The supply of bitcoin is capped at 21 million. The supply of Ether is similarly capped at ~90 million.

If we are to assume that Ethereum will become more popular as time progresses, and if we also assume - for the sake of argument - that the value of Ether will therefore also rise as demand increases, we might therefore think it likely that people mining in these early days might stockpile any Ether they mine to sell at a later date.

Regardless of whether this is happening (or will happen) or not, is there anything built into how Ethereum works to prevent such stockpiling from occurring?

up vote 11 down vote accepted

If you refer to something like Demurrage in Freicoin, then the answer is probably no - there was no special design to discourage hoarding of Ether. Also, the argument that such deterrent is required is related to the argument about wether Ether should be considered money or rather capital stock, or something else.

Additional info on Demurrage: It is understood as an artificial 'tax' on holding a currency, similar to the cost of storing and guarding any commodity. In the world of paper money, demurrage could be implemented as stamps, that had to be purchased and regularly affixed on a note of currency for it to continue to be valid. In the world of cryptocurrencies, demurrage can be implemented, for example, as an automatic reduction of amounts of currency held by accounts. It has been shown that demurrage does indeed increase velocity of money and could stimulate economic activity (in a similar way as inflation, but in more predictable manner).

  • Got more info on Demurrage? – Joël Jan 25 '16 at 1:45
  • Done, thanks for suggestion, Joël – Alexey Akhunov Jan 25 '16 at 20:44

Ethereum developers are partly payed in Ether. Ethereum is funded by people who brought Ether at the pre-sale. It's in the interest of neither of those parties to have mechanisms against hording.

Ethereum doesn't try to discourage hording. On the other hand when going to proof-of-stake Ethereum will even reward people who hoard it.

If we are to assume that Ethereum will become more popular as time progresses, and if we also assume - for the sake of argument - that the value of Ether will therefore also rise as demand increases, we might therefore think it likely that people mining in these early days might stockpile any Ether they mine to sell at a later date.

No, that would be a nonsensical assumption. Yes, everyone who holds one ETH has the right to the future appreciation of that ETH. But they can also sell that right for its fair market value. There is no particular reason you would prefer to hold it rather than sell it because you get the same value either way.

Every argument you can use to say that a person would rather hold ETH than trade it works equally well the other way around. The more people want to hold Ether, the more people will be willing to give to get it. Why do people most like to pay with dollars in America? Because that's what sellers most want. You can try to pay in other things, but they prefer dollars, and because of that, they make the best deals for customers who pay with them.

The more the seller wants what you have, the better for you. So every argument that I don't want to trade ETH because I want to hold it is equally well an argument that I do want to trade ETH because I can get fully compensated for selling that right.

The upshot of this is that the assumption is nonsensical. It is essentially impossible for there to be an asset that we all know will significantly appreciate. Why? Because if we all knew gold would sell for $35,000 per ounce next year, nobody would sell it for much less than that right now.

  • Just to add to @DavidSchwartz's gold example (but already included in the answer part above), not only would people not want to sell much below $35 000 per ounce, people would be willing to pay anything less than that amount, less the benefit that could be expected to be accrued from an alternate investment (or, in this case, arbitrage) vehicle over the same period of time. – lungj Aug 30 '17 at 18:34

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