Ethereum founder Vitalik Buterin discussed the monetary policy of EIP-1559 and Ethereum 2.0 in an interview with POV Crypto Podcast.
The difference between Ethereum and Bitcoin
Buterin first talked about the difference between Ethereum and Bitcoin, and the “Internet currency dispute” between the two.
Buterin said that although Bitcoin and Ethereum “do things that are sometimes the same and sometimes different”, both cryptocurrencies have the same intention, namely to create a decentralized base layer and be able to build other on this basis. application.
He believes that the two applications have different emphasis. The main idea of Bitcoin is to use payment solutions such as Lightning Network to realize the function of value storage and exchange medium, while the idea of Ethereum is to build applications through intelligent design.
In addition, Buterin also talked about the advantages of Proof of Work (PoW), and called 2009 the “golden age” of the consensus algorithm. He emphasized that PoW allows anyone with a computer to participate in bitcoin mining, which is very important, but due to the 2013 GPU and ASIC revolution, this golden era has ended. After that, users must “own $ 10 million” to participate in the PoW network.
Buterin said that for Ethereum, the PoW algorithm initially had a positive impact, because this issuance mechanism makes ETH “distributed more fairly.”
Nevertheless, as a cryptocurrency issuance and distribution mechanism, the value of the PoW algorithm is declining “year by year”. He classifies the PoW algorithm as a mechanism that can benefit from the ecosystem, but the mechanism has reached a mature stage and its advantages have been waning.
Next, Buterin explained the advantages of proof of stake over proof of work. Currently, Ethereum is transitioning to Ethereum 2.0’s PoS algorithm. In this sense, the “Topaz” testnet has the ETH 2.0 mainnet configuration. Buterin clarified that PoS is not a distribution mechanism, but a mechanism with more advantages in terms of issuance policies.
“One of the reasons why the proof of equity is implemented is that we want to reduce the issuance volume by a large amount. The issuance volume is currently declining. If everyone actually participates, the theoretical maximum issuance volume will be about 2 million per year. The ETH 2.0 specification has already Publish this calculation result. “
Buterin said that according to the current level of participation in the Topaz testnet, the annual circulation is about 100,000 ETH. Therefore, he expects to issue 100,000 to 2 million ETH each year after launching Ethereum 2.0. In contrast, the current circulation of Ethereum is much higher, about 4.5 million ETH per year.
EIP-1559 and its impact on Ethereum’s monetary policy
Buterin also briefly introduced EIP-1559 and its impact on Ethereum’s monetary policy.
Reduce supply through destruction
Buterin mentioned that because each fee needs to be destroyed, when the transaction volume is high, the net decrease in total circulation is significant. “This is the basic cost parameter targeted by this proposal,” he explained. After sending a transaction, the transaction fee is divided into two parts-one part is given to the miner as a “tip” and the other part is destroyed.
New variable: block size
Another important upgrade of the Ethereum network is to adjust the block size based on network activity, rather than adjusting transaction fees.
“The reason for this is that for every 10 million Gases generated, the basic transaction fees are automatically adjusted, but the block size is not always 10 million Gases …”
“In this market, the best transaction fees are difficult to predict. For those who are unwilling to pay large transaction fees and therefore have to wait for the transaction to be packaged, it is a loss. But in fact, this waiting does not make any People benefit, and the network will not benefit from it. “
Therefore, this upgrade will help solve some of the problems that users are currently facing, such as the best transaction fees are difficult to predict and the transaction processing time is too long.