Ethereum Classic For Investors #19 – Monetary Policy & Coin Issuance Explained

Hello everyone. This is Chuck G with another weekly update for Ethereum (ETH) and Ethereum Classic (ETC).

Today, I wanted to talk to you about monetary policy, coin issuance, a little bit philosophy about what is money if cryptocurrency can be considered money and some of the thoughts of the ETH developers about ETH as money currently.

For those of you that don’t know who I am, I’m the marketing manager for ETC. I also manage the twitter account for ETC. We have almost 35,000 followers now.

Thank you very much for everyone following on twitter @eht_classic. Please follow if you haven’t for the latest update on ETC as well as the ETH Community.

We had a great week because the price of ETCs has jumped up in the last month from around $2 to $6.50. Bitcoin is currently at $1,500 which is pretty amazing.

For those of you that don’t know, ETC is changing its monetary policy. Currently, the developers are running tests on the code to implement on a private blockchain, which is a copy of an ETC to see if there are any problems with the code or any bugs with the code.

Currently, the proposal is called ECIP 1017. For those of you that don’t know what ECIP means, it is the ETC Improvement Proposal. For an Ethereum, that’s simply EIP, ETHimprovement pro proposal.

Both ETH & ETC started a premise. Basically, they’re just going to pick a number and that’s what we’re going to start out.

ETH started at roughly $72,000,000 coin issuance on July 30th, 2015. Basically, ETH had an ICO (Initial Coin Offering). Everyone who invested some Bitcoins got a proportional amount of the Ethereum. That’s how ETH got started.

Currently, there is a coin issuance rate in the Ethereum, which is 5 ETC per block. Every block happens approximately every 14 to 15 seconds in both the ETH and ETC.

For those of you that are interested, currently ETH and ETC have no limit. There is no hard cap.

For example, Bitcoin has a limit of 21,000,000 Bitcoins. For people who are into sound money, what makes the Bitcoin most appealing is its hard cap. It is very deflationary in the sense that as time goes by, it takes less and less Bitcoin to buy something while the USD is inflationary.

A lot of people like to conflate terms. In cryptocurrencies, they usually say currently ETH has an inflation rate of 37% or something like that. What they’re really talking about is coin issuance rate or money supply growth rate.

What most people think of as inflation is let’s say I have $1 USD and as time goes by, I can buy less and less stuff with that $1 USD. The reason is USD is inflationary. Cryptocurrencies are kind of the opposite. They’re deflationary.

It kind of drives me nut that these people, even some big developers in cryptocurrencies such as Vitalik, saying ETH has an inflationary rate of this and that.

The Ethereum price keeps going up in USD terms. It means ETH is really a deflationary currency.

Some of the ETH developers will argue with you that ETH is not money. For example, Vlad Zamfir, who’s one of the big ETH developers, says that you cannot consider ETH or Bitcoin money because it is not a unit of account.

What that means is people don’t price services or objects in the ETH or Bitcoin and keep it stable.

You may charge in Bitcoin or ETH, but you don’t price it in your head as Bitcoin or Ethereum. For example, someone may say I’m going to charge you $100, but I’d like you to pay me in the equivalent in Bitcoin. That means Bitcoin and ETH is not a unit of account.

In that sense, Vlad Zamfir is right that is one property of Bitcoin and ETH that it lacks that will qualify it as money. However, money is really a medium of exchange.

Can I give you Bitcoins to pay you for something? Absolutely.

Do Bitcoin and ETH hold value? Absolutely, it does.

We’ve seen that over and over again. That’s why it’s used in the darknet. That why it’s been used to purchase items over the net for multiple things. That’s why people charge for their services in Bitcoin and ETH.

The reason is it’s both a medium exchange and a store of value. Plus, it’s more convenient than Fiat money in many instances like international payments and savings.

Let’s not forget that there are certain currencies in the world like the Venezuelan bolivar, which Vlad Zamfir himself has admitted he considered it money, but has lost its unit of account because it is hyperinflationary at the moment.

A year ago, this is just guessing, but it was around 800 or 600 bolivars per USD. Currently, it’s around 1500 or 2000 bolivars for $1 on the black market rate.

It’s very hyperinflationary and that’s what’s causing a lot of the economic chaos men as well, which is why a lot of people like the appeal of cryptocurrencies.

Back to the ETH and ETC, currently ETC is looking to put in the hard fork to implement monetary policy that implements ECIP 1017. By doing that, ETC will have a hard cap, the estimate of which is 211,000,000 ETCs.

This number was picked. I mean it’s somewhat arbitrary. However, if some of you notice, it’s 10 times more than Bitcoin. That was done on purpose.

The reason we have the number 210,000,000 is people in the community feel that it would give early adapters too much advantage in acquiring tokens at a cheaper rate.

If you set it at 210,000,000, which we’ve already done and looked at ETC stats, it’s around 92,000,000.

If you set it at 100,000,000 and we’re already at 92,000,000, that’s somewhat unfair.

Therefore, the plan is when we hit the first 5,000,000, ETC is going to have a tithing, a 20% decrease in the block reward.

Basically, instead of 5 ETC per block, you’re going to have 4 ETC per block for block 5,000,000 to block 10,000,000. I think this is a great strategy and it’s going to make ETC much more valuable in the long run.

For 2036, you’re going to have around 308,000,000 ETH and 192,000,000 ETC. That’s the difference of 100,000,000.

For the first couple of years, that monetary policy is not too different between ETH and ETC, but this is going to change a lot, which is going to make ETC, in my opinion, much more valuable.

If you look into ETH right now, ETH developers aren’t really talking too much about the details of coin issuance/monetary policy in the Ethereum.

You’ll just hear vague statements that once they switched to Casper, inflation is going to be a lot lower. Vitalik even said at one point, it might not go over 100,000,000.

I mean he needs to give us some numbers. Right now, there’s just some uncertainty. If you kept that around 100,000,000, that would be extremely unfair.

There is already 92,000,000 ETH out there and now you’re only going to leave 8,000,000 out there for people to get. As a result, you just let all these early investors get all the ETH cheaply.

Therefore, I think ETC set up a fairer monetary policy. It gives people a chance to get in if they haven’t already. It sets up a hard supply.

Right now as it is, ETH has no hard cap. It all depends on what happens with the move to proof of stake and what the supply rates will be at in the future.

However, with the current attitudes that some of the ETH developers have, they are not too hopeful that they’re going to slow down the coin issuance or monetary policy in ETH. That’s to be seen.

Right now, in ETH, they did a carbon vote for the ETH investment proposal 186. The community overwhelmingly voted to slow down coin issuance in the ETH

Then, ETH foundation developers reacted by saying: “That was controversial. We don’t want to this or that. We don’t want to touch that. We’re going to be implementing metropolis pretty soon. We’re going to be introducing proof of stake in the near future. That’s not going to be a problem. We have difficulty bomb to take care of.”

By the way, ETC took care of that already with their hard fork. In a couple of senses, I think ETC has as done a few things even before ETH has.

We’re not just a copy-paste coin. We’ve done a hard fork. We’ve frozen the difficulty bomb. We did this before an ETH did.

Just to show you that ETC development is chugging along forward and that monetary policy is a big priority for us. We believe in that. This was an overwhelming demand by the ETC community, development teams and IOHK with the ETC dev team were behind it.

A big shout out goes to Snap Roll who came up with ECIP 1017 and did all the hard work for it. He is also the strategic advisor for the ETC dev team.

To recap, monetary policy is in the testing phase right now with the ETC dev team. For the summer, it looks like it’s going to be implemented with a hardford.

12/12/2017 is the estimated date to reach block 5,000,000. We’re currently at block 3,670,000, so we got around 1,400,000 blocks to go.

However, that’s going to be done roughly every 2.38 years. We’re going to see tithing, a 20% decrease in block reward, in the ETC every 2.38 years.

Whereas, in the Ethereum right now, there’s no tithing. There’s no block decrease. Plus, we don’t know anything about monetary policy/ coin issuance for ETH.

I don’t think the ETH developers have been listening to their community in that sense. I don’t think it’s right for them to justify by using a carbon vote the DAO hard fork, but ignore a carbon vote for monetary policy/coin issuance.

Now, a lot of ETH users are under the assumption that they are going to implement EIP 186. However, I don’t see that anywhere in the priority list for ETH.

I just want to contrast ETH and ETC, as well as try to give you the most straight information on that.

That’s your weekly update for today. The video was a little bit longer than I wanted to be. We try to keep it to 10 minutes, but we doubled it. There was a lot to talk about regarding monetary policy.

Apparently, for those of you that want more information, we’re going to post some links, an excel spreadsheet on the monetary policy analysis as well as PDF presentation below the video so that you can check.

Thank you very much for following. Please follow us on twitter at @eth_ classic. I hope you enjoyed it. I hope you are a part of ETC because there is a lot of development coming forward. We’ll have future videos on that when they come along.

Just be safe because there are a lot of scams and bad investments out there. Thank you, everyone. Have a great day.

 

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