Ethereum Classic has had a theoretically unlimited supply of tokens, with nearly 13 million created each year. However that’s about to change this December, as Ethereum Classic implements a new policy to limit the supply of tokens. The goal is to make the asset a better store of value. ETC prices have exploded in the last few weeks in response.
The Problems With an Unlimited Supply
Ethereum, and by extension Ethereum Classic, was created with the idea that there should not be a maximum limit on the amount of tokens.
This is in contrast to Bitcoin, which has a hard cap of 21 million. The idea behind the unlimited supply is that tokens would be used to pay for services from the network. Ethereum’s ether was created not as a currency, but as “fuel” that powers the network.
An overly limited supply could make it impossible to pay the network to operate, which could cause it to fail. Too few tokens, and the price would not be economical for real world use. An unlimited supply means that prices will always drop as more and more tokens are created and put on the market.
Earlier this month, Vitalkin Buterin considered implementing various way to “burn”, or destroy ether, to control its supply. This means that whenever a certain type of transaction occurs on the network, a small amount of Ether would be permanently destroyed.
Ethereum Classic, on the other hand, has a different solution to the problem.
ECIP 1017 – Putting a Cap on ETC
The solution Ethereum Classic will use is in its upcoming ECIP 1017 monetary policy. The rules stipulate that starting at block 5 million, or on December 12th, the block reward will drop from 5 to 4 ETC. This downward trend will continue until eventually the block reward is zero.
The result? There will be a maximum hard cap of somewhere between 210 and 230 million ETC tokens. This will effectively put a lid on unlimited token creation, and lead to a preferred deflationary economic model.
Deflationary (meaning increasing in value) is preferable to inflationary (decreasing in value) because it provides for a better store of value over time. Investors will logically not want to own an asset that always drops in value (this is why people prefer to invest their fiat money rather than letting it sit as cash).
According to gastracker.io, over 90 percent of currently operating ETC nodes currently support the shift to ECIP 1017.
ETC Prices Rocket, Tripling in the Last Month
In response to the upcoming changes, as well as positive sentiment for the platform following the recent ETC Summit in Hong Kong, the ETC price has increased by as much as 300 percent.
Prior to the summit, prices for ETC were hovering in the $9-12 USD range for an extended period. Following the summit and coverage of the impending policy changes, prices have reached highs exceeding $30 in some markets.
A large percentage of recent trade volume has come from several South Korean exchanges.
If ETC prices continue to hold at the $30 level, then a total supply of 210 million ETC would eventually give Ethereum Classic a market cap of $6.3 billion.
Will Ethereum Classic’s new policy make it a better store of value? What’s your opinion on the impending changes? Let’s hear your thoughts.
Images via Ethereum Classic, Pixabay