Will the Decline in Ethereum Supply Inflation to Near 0 Percent by 2022 Positively Benefit ETH?

Last year, the inflation rate of ether, the native cryptocurrency of Ethereum, was around 17 percent.

Ethereum researcher Eric Conner explained that the release of every major hard fork or solution, such as Constantinople and Casper, will drop the inflation rate of ether by large margins.

In 2014, Ethereum co-creator and ConsenSys CEO Joseph Lubin explicitly explained the purpose of the inflation in the supply of ETH. Lubin stated that while the supply of ETH increases based on a fixed inflation rate, the rate declines year-after-year, which does not affect the market valuation of ETH by increasing its supply.

"New participants in the system will be able to purchase new ETH or mine for new ETH whether they are living in the year 2015 or 2115. We believe we have a achieved a good balance between the two goals of fostering inclusiveness and maintaining a stable store of value. And the constant issuance, especially in the early years, will likely make using ETH to build businesses in the Ethereum economy more lucrative than hoarding speculatively."

The primary use case of ETH is its ability to operate as gas to fuel and process smart contracts.

Without ETH, it is extremely impractical for dApps and tokens launched on top of Ethereum to process information.

As CryptoSlate reported this week, a new proposal developed by the Ethereum open-source community will soon place a hard requirement on block producers to cover the minfee with ETH, which will essentially prevent the utilization of tokens to cover gas instead of ETH. In March, Ethereum co-creator Vitalik Buterin stated that the Ethereum network will slash the inflation rate of ETH by 90 percent to a mere 0.5 percent a year.

"Currently, an expected value is 10 million ETH staking at 5 percent interest, which is 500,000 ETH per year," Buterin wrote on ETH research, adding that the interest will be reduced to 0.22 ETH per block-down from 3 ETH per block as of September 2018-leading to a yearly inflation rate of 0.5 percent.

Inflation Rate Drop is Certainly Good For ETH. Earlier this year, Darryl Morris, an independent Ethereum developer, stated that the implementation of a fixed supply or a supply that rises at a slow rate will only benefit early investors.

The economics and supply around Ethereum and other smart contract blockchain networks are significantly more complex than payment-focused blockchain networks like Bitcoin because the community needs to consider the entrance of new projects and developers in the market that would like to leverage the network to create large-scale applications.