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120 million max supply of Ethereum proposed by Vitalik Buterin in proof-of-stake move

Ethereum founder Vitalik Buterin recommended setting the max supply of Ether (ETH) to 120 million in a move that would reduce miner rewards towards zero over ten years.

In a Github entry, he wrote: "In light of the fact that issuing new coins to proof of work miners is no longer an effective way of promoting an egalitarian coin distribution or any other significant policy goal, I propose that we agree on a hard cap for the total quantity of ETH."

Posting on April Fools day, there was confusion over how serious his post was. He ended this debate calling it a "meta-joke". He said: "The proposal is very real in the sense that the words actually were written in the github issue, and the arguments for it are real arguments."

Currently, Ethereum has no limit on the total number of coins that can be generated but fewer than 18m ETH can be mined per year. He suggested a total supply of 120,204,432 ETH, or two times the amount sold in the original sale.

He added that miner rewards could be changed from 3 ETH to a Reward Unit (RU) which would be based on the decreasing difference between the current supply and the total supply. This means that miner rewards would decrease exponentially towards zero.

As miner rewards decrease, the amount of ETH being created over time would slow down. This is because mining rewards are the only way of creating new ETH. The current supply of ETH would exponentially approach the total supply of 120 million.

This comes within a move away from proof-of-work (PoW) where nodes solve computational puzzles to be rewarded with ETH and create the next block. The aim is to move towards proof-of-stake (PoS) where nodes are required to own coins in order to create blocks, giving them an incentive to be honest.

Ethereum has been developing a hybrid PoW/PoS model called Casper. The testnet, in alpha, has only seven active nodes currently and can be accessed here. Its purpose is to allow Ethereum to scale sustainably over time. 

PoW based cryptocurrencies have come under fire for their large energy requirements and the subsequent impact on the environment. Vice reported estimates by Alex de Vries, founder of Digiconomist, stating: "The entire [Ethereum] network could be using as much as 4.2 Terawatt-hours (tWh), or slightly more than the country of Cyprus." Decreasing miner rewards would allow for a transition to PoS over a period of time.

The graphs shown are an approximate representation of the proposed plans. They were calculated as though the miner rewards reduced per month instead of per block, to make the calculation easier, so the increase in supply is likely to be slower.