Research Reveals That Ethereum Miners Make $2.5 Billion On An Annual basis
While the prices of Ethereum have been faltering and its network faced with endless scalability challenges, investors who mine the second largest digital currency somehow managed to rake in an annual payout worth a whopping $2.5 billion. As per a report published by TrustNodes, 8% of Ethereum’s current market capitalization ($30 billion) is generated from mining revenue. The data, which was collected over a period of 24 hours earlier in August, revealed that ETH miners revive daily incentive worth $6.6 million. If this figure is spread over 12 months, it amounts to $2.4 billion, and can further increase depending on the value of Ethereum.
Additionally, the study also discovered that the inflation rate of Ethereum doubles the rate for Bitcoin, standing at 7.3%. Over the same period, Bitcoin miners received $13 million. In comparison, Bitcoin’s yearly mining payout of $4.5 billion equals a paltry 4% of its market capitalization ($111 billion). The report indicated that the high inflation rate of Ethereum is due to the delayed deployment of the ‘difficulty bomb’, an update that is meant to curb the menacing activity of ASIC mining rigs by implementing a Proof-of-Stake algorithm. Nevertheless, the update, called Casper, is scheduled to go live later next year. Until then, uncertainties surrounding the supply cap for ETH are likely to increase the inflation rates significantly.
The Issuance Challenge on The Ethereum Blockchain
Before Casper, Ethereum did not expect its supply cap to surpass the 100 million ETH mark, but it currently stands at 101.3 million ETH. To control the inflation resulting from this surplus supply, developers on the Ethereum blockchain have proposed the reduction of the issuance rate. In this regard, several suggestions have been fronted. The first one proposes the increment of the block reward to 5 ETH, the second seeks to maintain the current 3 ETH rate, the third aims to reduce the reward to 2 ETH, and the last propose the reduction to only 1 ETH.
Out of the proposals mentioned above, the last option (1 ETH block reward) received the highest backing amongst members of the Ethereum community, with 65,000 ETH voting in favor. At the current rates, this equates to $21 million. If implemented, this suggestion would substantially reduce the inflation rate to 2.3%, a figure Bitcoin project to hit in the next two years. On the other hand, $7 million worth of ETH favored the 2 ETH block reward proposal, while a measly 2.1 ETH voted for the increment of the reward rate to 5 ETH per block.
Trading Off Security For Lower Incentives
Miners who voted against the reduction of the block reward rate argued that the lessening would result in lower earnings. However, this is not true, since capping the supply of ETH would increase its demand, resulting in a significant increase in its fiat price. The biggest concern, nonetheless, is whether the block reward on the Ethereum network will be adequate to incentivize reliable security on the blockchain.
Presently, Bitcoin averages a daily trading volume of $ 4 billion, while Ethereum transacts $365 million over a similar period. Also, Bitcoin has a block reward rate of $80,000, while ETH pays out $1,150 for every new block generated. Despite this, blocks times are considerably faster on the Ethereum blockchain (15 seconds), while Bitcoin takes 10 minutes to generate new blocks. All that said, the proposed 2 ETH block reward rate strikes the ideal balance on the Ethereum network, in that it regulates inflation rates and provides adequate incentives.