benefit from relating more to the current implementations of money. This way it seems more likely to find widespread adoption. The most obvious shortcoming for the later is ETH's divisibility into 18 decimal places. It would be impractical at this point to create price-labels for everyday items - which would be great to see.

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rp3599 Jun 15, 2018

The 120 million hard-cap will be the best thing that can happen for community as a whole. And ethereum will also serve as a investment commodity and will attract more investors and more innovations and more apps to make use of valuable dapp currency.

rp3599 commented Jun 15, 2018

The 120 million hard-cap will be the best thing that can happen for community as a whole. And ethereum will also serve as a investment commodity and will attract more investors and more innovations and more apps to make use of valuable dapp currency.

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umurb commented Jun 16, 2018

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adamluc Jun 20, 2018

I have thought quite a bit about the supply cap issue for ETH, and I believe there should be a supply cap. The way I approached this topic was thinking through the primary components of what makes ETH have value and what the impacts would be if a supply cap is implemented. The components I utilized as a framework are:

  1. Medium of Exchange -> The ability to use ETH as a currency/asset to exchange for other goods and services. This needs to be high velocity, and eventually accepted as a legal tender.
  2. Store of Value -> The ability to store ETH and exchange at some point in the future with ETH retaining purchasing power vs. other currencies/assets.
  3. Computation Cost -> the cost of computation, which is denominated in 18 decimals and determined by market ( ETH gas). In my view, this should be kept on par with other systems executing transactions on one blockchain vs. another (for similar types of transactions, eg. Sending value or arbitrary data, or verifying a zk-proof). This will be more important when blockchains start to connect more to one another via technologies such as Cosmos and Polkadot.
  4. Security of the Network -> The value of ETH is correlated to the security of the network, e.g. -> how much would it cost to attack the network and either fork it or destabilize it?

There are many other components that can be leveraged, however I thought it is best to find 3-4 primary components to derive a framework to think through the issue.

If a supply cap is not enacted and ETH is maintained as an inflationary asset:

  1. Medium of exchange: Using ETH as a medium of exchange would be impacted positively. ETH would have higher velocity, allowing for ETH to move more freely within the ETH ecosystem.
    a. Legal tender here is not impacted in my view by ETH supply remaining uncapped, legal tender would need to be adopted by governments.
  2. Store of Value: Supply and demand dictate price, and if there is an increasing amount of ETH inflation without increased demand (demand may be strong over the next few years, however there will likely be a point of diminished demand at some point in the future), price will drop and ETH as a store of value of will be diminished. An ETH today will likely be worth more than an ETH tomorrow, similar to how government backed currencies operate.
  3. Computation Cost: In some instances, velocity may impact the computation by increasing cost however, from a macro perspective, I suspect this will not be impacted much in the long-run from continuous inflation.
  4. Security of the Network: Since the Ethereum network will be moving to proof of stake, the price of ETH impacts it’s security, eg. If the price drops over time, the cost to attack the network will be lower.

If a supply cap is enacted and ETH is maintained at a finite supply:

  1. Medium of exchange: Using ETH as a medium of exchange would likely be impacted negatively. ETH would have lower velocity, effectively reducing the amount of ETH traversing the ETH ecosystem, and thus ETH’s utility.
    a. Legal tender here is not impacted in my view by ETH supply being capped, legal tender would need to be adopted by governments.
  2. Store of Value: Supply and demand dictate price, and if there is a finite amount of ETH with increased demand, price will increase and ETH as a store of value will be fortified. An ETH today will likely be worth the same or less than an ETH tomorrow, counter to how government backed currencies operate.
  3. Computation Cost: In some instances, velocity may impact the cost of computation by increasing the cost however, from a macro perspective, I suspect this will not be impacted much from slightly decreasing velocity. Having 18 decimals I expect would help here.
  4. Security of the Network: Since the Ethereum network will be moving to proof of stake, the price of ETH impacts it’s security, eg. If the price increases over time, the cost to attack the network will be higher. This fortifies ETH’s position as a system that will be secure against sovereign entities.

Overall, I see little downside in placing a cap. A cap would increase security of the network, as well as provide a store of value independent of government backed currencies. If the question comes down to medium of exchange, perhaps derivatives can be introduced to pay for computation in the network or be utilized for payment of goods or services, similar to Maker’s CDPs. Additionally, perhaps the 18 decimal limit could be increased to accommodate higher prices.

adamluc commented Jun 20, 2018

I have thought quite a bit about the supply cap issue for ETH, and I believe there should be a supply cap. The way I approached this topic was thinking through the primary components of what makes ETH have value and what the impacts would be if a supply cap is implemented. The components I utilized as a framework are:

  1. Medium of Exchange -> The ability to use ETH as a currency/asset to exchange for other goods and services. This needs to be high velocity, and eventually accepted as a legal tender.
  2. Store of Value -> The ability to store ETH and exchange at some point in the future with ETH retaining purchasing power vs. other currencies/assets.
  3. Computation Cost -> the cost of computation, which is denominated in 18 decimals and determined by market ( ETH gas). In my view, this should be kept on par with other systems executing transactions on one blockchain vs. another (for similar types of transactions, eg. Sending value or arbitrary data, or verifying a zk-proof). This will be more important when blockchains start to connect more to one another via technologies such as Cosmos and Polkadot.
  4. Security of the Network -> The value of ETH is correlated to the security of the network, e.g. -> how much would it cost to attack the network and either fork it or destabilize it?

There are many other components that can be leveraged, however I thought it is best to find 3-4 primary components to derive a framework to think through the issue.

If a supply cap is not enacted and ETH is maintained as an inflationary asset:

  1. Medium of exchange: Using ETH as a medium of exchange would be impacted positively. ETH would have higher velocity, allowing for ETH to move more freely within the ETH ecosystem.
    a. Legal tender here is not impacted in my view by ETH supply remaining uncapped, legal tender would need to be adopted by governments.
  2. Store of Value: Supply and demand dictate price, and if there is an increasing amount of ETH inflation without increased demand (demand may be strong over the next few years, however there will likely be a point of diminished demand at some point in the future), price will drop and ETH as a store of value of will be diminished. An ETH today will likely be worth more than an ETH tomorrow, similar to how government backed currencies operate.
  3. Computation Cost: In some instances, velocity may impact the computation by increasing cost however, from a macro perspective, I suspect this will not be impacted much in the long-run from continuous inflation.
  4. Security of the Network: Since the Ethereum network will be moving to proof of stake, the price of ETH impacts it’s security, eg. If the price drops over time, the cost to attack the network will be lower.

If a supply cap is enacted and ETH is maintained at a finite supply:

  1. Medium of exchange: Using ETH as a medium of exchange would likely be impacted negatively. ETH would have lower velocity, effectively reducing the amount of ETH traversing the ETH ecosystem, and thus ETH’s utility.
    a. Legal tender here is not impacted in my view by ETH supply being capped, legal tender would need to be adopted by governments.
  2. Store of Value: Supply and demand dictate price, and if there is a finite amount of ETH with increased demand, price will increase and ETH as a store of value will be fortified. An ETH today will likely be worth the same or less than an ETH tomorrow, counter to how government backed currencies operate.
  3. Computation Cost: In some instances, velocity may impact the cost of computation by increasing the cost however, from a macro perspective, I suspect this will not be impacted much from slightly decreasing velocity. Having 18 decimals I expect would help here.
  4. Security of the Network: Since the Ethereum network will be moving to proof of stake, the price of ETH impacts it’s security, eg. If the price increases over time, the cost to attack the network will be higher. This fortifies ETH’s position as a system that will be secure against sovereign entities.

Overall, I see little downside in placing a cap. A cap would increase security of the network, as well as provide a store of value independent of government backed currencies. If the question comes down to medium of exchange, perhaps derivatives can be introduced to pay for computation in the network or be utilized for payment of goods or services, similar to Maker’s CDPs. Additionally, perhaps the 18 decimal limit could be increased to accommodate higher prices.

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jamesray1 Jul 19, 2018

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Well a supply cap is included in the shasper spec: https://notes.ethereum.org/SCIg8AH5SA-O4C1G1LYZHQ.

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jamesray1 commented Jul 19, 2018

Well a supply cap is included in the shasper spec: https://notes.ethereum.org/SCIg8AH5SA-O4C1G1LYZHQ.

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tbrannt Jul 19, 2018

@jamesray1 good. In the end it's the only thing that makes sense. If we want that token that we pay our security with to have value we should not punish people who hold it.

tbrannt commented Jul 19, 2018

@jamesray1 good. In the end it's the only thing that makes sense. If we want that token that we pay our security with to have value we should not punish people who hold it.

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admazzola commented Jul 19, 2018

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