Bitcoin rightly gobbles up all the headlines when it comes to crypto. Afterall, It’s earned its right to being the premier token, leading the rest of the chasing altcoin pack in value, popularity and global adoption.
Today, Bitcoin is more than just a a cryptocurrency- it’s a digital symbol that represents everything the blockchain stands for. However, with its supply capped at just 21 million tokens, BTC is fast attaining the rarity of diamonds.
As such, the attentions of investors and crypto enthusiasts alike have turned to the next best thing, Ethereum.
Ethereum- whose introduction of decentralization and smart contracts so completely revolutionized the blockchain industry- has a unique supply model, which affects its value and primes it for peak performance in the markets for years to come.
So, how many Ethereum are there? And, what can you learn from it as you develop your trading strategies? We learn about this and more in the article below!
Understanding Ethereum: An Overview
The idea for Ethereum, the world’s second-largest crypto by market cap, was born in 2013 by a programmer named Vitalik Buterin. By 2015, he’d created a platform more versatile than Bitcoin.
Ethereum wasn’t just another cryptocurrency. From the get-go, it allowed developers to build smart contracts. These contracts are like digital promises that execute themselves when conditions are met. No middlemen. Just code.
Over the years, Ethereum has evolved, undergoing several upgrades. Each one made it faster and more secure. Perhaps the the biggest change came in the shift from Proof of Work (PoW) to Proof of Stake (PoS).
This move promised to make Ethereum more eco-friendly and efficient, unlike Bitcoin’s ecosystem, which consumed huge amounts of energy.
But Ethereum’s journey isn’t just about tech. It’s about community, too. Developers, investors, and enthusiasts around the world rally behind it. They believe in its potential and push it forward.
Today, Ethereum has revolutionized the world of blockchain in more ways than one, opening doors to decentralized finance (DeFi). It’s also paved the way for non-fungible tokens (NFTs), with most of that innovation built on its blockchain.
Key Technological Aspects of Ethereum
Alright, let’s get into the nuts and bolts of Ethereum. What makes it tick? How does it stand out? Let’s break it down.
Smart Contracts
To start with, you need to know what smart contracts are, as they’re the backbone of Ethereum. They’re self-executing contracts with the terms written into code. No need for a middleman.
When you use Ethereum, you’re tapping into a network that can automate complex processes with just a few lines of code.
Cool, right?
Ethereum Virtual Machine
Next, we have the Ethereum Virtual Machine (EVM), which is as the engine that powers the Ethereum blockchain and runs the smart contracts.
Every node in the Ethereum network has a copy of the EVM and they all work together to keep the network secure and operational. The EVM makes Ethereum a versatile platform where developers can create decentralized applications (DApps) that do all sorts of things, from managing digital identities to running decentralized finance platforms.
Gas
Then, there’s the concept of gas. In Ethereum, gas is the fee you pay to execute transactions and run smart contracts. The more complex the transaction, the more gas you need. This gas fee incentivizes validators to include your transaction in the blockchain.
Without it, the network could get clogged with low-value or spam transactions. So, gas ensures that only meaningful and valuable transactions make it through.
Proof of Stake
Initially, Ethereum used Proof of Work (PoW), just like Bitcoin. This involved miners solving complex mathematical problems to validate Ethereum transactions and secure the network.
But this method consumes a lot of energy, so in 2022, Ethereum moved to Proof of Stake (PoS). Instead of miners, you have validators who’re chosen to create new blocks based on how much ETH they hold and are willing to “stake” as collateral.
This change made Ethereum greener and more efficient. Now, validators don’t need massive amounts of electricity, just a commitment to the network’s integrity.
Decentralization
Another essential aspect is Ethereum’s decentralization. No single entity controls Ethereum, as it’s a global network of computers working together.
This decentralization makes Ethereum secure and resistant to censorship. Ethereum also supports a wide range of token standards, the most famous being ERC-20 and ERC-721.
ERC-20 tokens are fungible, meaning each token is identical and interchangeable. They’re used for things like stablecoins and utility tokens. On the other hand, ERC-721 tokens are non-fungible, each one unique.
These are the backbone of NFTs, which have taken the art and gaming worlds by storm. With these standards, Ethereum enables the creation of new digital assets and economies.
How Many Ethereum Are There in Circulation?
Today, Ethereum has a circulating supply of 120.11 million coins and a max supply of 120.11 million ETH.
However, it doesn’t have a fixed supply like Bitcoin. Instead, it’s more dynamic. This number changes regularly due to new issuance and burning mechanisms.
To monitor the circulating supply, you can use blockchain explorers and platforms like Etherscan. These tools track every transaction and give you a real-time snapshot of the network.
These platforms analyze blockchain data to provide accurate and up-to-date information about the total number of ETH in circulation.
Historical Circulating Supply from 2016 to Present
Back in 2016, Ethereum’s circulating supply then was much lower, around 80 million ETH. However, as more people discovered its potential, more Ethereum coins entered the market.
Each year, more ETH was mined, adding to the Ethereum supply. But it wasn’t just a steady climb. There were moments of excitement and change. For instance, in 2021, Ethereum introduced a major upgrade called EIP-1559. This upgrade changed the way transaction fees worked and introduced a burning mechanism.
With every transaction, a small amount of ETH gets destroyed, reducing the Ethereum supply slightly. This burning process is like digital pruning, keeping the network healthy and balanced.
Between 2016 and 2021, the Ethereum supply grew steadily, reflecting the increasing popularity and usage of the Ethereum network. In 2017, the Ethereum supply reached approximately 96 million ETH. By 2018, it was around 103 million ETH. The growth rate was influenced by the block reward for miners, which initially was 5 ETH per block but was later reduced to 3 ETH and then to 2 ETH per block to manage inflation.
The introduction of EIP-1559 in 2021 marked a significant shift as it aimed to make transaction fees more predictable and reduce the total Ethereum supply over time through the burning mechanism.
Since its implementation, millions of ETH have been burned, gradually decreasing the overall supply. This burning mechanism has introduced a deflationary aspect to Ethereum, contrasting with the previous inflationary trend.
But you might ask the question, “why does the circulating supply matter?” Well, it affects everything from the price of ETH to the overall health of the Ethereum network.
More ETH in circulation can mean more liquidity, but it can also put downward pressure on prices if demand doesn’t keep up. Conversely, mechanisms that reduce supply, like burning, can help support higher prices by making ETH scarcer.
Is There a Maximum Supply of ETH?
Unlike Bitcoin, Ethereum doesn’t have a hard cap on its total supply. But there’s more to the story.
When Ethereum was launched, there wasn’t a fixed limit on the number of ETH that could exist. This was a deliberate choice by its creators, who wanted to create a flexible and adaptive system.
Initially, the plan was to issue 18 million Ethereum tokens per year. This seemed reasonable for a network that was still in its early stages and needed to grow.
So, Ethereum’s monetary policy isn’t set in stone. Over time, the community has made adjustments to manage the supply more effectively. One of the most significant changes came with the introduction of EIP-1559 in 2021. This upgrade didn’t just tweak the way transaction fees worked; it also added a deflationary mechanism by burning a portion of the fees.
Another key development in Ethereum’s approach to supply is the transition to Proof of Stake (PoS) with Ethereum 2.0. Under the old Proof of Work (PoW) system, miners were rewarded with new ETH for validating transactions.
This process was energy-intensive and added a steady stream of new ETH to the supply. With PoS, validators (who hold and lock up ETH as collateral) are selected to create new blocks. This method is not only more energy-efficient but also expected to significantly reduce the issuance rate of new ETH. The shift to PoS can be seen as Ethereum’s move towards a greener, more sustainable future.
Comparisons with Bitcoin’s Supply Structure
While Ethereum’s supply structure is a bit more varied, Bitcoin, on the other hand, has a clear-cut supply limit.
As such, there will only ever be 21 million bitcoins. This hard cap is built into Bitcoin’s code and is one of its defining features. Every four years, Bitcoin undergoes a halving event, reducing the reward miners receive by half. This halving process continues until all 21 million bitcoins are mined, expected to happen around the year 2140.
Bitcoin’s fixed supply is often seen as a way to ensure scarcity, which can drive value over time. It’s like a digital version of gold, where the limited supply creates a perception of value and security. Bitcoin’s scarcity is a major selling point, appealing to those who see it as a hedge against inflation and a store of value.
Ethereum’s approach is more like a dynamic, evolving system. It’s not bound by a strict cap but is instead managed through community decisions and technological upgrades. The introduction of the Proof of Stake (PoS) consensus mechanism with Ethereum 2.0 is another example of this adaptability.
PoS is expected to further reduce the issuance rate of ETH, making the network more efficient and potentially more deflationary.
So, it’s clear to see that Bitcoin’s supply structure is rigid and predictable. This rigidity is part of what gives Bitcoin its appeal as “digital gold.” On the flip side, Ethereum’s flexible supply allows for growth and adaptability, ensuring it can meet the demands of its ever-evolving ecosystem.
The Total Supply of Ethereum
Now that we’ve covered the circulating supply and Ethereum’s approach to a supply cap, let’s talk about the total supply of Ethereum.
Definitions of Total vs. Circulating Supply
Total supply of Ethereum is the sum of all Ethereum tokens that have ever been created minus any ETH that has been burned or destroyed.
On the other hand, the circulating supply is the amount of ETH that is currently available and can be traded on the open market.
So, why does this distinction matter? Well, the total supply gives us a sense of the entire scale of Ethereum’s issuance over time, while the circulating supply tells us what’s actually in play at any given moment. It’s the difference between knowing how much gold has ever been mined versus how much gold is currently being traded in markets.
Factors Affecting Total Supply
Several factors influence Ethereum’s total supply, including:
Issuance Rate
This is the rate at which new ETH is created. Initially, Ethereum had a high issuance rate to incentivize miners and secure the network. Over time, this rate has been reduced to control inflation.
The shift from Proof of Work (PoW) to Proof of Stake (PoS) will further decrease the issuance rate, making new ETH scarcer.
When Ethereum first launched, it had a relatively high issuance rate. This was necessary to attract miners to the network and ensure its security. In the early days, the block reward was 5 ETH per block. This high reward encouraged miners to dedicate resources to securing the network.
However, to prevent excessive inflation, Ethereum’s community decided to reduce the block reward. In 2017, the block reward was decreased to 3 ETH per block. Later, it was further reduced to 2 ETH per block. These reductions helped slow the growth of the total supply.
Also, the transition to PoS with Ethereum 2.0 represents a significant shift in how new ETH is issued. Instead of miners, validators who hold and lock up ETH will be responsible for creating new blocks. This method is expected to significantly reduce the issuance rate, making ETH more scarce and potentially increasing its value over time.
Burning Mechanisms
As mentioned earlier, Ethereum introduced EIP-1559, which burns a portion of the transaction fees. This burning reduces the total supply, acting like a counterweight to the issuance of new ETH. It’s a balancing act that helps stabilize the ETH supply.
Implemented in August 2021, EIP-1559 was a game-changer. It introduced a base fee that is burned with each transaction, effectively reducing the total supply of ETH. This mechanism aims to make transaction fees more predictable and reduce supply inflation. Since its implementation, millions of ETH have been burned, contributing to a more deflationary supply model.
Network Upgrades
Each upgrade to the Ethereum network can impact the total supply. For example, Ethereum 2.0’s transition to PoS changes the dynamics of how ETH is created and distributed. These upgrades are designed to make the network more efficient and secure, and they often come with changes to the monetary policy.
The Ethereum 2.0 upgrade, not only makes the network more energy-efficient but also impacts the total ETH supply by reducing the issuance rate. Validators will earn rewards based on their stake, and the overall issuance is expected to decrease.
Over the years, Ethereum has undergone several upgrades that have impacted its supply. These include Byzantium, Constantinople, and Istanbul. Each upgrade brought improvements to scalability, security, and efficiency, and often included changes to the issuance model.
Lost ETH Coins
Over the years, some ETH has been lost due to forgotten passwords, lost private keys, and other mishaps. This lost ETH effectively reduces the total supply since it’s no longer accessible or usable.
It’s estimated that a significant amount of ETH is lost due to users losing access to their private keys. These funds are effectively removed from circulation, reducing the total supply. While it’s hard to quantify exactly how much ETH is lost, it’s believed to be a substantial amount.
Lost ETH acts as a deflationary force. Since these funds are no longer accessible, they reduce the effective total supply, potentially increasing the scarcity and value of the remaining ETH.
Smart Contract Lockups
ETH locked in smart contracts, such as those in decentralized finance (DeFi) protocols, can also affect the perceived supply.
These protocols offer financial services such as lending, borrowing, and trading without intermediaries. ETH locked in these protocols is not immediately available for trading, reducing the effective circulating supply.
Also, with the introduction of PoS, ETH can be staked to secure the network. Validators lock up their ETH as collateral, and this locked ETH is not available for trading. As more ETH is staked, the circulating supply decreases.
Impact of Network Upgrades on Ethereum’s Supply
Ethereum is always evolving. Network upgrades are a big part of this evolution, as they help make the network more efficient, secure, and scalable. But these upgrades also impact the supply of Ethereum. Here’s how these changes shape the total and circulating supply of ETH.
The Transition to Ethereum 2.0
One of the most significant upgrades in Ethereum’s history is the transition to Ethereum 2.0. This upgrade has brought big changes, especially in how the network operates and issues new ETH.
The transition to Ethereum 2.0 wasn’t a single event but a series of upgrades. It started with the Beacon Chain in December 2020, which introduced Proof of Stake (PoS). Next, the Merge connected the current Ethereum mainnet with the Beacon Chain, fully transitioning the network to PoS.
Finally, the shard chains improved scalability by spreading the network load across 64 new chains.
Additionally. the switch from Proof of Work (PoW) to PoS has been a game-changer. In PoW, miners use a lot of computational power to validate transactions and earn new ETH. This process is energy-intensive and adds a steady stream of new ETH to the supply.
With PoS, validators are chosen to create new blocks based on the amount of ETH they hold and are willing to “stake” as collateral. This method is much more energy-efficient and is expected to significantly reduce the issuance rate of new ETH.
Issuance Rate Reduction
Under PoW, about 13,500 new Ethereum coins were issued each day. With PoS, this number has expected to drop dramatically, reducing new issuance by up to 90%. This decrease is akin to turning off a fire hose and replacing it with a trickle, which helps curb inflation and could make ETH scarcer over time.
The Move from Proof of Work (PoW) to Proof of Stake (PoS)
The shift from PoW to PoS is not just about efficiency; it also has profound implications for Ethereum’s supply dynamics.
PoW requires massive amounts of electricity, often drawing criticism for its environmental footprint. PoS, on the other hand, requires far less energy. This shift makes Ethereum more sustainable and environmentally friendly, which is crucial for its long-term viability.
PoS also changes the economic incentives for network participants. Validators earn rewards based on the amount of ETH they stake. This mechanism encourages long-term holding of ETH, as validators need to lock up their funds to participate in the validation process. The more ETH is staked, the less is available in the circulating supply, which can put upward pressure on prices.
PoS aims to enhance network security and decentralization. By lowering the barrier to entry for becoming a validator, PoS encourages more participants to join, spreading out the network’s control and making it more secure.
A more decentralized network is harder to attack and censor, maintaining the integrity of the Ethereum blockchain.
Finally, the transition to PoS coincides with other supply-reducing mechanisms like EIP-1559. With EIP-1559, a portion of the transaction fees is burned, reducing the total supply. This burn mechanism, combined with the reduced issuance under PoS, creates a deflationary effect, potentially increasing the value of ETH over time.
Other Significant Upgrades
Apart from Ethereum 2.0, there have been other notable upgrades that have impacted Ethereum’s supply.
Byzantium and Constantinople introduced various improvements to Ethereum’s functionality and security. They also included changes to the block reward, reducing it to manage inflation.
Also, upgrades Istanbul and Berlin further enhanced Ethereum’s efficiency and scalability. They included optimizations that affected gas costs and transaction speeds, indirectly impacting the demand and supply dynamics of ETH.
Finally, the latest upgrade, Dencun, which went live in March 2024 includes nine improvements designed to boost network scalability, reduce transaction fees and boost security. Most notably, the upgrade brings proto-danksharding to Ethereum, which reduces gas fees by enabling the network to process Layer-2 (L2) transaction data more efficiently.
In short, Dencun has changed how data is stored on Ethereum, making it more accessible and also less costly to record layer 2 transactions.
While the contents of the next upgrade, “Pectra,” aren’t finished yet, it appears that the developers aim to ship it while simultaneously working on the chain’s next upgrade.
In an interview, Tim Beiko, the Ethereum protocol support lead at the stated “The idea with Pectra is to try and find a bunch of small wins that we can get relatively quickly while we prototype the larger stuff.’’
As you can see, the network upgrades are a vital part of Ethereum’s journey. They enhance the network’s performance and security while also impacting the supply dynamics of ETH. The transition to Ethereum 2.0 and the shift to PoS are particularly significant, marking a new era for Ethereum. These changes are expected to make ETH scarcer and more valuable, benefiting both the network and its users.
The Future of Ethereum’s Supply
Looking ahead, what does the future hold for Ethereum’s supply? Let’s explore some projections and implications.
Projections for Post-Upgrade Supply Dynamics
With the full implementation of Ethereum 2.0 and the transition to PoS, the supply dynamics of Ethereum will change. The reduced issuance rate and ongoing burning mechanisms are expected to create a more deflationary environment.
The shift to PoS is expected to reduce the issuance rate of new ETH by up to 90%. This means fewer new ETH will enter the market, potentially increasing scarcity and value.
Also, the burning of ETH through transaction fees will continue to play a significant role. As the network grows and more transactions occur, more ETH will be burned, further reducing the supply.
Long-Term Implications for Ethereum Investors
For investments, he reduced supply growth and deflationary pressures could make ETH a more attractive investment.
Scarcity often leads to higher value. With less new ETH being created and more being burned, the remaining ETH could become more valuable over time.
With the new Ethereum protocol also introducing the concept of staking rewards, investors who stake their ETH to secure the network can earn rewards, providing a new way to generate income from their holdings.
In-Depth: The Future of Cryptocurrency and Blockchain Technology
Ethereum isn’t just about ETH. It’s a platform that supports a vast ecosystem of decentralized applications, DeFi protocols, and NFTs. The ongoing upgrades will likely enhance Ethereum’s position as a leading blockchain platform.
The introduction of shard chains will improve Ethereum’s scalability, making it capable of handling more transactions and supporting more complex applications.
As Ethereum continues to evolve, it will likely see increased adoption and innovation. More developers will build on Ethereum, creating new applications and use cases that drive demand for ETH.
Exploring Other Major Cryptocurrencies and Their Supply Mechanisms
While Ethereum has its unique approach to supply, it’s worth comparing it to other major cryptocurrencies.
In the case of Bitcoin, there’s a fixed supply cap of 21 million. This scarcity model has made Bitcoin a popular store of value, often compared to digital gold.
On the other altcoins like Cardano and Solana that also use PoS and have their own unique supply mechanisms.
Wrapping
Ethereum’s supply story is dynamic and evolving. From its flexible issuance model to the impact of burning mechanisms and the transition to PoS, Ethereum’s approach to supply is innovative and adaptable.
These changes affect ETH’s value and distribution and shape the future of the entire Ethereum ecosystem.
While early investors appear to be the big winners in the Ethereum success story, the rapidly-evolving blockchain ecosystem means that newbies can also get in on the act and take advantage of what Ethereum’s unique ecosystem offers.
For the foreseeable future, Ethereum looks primed to be the digital “silver” to Bitcoin’s “gold”.
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