Mathematically speaking, there is no end to how many Ethereum Classic tokens we can have. For example, currently there are nearly 13 million ETC being created each year to meet market supply. However, this has been seen by many experts to be a faulty business model, and thus come December, Ethereum Classic plans on implementing a new policy that limits the supply of tokens. The final goal of this move will be to make the asset more steady and stable. Similarly, markets in recent weeks have shown a substantial gain in the value of ETC as direct result of this news.
Why Can't We Just Have an Endless Supply of Tokens?
This is a perfectly valid question, for which the simple answer is that, the more the assets available, the lower their value. Ethereum Classic, when created was envisioned to be a currency that had no maximum limits in terms of tokens. This is in contrast to Bitcoin, which we all know has a cap of 21 million units. The principle that drove the ‘unlimited supply theory’ was that ETC would be used for payments for regular items and shopping, thus there needed to be a strong supply of the tokens.
With that being said, if the supply is limited a lot, it can make payments almost impossible. If the total token quantity remains constant, it can become impractical for such a currency to grow in a highly competitive business environment. In relation to this matter, many media outlets recently asked Vitalik Buterin (the co founder of ethereum) for his opinion. He said ‘the company is considered implementing various way to “burn”, or destroy ether, to control its supply”.
What Is Being Proposed?
In order to regulate ETC, there have been many guidelines that have been issued in the upcoming ECIP 1017 monetary policy statement. According to the release, it is stated that “starting on December 12th, the block reward will drop from 5 to 4 ETC. This downward trend will continue until eventually the block reward is zero.”
What this basically means is that there will be a maximum hard cap of somewhere between 210 and 230 million ETC tokens. As a result of this, there will be an end to unlimited token creation, and will give rise to a more ‘deflationary economic model’.
Deflationary Vs Inflationary Model
A deflationary model is one in which the assets grow in value over time. It is preferable to inflationary models because as time goes on the currency grows in strength rather than the other way around. Since investors like currencies that grow in value over time, they will not want to own currencies whose value drops with each passing year. According to gastracker.io, a majority of the Ethereum community (90% of all members) is in support of the changes proposed in the ECIP 2017 statement
While some may think this move is bad for ETC in the long run, token prices have skyrocketed and nearly tripled within the last month alone. According to financial reports released at the recent ETC Summit in Hong Kong, average token prices have increased by as much as 300 percent.
For example, prior to this conference, the value of 1 ETC was hovering around the $9-12 USD range. After the commencement of the summit, prices reached highs that exceeded $30 in some markets. Insider reports have shown that a bulk of the money has come from South Korea.