Despite waning prices and never-ending scalability debates, the Ethereum protocol continues to rake in massive revenues for network miners, with figures confirming $2.5 billion-a-year payouts.
Ethereum Miners Rake in Big Money
In a period of 24 hours, as per data collated for Aug. 11, Ethereum network miners received over $6.6 million in incentives, including block base rewards, mining fees, and “uncles” rewards. Spread over 365 days, the numbers add up to over $2.36 billion; possibly even larger when ETH prices increase.
Ethereum’s inflation was also calculated at 7.3 percent, two times that of Bitcoin which paid miners $12.7 million on the same date. Bitcoin’s annual payouts for miners translates to over $4.5 billion or just 4 percent of its total market cap.
Addressing Ethereum’s significant inflation rate, the report considers the protocol’s decision to delay the “difficulty bomb” as a commensurate factor. The latter is an upcoming program update for the fight against the rising threat of ASIC miners by switching the system to a Proof-of-Stake protocol.
However, the much-awaited Casper update is unlikely to be deployed until mid-2019. Thus, the so-called difficulty bomb is indefinitely postponed and the supply cap for ether remains unknown – factors adding up to high inflation.
Ethereum’s Issuance Woes
Prior to Casper, Ethereum did not expect a supply cap larger than 100 million ether. However, the current circulation supply stands at 101.3 million as per data from CoinMarketCap.
Reducing this issuance has been suggested by Ethereum developers to keep inflation at bay, or at least, at the same level that Casper released.
To mitigate the uncertainty surrounding Ether’s max supply, four distinct proposals have been proposed by different thought schools: Increasing block rewards to 5 ETH (thereby increasing inflation to 14 percent), remaining stable at current block reward of 3 ETH, reducing to 2 ETH, and finally, reducing the reward to just 1 ETH.
Of these proposals, a 1 ETH block reward resonated most with the Ethereum community, with 65,000 ETH voting in favor of reducing block incentives to a low value. The voting amount is worth $21 million at today’s prices, implying a solid push for the proposal.
If deployed, inflation would drop down to 2.3 percent, two years earlier than Bitcoin’s 2020 inflation forecast of comparable value.
Only $7 million worth of ETH voted in favor of the 2 ETH block reward proposal, rendering an inflation rate of 4 percent.
A tiny 2.1 ETH was voted with the network continuing its worrying inflation rates and removing Casper updates from its plans completely.
Lowering Incentives at the Cost of Security?
Some miners complain low rewards may mean lesser earnings for them, however, by reducing the max supply for ether and officially capping its value, an increase in fiat price can be expected for the low amount of ETH awarded.
But, such economic considerations are of lesser priority than considering if Ethereum’s block reward will be sufficient to incentivize robust security.
Compared to Bitcoin, ETH transactions were recorded at $365 million per day against the pioneer cryptocurrency’s $4 billion. Such figures equate to Bitcoin’s $80,000 reward per block mined and only $1,150 for Ethereum. However, the former has a block time of 10 minutes, while the latter clocks at a mere 15 seconds.
With the aforementioned in context, a block reward of 2 ETH likely appears to keep inflation in check, provide sufficient incentives, and balance the many needs of the Ethereum platform.