Ethereum's Creator Mulls Limiting Supply In Novel Ways

While the ICO craze has got out of control in 2017, the two leading cryptocurrencies – Bitcoin and Ethereum – have gone from strength to strength. We’ve seen frequent gut-wrenching (for bulls) drawdowns, wallet freezings (Ethereum several days ago – see here), exchange closures (China) and high-profile criticism from speakers engaging forked-tongues (Jamie Dimon's famous fraud comments, etc).  Nonetheless, like fledglings learning to leave the nest, a broad swathe of opinion senses that there is progress. Like the early days of the internet, investors will suffer losses on those ICOs which were poorly planned and/or poorly executed – which might be most of them. As this process unfolds, however, the better cryptocurrencies will be tweaked, refined and sometimes “forked” to make them better suited to a range of decentralised applications which are, themselves in state of flux.



Talking of tweaks, the co-founder of Ethereum, Vitalik Buterin, is mulling one for Ethereum which might happen before the end of 2017. Watching the firehose of ICOs, Buterin has been asking himself whether, with Ethereum (ether), he’s creating too much of a good thing. According to Bloomberg.

The 23-year-old helped sell one of the first digital currencies in 2014 when he introduced ether to the public. Three years later he’s witnessed scads of other digital currencies raise more than $3 billion in 2017 via so-called initial coin offerings. The sheer number of coins now being created has made him ponder the previously imponderable: limiting the supply of ether.

 

“I’m concerned a lot of these token models aren’t going to be sustainable,” Buterin said in a rare interview last week at the Ethereum Developers Conference in Cancun, Mexico. So what’s the problem? There’s a hard limit -- 21 million coins -- on the supply of bitcoin, the first successful cryptocurrency, that helps underpin its value. Buterin isn’t mulling a cap like that, but he’s intrigued by the idea of imposing fees on applications built atop ethereum. Those fees would destroy -- or burn, in Buterin’s parlance -- ether tokens over time.

Finite supply is hardly a new concept, but it’s certainly entered the consciousness of Bitcoin investors. There’s been much debate on Ethereum supply and while there isn’t a hard limit, the inflation in Ethereum supply is set to decline exponentially, with the maximum amount somewhere in the region of 100 million. There is a quote on Reddit that is attributed to Buterin on this subject.



During the interview at the Ethereum conference, Buterin pondered – at times in slightly less than coherent fashion - the need to limit Ethereum supply in order to differentiate it from fiat currencies.

“If the token is being burned, then you have an economic model that says the value of the token is the net present value of basically all future burnings,” he said.

 

Otherwise, “it’s just a currency that goes up and down. It feels kind of like voodoo economics and the price of the token isn’t really backed by anything,” Buterin added.

 

“That’s a very spooky thing.” Reminded that he created such a coin himself, he said going forward that could change. “It’s a fact that’s definitely informing a lot of design choices,” Buterin said. “Introducing some kind of sinks into ethereum is definitely something we’re looking at,” he said. “By sinks, I mean fees that lead to the token actually being destroyed.”

If he decides against “burning”, another possibility is essentially warehousing some of the supply, eliminating it from circulation.

Another way to limit supply, at least temporarily, is through locking up some of the ether currently in circulation. That’s the plan as ethereum moves to a new way of verifying transactions on its network. Known as proof-of-stake, it requires users who want to be rewarded for validating transactions to deposit ether for a set amount of time. The more ether they set aside, the bigger the reward for verifying the network. Buterin said the ethereum community may transition to proof-of-stake as early as the end of the year.

While Bloomberg notes that Ethereum’s abundance has obviously not adversely affected its price this year, our question is what impact would limiting supply have on Ethereum? Especially when  cryptocurrency prices are so sensitive to newsflow, even when it’s ill-informed, in Dimon’s case, for example. Talking of limiting supply, Buterin had some cautionary words on the ICO boom although, given the nature of financial market regulation, nothing will be done until something really bad happens, which is sadly inevitable.

Buterin said ICOs had both good and bad attributes. The way they’re currently structured skews the incentives of the startups that have raised over $3 billion this year. In nearly all ICOs, groups have pitched tokens to fund projects still in development, leaving open the question of what happens if they fail to deliver on promises. “The token models we have right now are lopsided and give skewed incentives,” Buterin said. “The worst part is the front-loading. Basically getting $140 million before you have a product. The right way to do that is to come up with a mechanism that either splits the ICO up across rounds or has a mechanism where if it doesn’t go well people can get refunds or anything similar.” ICOs have solved a key problem, making it easier for developers to raise money to fund their work, he said. But that doesn’t mean that every project should start with an offering, Buterin said. “It’s definitely a complicated balance,” he said.

The ICO boom is definitely not balanced.
 

Comments

BaBaBouy BaBaBouy Sun, 11/12/2017 - 02:15 Permalink

Just reminds me that Phys GOLD/SILVER should be traded like this also ALL-WEEKEND 24 Fuckin 7 ...That would probably Fuck up the Paper GOLD manipulators that are stuck in the Banksters Hours of operation ...Whatever happens here in the Crypto markets, we now get a good look at how a FREE Trading Market Operates...

In reply to by BaBaBouy

BaBaBouy tmosley Sun, 11/12/2017 - 09:12 Permalink

Thats what I meant for GOLD. It has to be traded openly, with prices set off any Paper exchange.Todays "market" is a joke. How can an Asset owned by millions of people around the world, sold by thousands of mining companies, with a history of 8000 years as money, be fucking trading in a "Locked" range ???Up 10. bucks, down 10. bucks, WTF ?It's near impossible, yet its happening.

In reply to by tmosley

HRClinton Gap Admirer Sat, 11/11/2017 - 23:07 Permalink

Buterin, you may want to look to gold mining as a guide.It is not so much that the supply of mineable gold is fixed, but its mining rate is limited. Gold is pushed up from the earth's Mantle by molten lava. This rate is fairly constant over time. Ethereal and other CCs may wish to do something similar: 1. Provide a fixed Supply, that depends on more than the most expensive mining equipment (computers).2. Allocate crypto by geography, to allow all Peoples a fair chance at mining. When your nation's mines are mined, you mine in another country (with 'Barriers to Entry'), or wait for more "ore" to appear. BTW, one of the famous economists (an American Ashkenazi, whose name escapes me), astutely observed that the reason that gold was perfect for backing currency, was because its mining rate in increased at ~ 2% /yr, about the same as a desirable GDP growth.3. Do the simple and obvious, but odious to the private cartel of Central Banksters:Back CC by a basket of PM: Platinum, Gold, Silver.

In reply to by Gap Admirer

Mister Ponzi HRClinton Sun, 11/12/2017 - 03:41 Permalink

If you backed crypto*currencies* (those created or used as a means of payment which is only a tiny percentage of the ~1300 coins out there) with PM or anything else you would destroy their one big advantage rendering the entire concept worthless.The crypto concept rests on a decentralized ledger compared to a centralized one. Decentralized ledgers are worse than centralized ones in almost all respects (processing time, cost etc.). However, they have one big advantage: There is no need to trust a central party in a decentralized system thereby enabling trustless transactions. This one advantage may outweigh all the negatives if trust is the central problem as you may argue with financial transactions.Now, if you backed CC with anything you would reintroduce counterparty risk into the equation: Is the gold there? Is enough gold there or is it important to claim your collateral first? Is it really gold or just gold-painted tungsten? If you want to back a currency with PM you should do this in a centralized system where you have the counterparty risk anyway.

In reply to by HRClinton

Rhetorical Gap Admirer Sat, 11/11/2017 - 23:18 Permalink

Most ICO's for the last month or so have consistently lost money for those that bought the Coin/token at its ICO price. Though in the long term Cryptos are insanely bullish.RIPPLENEO OMG ETP COSSFCT All of these will see 1000's of percentage points in growth over the next year or so. And these are already established coins, the as sure as sure can be, picks.Dozens or hundreds of even better ideas are out there waiting to be made or in process. We have a couple of years worth of this feeding frenzy to feast on.So start eating.

In reply to by Gap Admirer

OpenThePodBayDoorHAL Rhetorical Sun, 11/12/2017 - 00:53 Permalink

Ripple is just a credit instrument that is a bank circle jerk, if they were going to do something with crypto they would have by now. Banks globally get 40% of their revenues from payments and 25% from forex so no chance they want that to go to 2%.Ethereum is a vanity ego project that decided to create not only a brand-new network but ALSO a brand-new language, a brand new virtual machine AND a brand new database. As if there weren't highly scalable and proven databases already in the world with full tools for testing. Oops so now the whole thing is a giant cluster with coders writing impossibly complex code just to hold it together and they still can't get more than 15 transactions per second, hashlocked balance proofs and all kinds of hoo-haw to try and get there when it's the underlying architecture and the buggy new tools that are the problem. And trying to scale using the 256-bit Ethereum Virtual machine when massively parallel chip architectures run absolute circles around. And now they'll move from mining to proof-of-stake, even more unproven complexity. Can you say: cluster?BCC is like a dividend paid to all BTC hodlers, except of course if you are a Bitcoin "owner" via Coinbase, they owe everyone the "dividend" but it's getting more expensive by the day for them to buy what they owe LOLOL, they and their customers get what they deserve for trusting a Bitcoin bank.

In reply to by Rhetorical

tmosley Sat, 11/11/2017 - 21:56 Permalink

Those who bought bitcoin after August 1st and those who sold their "free" coins better pay attention. It looks like the market is finally choosing to abandon expensive, slow BTC for fast, cheap BCH. IE. The FLIPPENING.If you don't have any BCH, highly suggest you get your hands on some immediately, lest you find yourselves holding the new ETC.

tmosley rygar Sat, 11/11/2017 - 22:08 Permalink

Wrong. Bitcoin merchants have had it with BTC's high fees and slow confirmation times. It was an unsustainable situation, and now that the main chain has chosen to give up any hope of reform that would lessen those problems, they are moving the BCH. A ten dollar transfer/purchase costs 33 cents, even with this insane volume we are seeing tonight.Better hedge those bets unless you have an extremely high level of insight. If you DO have an extremely high level of insight, please post an argument to that effect.

In reply to by rygar

wisefool tmosley Sat, 11/11/2017 - 22:43 Permalink
  1. Stephan Molenuex supports bitcoin. 
  2. he also believes the official story of the USA appollo moon missions in the late 1960s and early 1970s.

neither thing I said were arguments, but both are true. next ask him about 911 or if he actually ever took a legit I.Q. test. Then you will get an argument.

In reply to by tmosley

blentus tmosley Sun, 11/12/2017 - 07:12 Permalink

Don't be stupid.This has nothing to do with fucking merchants. It's a fucking coup initiated by scum of the cryptoworld.It might or might not work, but it has absolutely nothing to do with confirmation times, fees or anything else.Also, If you expect(ed) BTC to work like Visa/MasterCard, you are retarded.edit: also, we'll see more in approximately 12 hours or so

In reply to by tmosley

tmosley blentus Sun, 11/12/2017 - 07:27 Permalink

>This has nothing to do with fucking merchantsFees matter. BTC can't handle this volume, which is NOTHING compared to Visa. BCH has higher volume than BTC yet it still only costs 31 cents to send a $10 transaction, and its not getting hung up.This is about the best demonstration of the resiliance of the protocol you could ask for.

In reply to by blentus

blentus tmosley Sun, 11/12/2017 - 08:17 Permalink

You are like a child.When big game is being played and everything is going crazy, you conveniently forget about past.2 weeks ago, I tried moving BCH from my wallet to Kraken.It took 21 fucking hours. Average block time was over an hour. It was a disaster and no sane person would have used it. Completely unusable. Yeah, merchants were going all crazy about who will use it first.What you see today is not some magical 'merchant are adopting BCH' event, it's a fucking scam/attack/whateveryouwanttocallit. What do you think that suddenly whole world and all merchants woke up and said "We will start using BCH today, even though yesterday it was unusable and slow like shit"? We're just fucking pawns in this game. Luckily, I tend to leave emotions in the living room when coming to computer, so whatever happens won't really affect me. We will see who comes on the top.None of the crypto currencies are even remotely ready for any kind of 'prime time', so stop talking nonsense.Lot of hashing power moved to BCH in past 24-48 hours, we will see if tonight it stays there.And seriously, if you want a 'currency' that is backed up by likes of Craig Wright, Roger Ver and fucking Chinese mining scammers, then I really wish you all the best. Even if I lose all the fucking money in BTC, I will never contribute anything to these fuckers.For those who don't know the names:Craig Wright - A liar who tried to convince world that he is Satoshi. Can be fully trusted, obviously.Roger Ver - A lucky guy who hoarded BTCs in the early days, though that he is messiah because of that, then went and gave positive recommendations about MtGox before it collapsed, even though anyone with half a brain could see/feel what was happening. He's famous for this video: https://www.youtube.com/watch?v=UP1YsMlrfF0Luckily, I never trusted MtGox (or anyone involved with it) and lost exactly nothing when it went down (even though I used it a lot in year leading to its demise), but fuck if I would ever again put any trust in cunts like these.

In reply to by tmosley