Ethereum 2.0 Economics: What is the inflation rate of ETH after entering the PoS era?

At the heart of each blockchain system is the creation of blocks and new tokens. This is crucial for any blockchain (public chain) because the network is motivating people to protect by power or equity by casting new tokens and assigning them to miners or Stakers. it. To protect the security of billions of dollars in Ethereum and Bitcoin, the network must pay the appropriate rewards.

Currently in Ethereum, this is done through block rewards (and transaction fees). In the next few years, Ethereum will move from PoW to PoS, and rewards for online payments will also be allocated to block certifiers in the PoS network. This shift has brought many changes, but the biggest change has occurred in the basic economics of the agreement. The author wants to describe these changes at a higher level, but first we must understand how the current system is running.


In the proof of workload, miners receive a lot of rewards to help them pay for operating costs and get a certain profit. These profits are mainly determined by the price of the underlying assets, which is why we see that network computing power usually follows price changes. As Ethereum experienced rapid price increases in 2016-2018, users of the network decided to reduce block rewards from 5 ETH to 2 ETH in order to better enable strong economic principles and appropriate network rewards (as a network) The security expenditure) corresponds. This is similar to Bitcoin, which reduces block rewards every 4 years. The rationale behind reducing block rewards is that as a currency and value store, the network must control the circulation of ETH and reduce it to near zero over time. Reducing supply means reducing selling pressure, which in turn gives those ETH holders more confidence that it will add value. Again, the most important thing here is to keep the minimum circulation as much as possible while still protecting the network well.


Eric's past, present and future issuance ratios

At the beginning of 2020, Ethereum 2.0 will start online. In the new chain, the concept of miners will be replaced by Staker. This means that users no longer need to use the GPU miner, just need to mortgage 32 ETHs to find new blocks. Staker will complete a series of tasks from initiation to certification and will be rewarded accordingly. The benefit of PoS is that it allows us to try to add as little ETH as possible, while at the same time making it easier to protect the network, which in turn makes ETH a better value store. This is because the newly released ETH is only allocated to the participating equity mortgages at a given time. We do not need the entire network to participate in the equity mortgage to protect the security of the network. In fact, ETHs participating in equity collateral can reach 5-10% of total liquidity. This means that the network issuance rate can be much lower.


Estimated mortgage recovery rate and issue ratio based on the latest Stage 0 specification

First, it's worth pointing out that these numbers are still controversial, because the specifications are still in real-time development, and I expect them to rise a little (~25%) before Phase 0 starts. As we can see in the chart, the market will determine how many stakes there are based on the economic incentives for the staker. The author expects that the total amount of stake will reach about 10 million, which will make Ethereum's network circulation as low as 0.24% per year, 95% lower than the current.

As with mining, staking also incurs costs, which is an important consideration in setting these numbers. We want to make sure that the verifier does not lose money, and we don't want a small amount of ETH on the network to participate in staking. Each verifier will want to run 1 beacon node and then run as many authentication clients as possible based on the ETH they have. After studying the specification and communicating with the Ethereum 2.0 developers, the author estimates that the beacon node verifier's annual operating cost is about $120, and the cost per incremental verifier is about $60. If the cost of the ETH is $165 and the network fee for the day is 500 ETH, the reward paid to the verifier is:


Node revenue calculated based on assumptions

Obviously, if the price of ETH rises, these returns will increase. But we can be happy to know that even during a bear market, the verifier will still be motivated to run the node with a total of 10 million ETH's stakes.

This is a quick overview of the Ethereum 2.0 economic incentive structure. The author hopes that it will encourage people to learn more deeply and help to study reasonable incentives, estimated costs, and so on.