Gateway to provide feedback: Interest/inflation in Ethereum 2.0
This document is to welcome economics-oriented folk outside the Ethereum community. Or perhaps you are in Ethereum, but eating a donut for a few minutes and did not see Justin Drake’s call for community feedback on interest/inflation in Ethereum 2.0.
Some background (taking a deep breath here)
The next generation Ethereum 2.0 (or “Serenity”) employs a tiered architecture and database sharding techniques in order to scale, and will operate side-by-side with Ethereum 1.0. The new 2.0 system will employ a proof of stake (“Casper”) approach to validate blocks and generally to secure the network. In contrast, the proof of work (“ethash”) approach is used in the current Ethereum 1.0.
To accomplish proof of stake in 2.0, stakers will need to be incentivized to participate in the block validation process (as well as penalized/slashed for violations). The validator’s stake will involve “locking up” Ethereum 1.0 ether, liberating Ethereum 2.0 ether in the new system.
This mechanism, as well as the ongoing rewards for staking will cause an inflationary effect on the ether supply in the 2.0 network, similar to the widely observed miner rewards effect in the current 1.0 network. And if enough 1.0 ether holders participate in the 2.0 staking, could there be a deflationary effect in the 1.0 network?
Eric Conner has created an excellent overview of Ethereum 2.0 economics. This document covers important incentive-related details of the current specification.
The discussion about staking payouts
In the EthResearch Forum post economic incentives of staking in Serenity, Eric Conner opened a discussion about this “sliding scale of staking payouts versus total network at stake”.
As I see it, the ongoing Research discussions primarily focus on incentives for the stakers (who are critical to maintaining the security of the blockchain), not on the potential macro-economic side-effects of the ether inflation rate. Eric widens this discussion by relating Ethereum economic incentives with those of other blockchain economies.
In some discussions online, Vitalik Buterin has asserted that the Ethereum economy is abnormal and macro effects such as inflation/deflation may not matter as much as preventing miners from gaining too much power from their rewards. In contrast, I believe that there needs to be more study and proof in order to leave macro-economic effects out of consideration in adjusting the parameters of the nascent Ethereum economy which lead to changes in the ether supply.
Instead of replying to this Medium article, please participate in the discussion on the EthResearch Forum.
https://ethresear.ch/t/the-economic-incentives-of-staking-in-serenity/4157
