Tokenomics 101: What Makes Ethereum Worth More Than $500 Billion?

Understanding Ethereum's cryptoeconomics.

If you’re new to crypto and wondering what gives a token value, it’s incredibly helpful to understand its “tokenomics” or “cryptoeconomics,” which is the system of incentives that gets unaffiliated entities to offer the goods and services needed in that decentralized crypto network.

I explained earlier the cryptoeconomics of Bitcoin, and now I’ll explain the same for Ethereum, the second-biggest crypto network.

Like Bitcoin, one of the purposes of Ethereum’s tokenomics was to secure the network. For that reason, it had a similar setup: miners would mine for newly minted ether, which would incentivize computers to mine ether, thus adding more security to Ethereum.

However, Ethereum’s cofounders did not face the same conundrum Bitcoin’s creator did: by the time Ethereum came out, many people wanted a piece of the pie. Even though many people were still skeptical of cryptocurrencies, by that point, there was a large enough number of people interested, that Ethereum actually had a different problem: people wanting an unfair size of the pie. (You can read more about this in my book, The Cryptopians.)

Ethereum did not need a supply cap to motivate people to participate in Ethereum, the way Satoshi did. And in fact, there has never been a maximum cap on the eventual total number of ethers. However, due to its current monetary policy, the supply could very well peak at a certain number and then actually decrease from there. Here’s why.

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