The Ethereum Inflation Problem

Hey Jessiether HODL'rs

Ethereum has become wildly popular because it allows you to mint tokens and has opened up a world of so-called "DE-FI" and trying to establish a yield curve for cryptocurrency. While I appreciate Ethereum the chain and technology, I don't care much for the token Ether and its governance structure.

Sure it's a billion-dollar playground and testnet playing out in real-time, collecting data on humans behaviour and incentive structures and creating case studies we can draw lessons from in the future. Still, other than that, I don't buy into the narrative that it's some world changer.

I see Ethereum as the lesser of two evils, I would rather use a chain than a centralised service, and in that, it's one-up'd a lot of the centralised services, not that they're not trying to create faux-ecosystems that mirror Ethereum, as is the case with Binance Smart chain but that's another tangent altogether.

eth-inflation.png

Blockchains can't scale

Blockchains are only good for one thing, solving the double-spend problem and creating an immutable ledger. Anything else it's pretty terrible at; adding more features to a base layer will always add layers of complexity. Bitcoin has continued to strip out more data from its base chain to keep it cleaner and move more work to layer 2.

Ethereum has tried to scale on-chain and has a range of layer 2 solutions too. Now Ethereum has several scaling solutions in the works, like sharding, ZKroll ups and side-chains, but one of its biggest changes has to be the move to the beacon chain and rolling out proof of stake.

The TLDR of it is, Ethereum currently has a proof of work chain, it's launched a new chain that runs on a proof of stake, and they are currently running in parallel until the proof of stake chain eventually takes over.

No one knows how much Ether is out there

Since no one runs a full node on Ethereum since it takes considerable resources, no one is really auditing the supply and taking into account how this affects the value locked into the network.

This, to me, was already a red flag and one that pushed me to learn more about how Ethereum's monetary policy works; while its tech is cool, its monetary policy is nothing I am too keen on investing in.

I think the tech narrative obfuscates the monetary part of the system, and people take for granted why Bitcoin has these enforced rules.

Many will think I am an ETH hater, but I've owned ETH, I've used ETH, and I've researched what I own, as I do with Bitcoin, and that's why I came to these conclusions. I am highlighting things an investor should be concerned about.

Now currently, Ethereum inflation comes from the miners, same as Bitcoin, as proof of work is submitted to secure the chain new Ether released as a block reward.

Proof of stake rewards

Now I mentioned earlier that they have a proof of stake chain running, and many investors are bullish on the change; they are securing either their 32 ETH to stake themselves or securing ETH to be part of a staking pool. This has clawed the supply of ETH off the market and locked it away until the new chain is the primary chain.

To reward users for their faith in the new chain, ETH is offering staking rewards of around 7%, I think, which is a large chunk of new supply that will come onto the market if all goes well in the next 2 years.

Now, as the POW chain continues to mint coins, so too does the POS chain. Can you see where this is leading?

An audited supply

To help offset the new supply of coins, the ETH chain plans to burn tokens when using the EVM and reduce supply over time. But remember, no one is running a full node, no one knows the exact supply of ETH it's all guesswork.

There is no guarantee that the number of transactions will be able to outpace the effects of inflation, and ETH will have to continue to tweak their monetary policy if they are to maintain value for investors.

The more changes they make to the monetary side, the more fragile the system becomes, similar to the fiat system.

Eth could be walking into an inflation time bomb, and none of us knows how it will affect the price and if their proposed solutions will work; this level of uncertainty will only grow as we get closer to the release of the POS chain.

Have your say

What do you good people of HIVE think?

So have at it, my Jessies! If you don't have something to comment, "I am a Jessie."

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Yeah I had heard this but I thought somebody had found a way to calculate its total supply.

Crazy that nobody still did... Nevertheless, the burning mechanism should be an overall positive for the ETH price but they should not put it too high, it should be very slowly deflationary.

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I’ve yet to see someone provide a detailed supply audits I’ve seen tests where multiple light nodes gave different readings on the same block height it’s ridiculous

Even if the do, burning at a high rate to combat the inflation it’s going to send gas prices through the roof to try and compensate.

No one wants to admit ETH has real problems here and it’s scaling solutions are piling vulnerabilities on the network

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Indeed, these are real issues but it is still the most efficient and decentralized networks. Solutions of layer 2 are still based on ETH ecosystem.
Competitors such as EOS, TRON, BSC or DOT have not reached such a high number of use cases and users (for now).

Would you just invest in BTC hoping for smart contract and ETH like capabilities in the future then ?

Thanks for your very interesting comments

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BTC already has smart contracts via discrete log contracts, it has DEFI via HODLHODLs multi-sig on the liquid network

It also has lightning pools where you can lend out liquidity which I’m more than happy with

Eveyeone is free to compete and place their bets all in saying is these projects have not convinced me and the risk involved is higher than people think

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(Edited)

Having some amount of inflation is good and needed for securing the network. And when ETH transitions to POS, there is no need to burn lots of electricity, so transactions will be cheaper, this will lead to more transactions, translating to more fees collected which means more secure network.


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Lol how is proof of stake more secure than proof of work? Where do you come on these claims?

That’s not exactly how it works the more transactions the more competition for resources the more expensive transactions

ETH has to balance incentives for stake holders with fees for transactions and you never going to keep both parties happy so I don’t see how POS solves this, they going to continue tweaking issuance and supply and it’s never going to solve anyrbing

Lol ETH is already a dead project people just don’t realize it yet

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I was made to understand that all that's left of ETH tokens is what's in exchange now. Isn't scarcity a good thing in this case?

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Oh no there are millions of ETh there is still a fat premine sitting with the founders and off-chain ETH as well as ETH sitting in the staking chain

The fact that you can’t audit the supply at any one time to me is concerning I’ll leave the shitcoining to others but I’m not keen on ETH

It can go up in the short term but that just means when it reks people long term it’s more of you that get rekt

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Eth does have issues with the new change to the POS model because it only makes those who are rich in ETH more richer. As for the actual amount of ETH, I don't know but I tend to prefer having inflation if we can measure it correctly. I think the inflation works better at increasing the supply of tokens as some tokens are gone forever (lost keys/wallets).

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All inflation does is divide up the market cap with more units. If you’re happy with the way ETH works more power to you man keep buying it lol 😂

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EIP 1559 update about ETH predicting fees coming next month would also be bring some ETH as well and combined with ETH 2.0 ETH can become deflationary if used enough. The 7% inflation of locked token isn't much because only 5% or less than that ETH is locked in for 2.0. & With it officially launches, Proof of Work/mining rewards will be gone. There is enough data to see where ETH is currently heading. Inflation isn't that bad, what drives the price is use case and development of new things. And ETH is doing both.

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LOL so two chains both creating their own inflation rates once combined is just going to be a smooth transition according to you?

Inflation isn't bad then why not just stick in fiat because ETH is going the same way crypto peeps play themsleves off as cynical of the system but only want the same system with these coins as long as they are the ones being enriched it's gross

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Time will tell how both chain transition, but POS inflation of 7% is only on 5% of supply and if we convert it to overall supply it is 0.35% which isn't a big number. Also Everybody is condensing on this as it is a blockchain.
We have inflation on hive which is used to pay rewards and witnesses. IF demand/development is more than inflation, price would definitely grow over time.

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You must remember this is 2 years of 7% increase that will be released ALL at once, this isn't a case of staggered daily and then how long does that supply have to be removed through their burning? Especially when there isn't definitive numbers to work with here, its all based on assumptions

Why would I want to hold something with such a shitty monetary policy? Nope not for me

HIVE has inflation yes and how many have called for it to be decreased? Lol has that inflation done anything to capture new users lol I doubt it by the results its actually been a net negative.

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This is strange, if they don’t know the total supply of the tokens, how are the evaluating the participants total value of the network. Whenever the figure this out in the future, this may impact the price as well if the total token numbers are way far off the estimates.

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Never going to happen, the requirements to run a node keep getting higher and more centralized and those parties aren't exactly keen on releasing negative data since they financially incentivized not to Lol

But hey I'm just pointing things out y'all can decide what you do

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We are drowning in uncertainty.
The skillful surfer is less likely to drown.

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Well let's see who sinks or swims! I love how ETH bag holders try to defend this shit with no backing

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It will be interesting to see how things change with ETH when they move to PoS. I think it is going to shake things up a bit. Until then I will just keep using stuff build on EOSIO. Some of those side chains are pretty great.

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I haven't used EOS or EOSIO chains to me they all just block producer milking, id say there set up is even worse than ETH lol super centralised and offers me very little for the trade off

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Nah, there are some good block producers out there. People just need to look past their biases.

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That's not the point of a trustless system, the system should be set up in a way that even if the person is a cunt, they still forced to do the right thing. Do I agree with all BTC node operators or miners? No I think some miners are douchebags but they still need to enforce the same rules of jog on.

Can;t say the same for these other chains, the opportunity for collusion is too high and relying on good spirits well see where that got us in fiat

Sorry I don't trust, i verify

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The cool thing with the governance model is if something doesn't work they can change it. WAX proved that versus EOS. I am still learning about EDEN and I think that has some interesting pieces that combat some of the negatives people perceive with DPoS chains.

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Intuitively I've never felt good about ETH. Nothing more than that really.

The high fees for smaller users has kept me away too and stopped me investigating further some games when I found out they were built on Ethereum.

That was maybe not so smart since I had the opportunity to have an Axie account set up for me right at the beginning but turned it down cuz I wanted to focus on Splinterlands. 😁

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I don't see why I should bend the knee to ETH, i mean the stable coins and Bitcoin there is really the only value the chain has in my opinion. I know altcoiners are going to cry but I don't see what ETH does that I need to own it, and no one can explain it to me, lol

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I don't care much for the token Ether and its governance structure.

Ah huh

Anything else it's pretty terrible at; adding more features to a base layer will always add layers of complexity.

Depends, the ones like polygon etc adding features to the main chain seem more complex than a chan that properly supports generic complexity, kinda like how we have custom json and don't get killed onboarding of boarding main chain. Layer two is shit because you still need get on layer 2 and in the ETH realm that is hell.

Not sure about their inflation but like the first quote I won't exactly have ETH to care ;)

Right now FTM, SOL, Tezos, Cardano I guess ICP also just need to solve the virtual Machine issue then we will see a new generation of layer one like Flow even with throughput matching current graphene and have the computing powers.

I always found that 32Eth stake thing a bit sus even more sus now that no one knows how much Eth there is lol

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I don't say this as some hater, I actually thought this shit was legit but they just keep selling you on the next patch the next dream, I was an early holder of MATIC when it was a few cents and tried it out when I saw what you mentioned that it's an isolated playground I thought this doesn't solve anything and is pretty overpriced for the solution it offers.

Dumped it for BTC, lol feel no regrets, I had Tezos too thought the no lock up for staking was cool other than that wasn't impressed, dumped it too.

If you're going to ask me to part with my cash it either needs to be something really good or something that works, I am happy to late to the party and be proven wrong, so far I haven't been. There is too much incentive to be dishonest and keep selling them oh the next upgrade is when we get somewhere lol

I'll happily stick to my Bitcoin, enjoying liquid and lightning, I know what I'm owning and the risks I am taking and that's fine with me

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Can give the below video a watch, which makes me think it still good to have a few matic and forget about. Polygons real "features" are not completely being used yet, and basically just a gold rush avoiding taxes with very few having implemented any full features apps on it.

Which does make me a little more willing to have certain tokens and just sit on them, not as many as I would like so I would hope for x100 instead of 10 to give a shit but I do like my money working instead of lazing. Instant gratification and all that.

A big thing I think aside from the tech does seem to be the communities also, matic not having moved much is a lot todo with the communities they inherited, the Eth rejects partially.

But yeah I agree I rather get late to an awesome party that will keep raging than a hyped party that turns out to be a funeral.

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I was out at fees.

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Demand better, Bitcoins already giving me cheap transfers on lightning so I can't be bothered with these other projects

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The lightning node locks btc and then can trade up to that limit in the network?

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Correct you can lock let’s say 0.1 BTC in and send up to that really low fees! You can also receive and rebalance your funds and then if it’s a large enough amount you can move it back to the main chain

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That might work.
Can btm's use it, or does that need to be on the mainchain?
How low are the fees?

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