What is the issuance and circulation of Ethereum (ETH)?

Ethereum's issuance and circulation involve mining, a circulating supply influenced by active and locked coins, a burn mechanism reducing supply, and potential impacts on value and sustainability.

Oct 05, 2024 at 02:11 am

Issuance and Circulation of Ethereum (ETH)

1. Issuance

Ethereum's issuance occurs through a process known as "mining," where miners solve complex mathematical puzzles to validate transactions and add them to the blockchain. As a reward for their efforts, miners receive ETH.

The initial supply of ETH was 72 million coins in 2015. However, there is no fixed cap on Ethereum's total supply, unlike Bitcoin. Instead, new ETH is created continuously through mining.

2. Circulation

The circulating supply of ETH refers to the amount of ETH currently in circulation and readily available for trading and use. It consists of:

• Available ETH: ETH held in wallets or used in decentralized applications (dApps)
• Locked ETH: ETH staked or locked in smart contracts, earning rewards or used for governance purposes

3. Burn Mechanism

Since 2021, a burn mechanism has been implemented in Ethereum's code. In a process known as EIP-1559, a portion of the transaction fees is burned (removed from circulation) instead of going to miners. This mechanism aims to reduce ETH's circulating supply over time, potentially increasing its value.

4. Current Statistics

As of February 2023:

• Total supply of ETH: Approximately 123 million
• Circulating supply of ETH: Approximately 120 million
• Number of ETH burned since EIP-1559: Over 2.6 million

5. Impact of Burning

The burning mechanism is expected to impact the value of ETH in several ways:

• Deflation: By reducing the circulating supply, burning creates scarcity, potentially driving up prices.
• Increased Value for Stakers: As ETH is burned, the percentage stake of validators (who stake their ETH) increases. This could lead to higher rewards for stakers.
• Environmental Sustainability: Burning ETH reduces the computational work required for mining, lowering Ethereum's energy consumption.