2.1 Ethereum's Monetary Policy

Introduction

Ethereum’s monetary policy is how ether is issued into circulation. Ethereum relies on the protocol to implement issuance decisions decided on by the community. The general issuance policy is commonly described as “minimum issuance to the network”. The issuance rate has been decreasing since its inception. Currently, the way ether is issued into the system is by being given to miners through block reward fees and gas transaction fees.

Learning Objectives

  • Understand Ethereum’s monetary policy and how the upgrade to Eth2.0 changes the issuance

  • Understand who makes the decisions about monetary policy

  • Read about Ethereum’s monetary policy’s history and EIP 1559

Reading List

Key Points

  • Ether Issuance

    • Miners currently being issued ether by validating transactions and earning transaction fees

    • With ETH 2.0, stakers will receive all transaction rewards and fees

  • Security of the Network

    • Rewards are given to keep transactions valid and to incentivize the security of the network

    • “Minimum issuance necessary” means that only the minimum amount required to secure network is issued

Review Questions

  • What are the advantages and disadvantages of using a smart contract versus a traditional contract?

  • Describe how a decentralized application functions.

  • Can you imagine any shortfalls with Ethereum?