Ethereum does not formally have a supply cap, as Bitcoin does with its cap of 21 million units. Years ago, Ethereum founder Vitalik Buterin tried to achieve that by proposing a maximum of 120 million Ether as a supply cap. That was in April 2018 and a few days later Buterin shared that it was mostly a joke.
Funnily enough, the supply of Ethereum now actually seems to be peaking around the amount of 120 million tokens. How is that possible?
Still a supply cap?
It looks like Ethereum will get a supply cap of around 120 million tokens after all. This is not included in the code as a hard requirement, but the result of EIP-1559 and the switch to Proof-of-Stake. Thanks to the EIP-1559 update, part of the transaction costs are invariably destroyed by throwing these tokens on the digital pyre.
As a result, part of the Ethereum tokens continuously disappear from circulation. In addition, the switch from Proof-of-Work to Proof-of-Stake meant that there are a lot fewer new Ethers coming into circulation.
Miners in the Proof-of-Work network simply received a much larger reward than the validators in the Proof-of-Stake network. As a result, the supply of Ethereum has been declining since March 2023, peaking at 120.5 million tokens at that time.
In that respect, it seems that Ethereum has now reached the supply cap that Vitalik Buterin jokingly mentioned in 2018.
Ethereum and inflation
In that respect, Ethereum now appears to be a deflationary project, unlike Bitcoin, which still has an inflation rate of ~1.7 percent. Gold also currently has an inflation rate of between 1-3 percent. The expectation for 2023 is that the supply of gold will even increase by 2 to 3 percent rises by excavating 3,100 tons of gold.
Ethereum may therefore increasingly profile itself as a store of value, alongside Bitcoin and gold. It remains to be seen, however, to what extent the general public will go along with this. Ethereum must first prove itself a little longer in that area.
In addition, it remains to be seen whether all technological changes for Ethereum cannot cause problems in the long term. The strength of Bitcoin is its simplicity and that is increasingly difficult to find with Ethereum. In that sense, you may wonder how reliable Ethereum is.