Monetary Policy in UbiqOne of the main defining aspects of Bitcoin is its monetary policy (also described as inflation control) and how it has programmed in block halvings roughly every 4 years. This serves to incentivize early participation in the network and attempts to simulate scarcity and a diminishing supply. Thus far this has worked out well for Bitcoin but there are concerns that this may not work out in future with incentivized rewards per block approaching 0.
Ethereum on the other hand was designed with different aspects in mind. Their initial distribution was largely a premine as well as coins distributed through an ICO process. 60 million ETH went to the ICO buyers and 12 million were premined for the developers[1]. As such, the monetary policy during the Proof of Work period wasn't defined and we have the situation where a static 5 ETH is mined every 14 second block[2] (not including rewards for Uncles). The promise here is that Ethereum would be moving to a Proof of Stake model where the coin inflation and incentive model for the network would change.
If we run some rough calculations, Block 0 generated on July 30th, 2015. Current coin supply stands at 88,138,955.03 ETHER so roughly 16,138,955.0 ETHER has been mined via Proof of Work in the past 1.48 years.
Below is a table which outlines this relative inflation rate should Proof of Work continue forever (disregarding the switch to Proof of Stake and Difficulty Bomb which will slow block times).
Here we can see the criticisms of Ethereum where it is said to not implement a monetary policy as yearly coin supply inflation remains the same and is high. The lack of monetary policy then also extends to Ethereum forks such as Ethereum Classic or Expanse which as of writing this have not implemented any monetary policy in code.
In Ubiq we wanted to program in the option of staying with Proof of Work indefinitely should it prove to be viable long term. There are many aspects we will consider in terms of viability such as overall health of the Proof of Work network, coin distribution but ultimately we foresee a future where we may run as a Proof of Work network forever. With Ubiq we plan on running a Proof of Work network for a minimum of 1 year before considering and evaluating any switching to a Proof of Stake scheme.
With our designed monetary policy, block rewards will start out at 8 and decrease by 1 yearly until it reaches a minimum of 1 UBQ per block.
This monetary policy is illustrated in the table below.
Here we can see that in year 8 onwards, approximately 358,364 UBQ are mined per year but this gives a slow tapering effect on the yearly inflation rate from 0.73% per year. In essence, this is similar to the long term inflation scheme of Monero[3] which provides a constant "tail emission" of 0.6 XMR per 2-minutes block (0.87% yearly inflation around May 2022) as opposed to the infinite block halvings of Bitcoin.
Finally, it should be noted that we have successfully tested out the code related to this monetary policy in our Testnet[4]. We look forward to bringing you the first Ethereum fork with an implemented monetary policy in less than 1 weeks time!
References:1.
https://www.reddit.com/r/ethereum/comments/3i845f/what_is_the_formula_of_the_total_supply_of_ether/2.
https://etherscan.io/chart/blocktime3.
https://en.wikipedia.org/wiki/Monero_(cryptocurrency)#Features4.
https://bitcointalk.org/index.php?topic=1631210.msg17124126#msg17124126 Very nice dev, I like how this leaves the communities options open regarding whether or not to switch to POS down the road. Congrats on being the first Ethereum fork with an implemented monetary policy! I'm glad to be on board and excited for the ride.
