When it comes to cryptocurrency, the most popular coin after Bitcoin is Ethereum. First released in 2015, Ethereum is the second largest cryptocurrency. It holds 18.4% of the total market capitalization of the cryptocurrency (via CoinMarketCap).
Despite being described as an “Altcoin”, Ethereum is quite different from Bitcoin. In addition to using a Proof-of-Stake (PoS) algorithm instead of Bitcoin’s Proof-of-Work (PoW), the supply of Ether is different from that of Bitcoin.
Here’s everything you need to know about Ethereum’s total offering and any future changes.
Does Ethereum have a maximum limit?
Unlike Bitcoin, Ethereum has no limit on its total amount. There is a maximum limit on Bitcoin of 21 million, but those restrictions do not apply to Ethereum. Over 119.58 million ETH are in circulation as of July 2022.
However, there are still some limits to the supply of Ethereum, which means it would be incorrect to say that it has an “unlimited supply”. It has a limit of 18 million ETH per year (or 2 ETH/block) – 25% of the initial supply of Ethereum. These limits are similar to Dogecoin’s limit of 5 billion DOGES each year.
Vitalik Buterin, founder of Ethereum, explained this decision in the Ethereum white paper:
The permanent linear supply growth model reduces the risk of what some see as an excessive concentration of wealth in Bitcoin and gives individuals living in present and future eras a good chance of acquiring monetary units, while maintaining a strong incentive to obtain and hold ether because the percentage “supply growth rate” still tends to zero over time. We also theorize that because coins are always lost over time due to negligence, death, etc., and the loss of coins can be modeled as a percentage of the total supply per year, the total supply of currency in circulation will eventually stabilize at a value equal to the annual issue divided by the loss rate (e.g. at a loss rate of 1%, once the supply reaches 26X then 0.26X will be mined and 0.26X lost each year, creating a balance).
Is Ethereum deflationary?
On April 1, 2018, Buterin published a proposal to improve Ethereum (EIP) that would see the offer limited to 120,000,000 ETH. While many saw it as an April Fool’s joke, Buterin made it clear on Twitter that it was a “meta-joke” worth seriously considering.
While this limit has yet to be realized, the upcoming EIP-1559 update has important ramifications for the supply of Ethereum.
As explained on the EIP-1559 GitHub page, Ethereum has the potential to become deflationary:
If more is burned on the base fee than is generated in mining rewards, then ETH will be deflationary and if more money is generated in mining premiums than is burned, then ETH will be inflationary.
The EIP 1559 update released in July 2021 has some similarities that can make ETH a deflationary crypto asset. The update has greatly changed the way gas tariffs are calculated by implementing a combustion mechanism. This combustion mechanism destroys eTH at any given time. However, this update does not make Ethereum completely deflationary in nature, but it does affect its availability to some extent. According to data from Watch the Burn, so far, nearly 2,521,554 ETH have been burned.