Does Ethereum (ETH) Have A Cap?

Ethereum ETH Cap

✍️ 29 December, 2022 - 8:22 👤 Editor: Jakub Motyka

Ethereum’s native ETH token does not have a supply cap. But it's interesting to learn why. At inception, the second-largest blockchain had an initial supply of 72 million – where 80% was sold to the public. According to the data from CoinMarketCap, ETH in circulation was 122,373,866 at the time of this writing.

Although Ethereum has not limited the number of circulating ETH, it does not mean that the token is inflationary – or the number of circulating tokens could increase over time. Through several upgrades based on the Ethereum Improvements Proposals (EIP), a monetary policy on the blockchain, Ethereum has turned ETH into a deflationary token. Some of the updates include the EIP-1559 upgrade and the recent Ethereum proof of stake merge.

How Ethereum’s Upgrades In The Past Have Changed ETH Supply

EIP-1559, came out in August 2021, increasing the block size needed for generating new coins and burning transaction fees, for the proof of work miners. With the EIP-1559, base fees are instantly burned on Ethereum, except for the priority fees - paid to have transactions processed faster.

ethereum inversión
The EIP-1559 update changed how things work in Ethereum (ETH).

Similarly, the 2021’s upgrade removed a portion of ETH transactions entirely from circulation. It means that when the transactions are at peak, more coins are burned much faster than they are minted.

How The Merge Has Changed ETH Supply

Ethereum’s transition to the proof of stake consensus also reduced inflation in the blockchain. The new protocol rewards users based on the number of staked tokens, unlike the previous model, proof of work, where miners competed to solve complex mathematical puzzles to earn rewards.

The migration – commonly referred to as the Merge - removed mining rewards for the PoW miners. Instead, the PoS model uses a floating scale between the amount of staked Ether by the network validators and the interest they can earn.

Experts argue that the reason Ethereum does not have a supply cap - unlike Bitcoin, whose supply is limited to 21 million - is because of DeFi. The Ethereum developers believe that the token will be more suitable to the emerging DeFi space with unrestricted supply. Currently, ETH ranks second in the crypto list with a market valuation of $147 billion. At the time of this writing, the smart contract token was trading at $1,209.

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Jared Kirui
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