Ethereum Creator Wonders Whether His Currency Should Be Scarcer

  • In a rare interview, Vitalik Buterin frets over ether supply
  • Notes ‘voodoo economics’ of digital tokens with no limits

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Vitalik Buterin, the inventor of the ethereum blockchain, may have created too much of a good thing.

The 23-year-old helped sell one of the first digital currencies in 2014 when he introduced ether to the public. Three years later he’s witnessed scads of other digital currencies raise more than $3 billion in 2017 via so-called initial coin offerings. The sheer number of coins now being created has made him ponder the previously imponderable: limiting the supply of ether.

Vitalik Buterin

Photographer: David Paul Morris/Bloomberg

“I’m concerned a lot of these token models aren’t going to be sustainable,” Buterin said in a rare interview last week at the Ethereum Developers Conference in Cancun, Mexico.

So what’s the problem? There’s a hard limit -- 21 million coins -- on the supply of bitcoin, the first successful cryptocurrency, that helps underpin its value. Buterin isn’t mulling a cap like that, but he’s intrigued by the idea of imposing fees on applications built atop ethereum. Those fees would destroy -- or burn, in Buterin’s parlance -- ether tokens over time.

“If the token is being burned, then you have an economic model that says the value of the token is the net present value of basically all future burnings,” he said. Otherwise, “it’s just a currency that goes up and down. It feels kind of like voodoo economics and the price of the token isn’t really backed by anything,” Buterin added. “That’s a very spooky thing.”

Reminded that he created such a coin himself, he said going forward that could change. “It’s a fact that’s definitely informing a lot of design choices,” Buterin said. “Introducing some kind of sinks into ethereum is definitely something we’re looking at,” he said. “By sinks, I mean fees that lead to the token actually being destroyed.”

Buterin introduced the world to his cryptocurrency just days before his 20th birthday and not long after dropping out of the University of Waterloo in Canada. He wore a green T-shirt with the Internet-dog-meme Doge on it, gray shorts, pink socks and black sneakers as he addressed the Cancun conference. In person he is shy and speaks softly, often looking around the room as he talks. After giving a 25-minute overview of where ethereum stands today, he leaped off stage as the crowd loudly applauded him.

Another way to limit supply, at least temporarily, is through locking up some of the ether currently in circulation. That’s the plan as ethereum moves to a new way of verifying transactions on its network. Known as proof-of-stake, it requires users who want to be rewarded for validating transactions to deposit ether for a set amount of time. The more ether they set aside, the bigger the reward for verifying the network.

Buterin said the ethereum community may transition to proof-of-stake as early as the end of the year.

For now, ether’s abundance isn’t driving down its price. The currency has soared 3,500 percent this year, according to, beating bitcoin’s gain of more than 600 percent.

What’s an ICO? Like an IPO But With Digital Coins: QuickTake Q&A

Buterin said ICOs had both good and bad attributes. The way they’re currently structured skews the incentives of the startups that have raised over $3 billion this year. In nearly all ICOs, groups have pitched tokens to fund projects still in development, leaving open the question of what happens if they fail to deliver on promises.

“The token models we have right now are lopsided and give skewed incentives,” Buterin said. “The worst part is the front-loading. Basically getting $140 million before you have a product. The right way to do that is to come up with a mechanism that either splits the ICO up across rounds or has a mechanism where if it doesn’t go well people can get refunds or anything similar.”

ICOs have solved a key problem, making it easier for developers to raise money to fund their work, he said. But that doesn’t mean that every project should start with an offering, Buterin said. “It’s definitely a complicated balance,” he said.

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