Ethereum Developers Vote to Reduce Block Rewards to Tackle Inflation

Developers’ Decision

In light of delays in Ethereum’s move to Proof of Stake protocol, Casper, there has been a lively debate on how to deal with inflation in the Ethereum eco-system. After long discussions, the core developer team has now taken the decision to reduce the block reward from 3 to 2 Ether. The decision was made in the core developer meeting on Friday 31 August.

Ethereum’s native cryptocurrency, Ether, is inflationary. As blocks are mined, new Ether is created and awarded to the miners. In contrast to Bitcoin, producers of stale blocks, so-called uncles, are also paid a smaller block reward. This is due to the low block time in Ethereum, which results in a greater probability of stale blocks. Currently, Ether supply increases by around 7.3% annually. Casper promised to reduce this to 2-4%, with Vitalik Buterin even stating 0.5-2% would be possible.

Inflation was meant to be greatly reduced with Ethereum’s move to proof of stake. However, since this has been delayed, a number of proposals were put forward to reduce inflation, resulting in a community debate. The discussion not only included the Ether issuance rate, but also the removal or postponement of the difficulty timebomb. The difficulty timebomb is a built-in protocol feature aimed at making Ethereum mining much harder to motivate the community to migrate to proof of stake.

Several proposals were on the table including the following:

  • EIP-858 proposed to reduce the block reward to 1 ETH and delay the difficulty time bomb
  • Leave issuance rate unchanged and removing difficulty timebomb
  • EIP-1227 favored and increased issuance of 5 ETH per block and removing the difficulty timebomb
  • Reduce the block reward to 2 ETH and delay the difficulty timebomb by 12 months (EIP-1234)

Although a one-month long community vote resulted in 72% support for EIP-858, the Ethereum core dev team voted for EIP-1234, reducing the block reward to 2 ETH and delaying the difficulty timebomb by 12 months.

Why this Vote Matters?

The recent decision is important for two technical reasons: First of all, too much inflation is generally considered to be a bad thing and bringing down monetary issuance from an annual 7.3% to an estimated 4.8% is surely a step in the right direction. Secondly, the delay of the difficulty timebomb allows for more time to get proof of stake right, instead of rushing out a half-baked solution. The Ethereum ecosystem has now grown too large to afford introducing large-scale protocol flaws due to insufficiently tested software releases.

From a non-technical point of view, the decision is also significant. Critics have already stated that 14 developers seem to have taken a decision that went against the outcome of the poll cited above. Unsurprisingly, the EOS community, often criticized for centralization, were amongst the first to point this out.

Governance of Ethereum, and blockchains in general, is a delicate matter and good solutions are yet to be found. Maybe Ethereum’s pragmatic approach is less decentralized than intended, but avoids endless blockages, as in Bitcoin’s scaling debate. After all, the ultimate vote will be acceptance of the upgrade in the upcoming hard fork.

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Dr. Stefan Beyer
Dr. Stefan Beyer is editor-at-large at BlockTelegraph and a Blockchain consultant and smart contract auditor. He graduated from the University of Manchester in 2001 with a degree in Computer Science and obtained a Ph.D. in 2004 from the same university with the title “Dynamic Configuration of Embedded Operating Systems”. Since then he has worked in computer science research in distributed systems, fault tolerance, ubiquitous computing and cyber security. He is currently working as head of research and development for a medium-sized cyber security company in Spain.

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