Vitalik Buterin, the founder of Ethereum, during a recent session with some researchers and developers of Ethereum 2.0, said that it will be possible to reduce ETH inflation by about 2/3 towards the end of next year.
In the future, there will also be a further reduction in ETH issued as a reward for each block validated by the upcoming PoS-based consensus.
Reducing ETH issuance by the end of 2020
All this will happen when the Ethereum blockchain governed by the traditional Proof of Work (PoW) begins to interface with the Beacon chain. According to Justin Drake, a renowned ETH developer, the first phase will start around November 2020.
In addition, according to Drake, the issuance of new ETH could be further reduced in 2021. Carl Beekhuizen said:
“In order for Eth2 to finalise Eth1, 2 things are needed, Eth2 must vote on Eth1 (as is implemented as you point out) and Eth1 must change its fork rule to follow the finalised blocks on Eth1. The latter requirement requires an Eth1 hardfork. It is therefore easier to just have validator finalise the things you mention for now and later on add in Eth1 finalisation. Additionally, it is safer to launch without Eth1 finalisation in case of a Eth2 black-swan event in the early days”.
Initially, the Beacon chain will be aware of the existence of the classic PoW-based chain including the block headers. The network will operate in this way for a few months, so the PoW chain will not be affected by the Beacon chain.
Then, once the changes are finalised and approved as reported by Beekhuizen, the Beacon stakers will coordinate the decentralised checkpoints on the PoW-based blockchain. Decentralised checkpoints will then be created which will function as new genesis blocks created every 100 blocks.
This will considerably increase the safety of the PoW. There will, therefore, be less need for miners, and so the issuance of ETH for the verification of new blocks will be reduced to about 0.7 ETH per block.
Eventually, the PoW chain will be integrated into the PoS one and at that point, there will be no need for PoW, so the issuance of new ether will drop to about 0.22 ETH.
To do this, it will first be necessary to implement the checkpoints. This will take place in the autumn of 2020 or in the spring of 2021. At that point, the issuance of new ETH will be reduced from 0.7 to 0.22 ETH. This represents a 10-fold reduction of the current inflation rate.
Drake also revealed that Ethereum 2.0 may reach a negative issuance rate in the future. This will simply be caused by the fact that a large amount of ETH will be burned by the transaction fees.