The final specification Casper FFG: Ethereum inflation will not exceed 2% per year

Specification hybrid Protocol Casper FFG (EIP-1011) finalized. Now the team Parity and Geth, two major customers Ethereum — needs to implement the Protocol and begin testing.

As already mentioned, it will take about 5 months, followed by hardwork – Metropolis 2, in which the block reward for PoW miners will be reduced from the current 3 to ETH 0.6 ETH for the block. In the specifications it says:

Security of the network is shifted with difficulty to the finalization of the PoW PoS: thus, the awards now receive both the miners and the validators.

In addition mynarski 0.6 ETH, the network will pay to validators (the owners of deposits PoS) award, the amount of which will depend on the total amount of ETH on PoS deposits:

As can be seen, increasing the amount of deposits in two times reduces the amount of the reward is not doubled, and by about 29%, but also quickly «empties» smart contract. Acne Buterin estimates the initial amount of deposits to 10 million ETH:

We expect the total size of the deposits Casper 10 million ETH that gives 5% interest income, or ETH 500 000 per year (about 0.22 per unit of ETH), about estimating the average rate of production of blocks (defined POW), given the complexity of the bomb.

Thus, the amount of awards for the block to the validators and the miners will be ETH 0.82 per unit, compared to the current 3 ETH. As a result, inflation Ethereum will be reduced to 2% per annum. That’s 2 million ETH emission per year, but since the total number of coins in circulation will increase, and the emission is approximately constant, the annual inflation will decrease.

However, the total duration of this system is limited to two years, so as a smart contract, which will be ETH, intended for the payment of awards, will contain 1 million ETH. This is due to the fact that the network Ethereum needs to go full PoS Protocol. Thus, this limitation is the second bomb of complexity (after the bomb PoW difficulty), or «bomb PoS difficulty» and is intended to motivate the full transition to PoS (Casper CBC Zamfir or its modification). With go full PoS, the miners will be permanently dismissed and will only reward validators ETH 0.22 per block, which will lead the inflation to the level of the order of 0.5% per annum, and in the future it will become almost zero.

The minimum Deposit validatorschema node is 1 500 ETH, the developers expect the participation of about 900 validators (Buterin says that more validatory nodes will create a too high load on the network). Their mission is to create finansirovanija block (checkpoint), every 50 normal blocks created by miners. Finalization means that the transaction rolls back below the nearest checkpoint is impossible.

In PoW mining at concentration of 51% of the network capacity, it becomes possible to rollback to virtually block of the Genesis, but in practice, other factors make such a situation possible only in a thought experiment.

In a hybrid PoW+PoS consensus, neither the miners nor anyone else can’t roll back the transaction finansirovanija deeper than the last block, which in theory makes the system more reliable.

Apparently, this design will lead to the formation of the whole industry validatory pools in which to participate will be quite small amounts of ETH, and the income will still be the same 5% (minus pool fee).

This means that the Ethereum nodes will be decentralized savings accounts. Formally, the amount of savings in ETH will receive an income of 5% (again, minus the fee pools). However, the 5% should be discounted by 2% (initial inflation), so the real income will be around 3% per annum. It may be added to the income growth rate of ETH into Fiat (although it may be a loss).

This structure resembles the return of the investment made in the shares and payment of dividends plus change in stocks.

However, that’s the theory, but the reality is that cryptoamnesia remains virtually unknown territory. Despite the resemblance with bonds, Casper will be a completely new phenomenon.

The risk will remain high – higher than bonds and savings accounts, but comparable to dividends on the shares.

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