Reminder: if you’re not a paid subscriber this is your second last Thursday on the program! Subscribe now & get 20% off forever. Dear Crypto Natives, Last week I published BTC's monetary policy is overrated. This is what I said in part 1: Monetary policy is issuance policy is security policy
@mflaxman@hasufl@_prestwich 7. Because PoS can sustain lower levels of inflation compared to PoW, Ethereum (post Eth2) should end up with lower issuance than Bitcoin in the long term.
(that bit is too much to explain here, but there's a short explanation lower in the article here: https://t.co/2dyRGC9UmU )
RT @RyanSAdams: ETH's monetary policy is underrated
If you think fixed supply is the only path for a crypto money, well, you’re greatly underrating ETH’s monetary policy
Minimum Necessary Issuance!
You should've compared to, for example, Cardanos monetary policy because Bitcoin is too different from Ethereum (PoW vs PoS, different vision/goals). Cardanos monetary policy is very similar to Bitcoins. It has a fixed supply and staking will be incentivized by minting new ADA plus transaction fees. And once all the supply is minted staking costs and incentives will be paid with only transaction fees.
You either pay for network security through transaction fees or through inflation. I, a laymen, think I would prefer paying through transaction fees. This just seems more fair to me and less likely to be abused for financial gain like in the current fiat system (simpler is probably better in this case (?)). But I guess both will work just fine. I just don't see any huge upsides to inflation that make me think Ethereums monetary policy is 'underrated' (maybe compared to bitcoin but that is an unfair comparison imo).
The goal of a crypto monetary policy is to maximally secure the network at the lowest cost—an incentive to reduce issuance, not increase it.
I'd note that this flips and becomes an incentive to increase issuance if and when current issuance is not sufficient to secure the network. The presumption that issuance will only ever decrease is not a safe one.
Overall though, it seems like a reasonably well thought out policy to ensure smooth operation of the platform, but nothing more. The mere fact that there is uncertainty over monetary policy while one of the primary breakthroughs of BTC was the first example of a commodity with a mathematical assurance of scarcity puts them in entirely different classes.
On top of that, you're also arguing from a less than neutral POV when your comparing the worst case scenario for BTC (issuance isnt sufficient to secure, and must rise) to the best case scenario for ETH (issuance is more than sufficient to secure, and will fall.)
I'd also suggest that posing ETH 2 as any sort of means to increase security is being grossly ignorant of the enormous dangers in fixing something that is not broken for mission critical systems. Ask boeing how their latest software upgrade went. There's a reason you have nuclear launch facilities using computers with 5.25 floppy disks and banks running their backends on ancient mainframes. It's not because it's cheaper, its because introducing any new variables into a system with a long track record of stability is asking for trouble.
The way they are developing Ethereum makes it almost completely unsuitable for use as a serious store of value. It may make a good or better means of exchange or unit of account, but they're pretty much throwing the digital store of value use case out of the window. The risk of catastrophic failure is astronomically high compared to BTC. That's fine for cryptokitties and Web 3.0. Also fine for low value hot wallets and transient transactions. Not fine for global reserve currency.
The simplicity of BTC isn't just a narrative, it is practically a law of nature that complexity and security are fundamentally opposed to each other. The continued tinkering and changing of Ethereum so overwhelmingly undermines it's security that any added or lost security due to issuance is a negligible rounding error. You can't build a fortress on quicksand.
> grossly ignorant
> enormous dangers
> almost completely unsuitable
> throwing the digital store of value use case out of the window
> risk of catastrophic failure is astronomically high compared to BTC
> overwhelmingly undermines it's security
😳 well...I sure think you've made your point. While I agree that increased complexity generally does security no favors, you're a tad over the top. I don't agree with the idea that the proposed protocol changes so significantly undermine the ability for ETH to attain a top spot as a SoV asset. The case can be made for why it *could be* hindered (which you've certainly done), but you write as if this is a foregone conclusion. It isn't.
I absolutely agree that BTC has a much simpler SoV narrative, but that will be seriously tested within a decade. If ETH2 gets delivered, we could see a *much* different public opinion on what's likely to be dependable/sustainable into the future.
It’s that dramatic because the consequences of failure are catastrophic.
Given the choice, I would much much rather get on a plane model that’s had 10 years of near flawless safety than an experimental model. I don’t care if it’s faster or more comfortable. It’s not just a narrative, it’s your life at stake. Chances might be low of a plane crash to begin with....but do you want to increase your odds? IMO the integrity of your money from a long term store of value POV is just as critical.
That isn’t to say Ethereum can’t reach that level of reliability and trust - but every time they hard fork and add new variables and failure points they reset the clock. With several still on the roadmap and years out, at this point in time it effectively has negative reliability. Even if the code works today, they’re guaranteed to change it and introduce new code and new, potentially unexpected and unintended failure points. It’s simply not suitable for the SoV use case until it’s settled and robust. By that point BTC is going to be even more entrenched in that use case than they already are.
So as far as I’m concerned, it hasn’t got a chance in the world to be a first tier SoV. It can be a magnificent success in functionality and performance, and maybe I’ll use it daily and 100X times as often as I access my BTC. I would consider that a massive success. But will I stash a significant amount of my net worth in it? No way. But that’s fine. It doesn’t have to be that to be meaningful and successful.
>Given the choice, I would much much rather get on a plane model that’s had 10 years of near flawless safety than an experimental model.
Not a great comparison IMO. BTC feels more like getting on plane from with a near-perfect safety record except it lacks a fuel indicator. Sure, the airframe may be great, but if it runs out of fuel...well...that doesn't much matter.
>every time they hard fork and add new variables and failure points they reset the clock.
Can't say I agree with this either. If anything, every successful hard fork gives me further and further confidence that the dev team has their priorities straight as well as the technical competence to execute.
>With several still on the roadmap and years out, at this point in time it effectively has negative reliability.
Yikes, this just gets worse...
>So as far as I’m concerned, it hasn’t got a chance in the world to be a first tier SoV.
Yeah, no longer worth my time.
Just wondering if you even realize that Vitalik himself recognizes that tradeoffs are real? The whole reason that ETH needed to be built in the first place was **not** because BTC was technologically inferior. It was because deliberate choices were made to keep BTC simple in the name of security, robustness and stability. That gave ETH space to carve out a niche in which it made different tradeoffs in the name of increased functionality. They are not trying to be a better BTC. You want to talk about narratives? The idea that **either one** can be everything to everyone is the false narrative. This article was nothing more than a painful exercise in attempting to rationalize that reality away by essentially making a case that a crocodile is more deadly than a lion on dry land. Anything that makes a crocodile more deadly in the water makes it less deadly on dry land.
I see ETH 2 as more a means of improving scaling than of improving security, though I would argue that PoS's removal of the economy-of-scale centralization pressure inherent in PoW will have significant security benefits aside from any of these details of issuance and price.
I would also argue that if it turns out that there really is some kind of intrinsic economic benefit to a "fixed supply" coin that Ether's whatever-it-takes-to-make-the-network-function issuance ethos simply cannot replicate, then it's easy enough to just whip up a fixed-supply ERC20 token to run alongside the keep-the-network-functioning Ether token and use that for your hodling needs. This can probably be done without any interaction with the Ethereum devs at all. Personally I expect such a coin would not really see much use or value, though. Scarcity by itself is not valuable, there needs to be utility as well.
With respect, that fixed erc20 coin has as much chance of being adopted as the 10,000 shitcoins that preceded it.
I agree that scarcity alone is not valuable (otherwise BOMB would be mooning.) But while the gap between BTC and ETHs functionality is meaningful, its also measurable and has lots of overlap. The gap between BTC and ETHs scarcity is completely immeasurable because not only can we only guess what the scarcity will be moving forward assuming the current proposals come to pass, we have no idea how those plans will change over time. If someone from 2016 projected forward ETHs issuance the way this article did, it would have vastly missed the mark on how things actually played out. This is like existential levels of uncertainty. I \*know\* what BTC scarcity will be 10 years from now. I can only guess what ETH's will be. One can make educated guesses, but they're still just guesses. IMO zero certainty may as well be zero scarcity when not only does an alternative with known scarcity exists, but that alternative is so completely entrenched. If this is a two horse race, it only looks like a close race if you completely ignore how many times the other horse lapped it.
ETH is great for so many reasons, but it will not be everything to everyone. There are real tradeoffs being made here that the author either failed to recognize or hand waved away. I would think if there's any ecosystem that should fully grasp the dangers of new code, its ETH.
Oh, indeed - there are already *plenty* of fixed-issuance tokens out there and most of them are junk. That's really my main point when I propose fixed-issuance ERC20s in discussions like this, that a fixed supply is in itself not meaningful.
I would argue that even knowing what BTC's scarcity will be 10 years from now is not actually particularly useful. Nobody knows what BTC's *demand* will be 10 years from now. Scarcity is only one half of the equation that gives us something's price, if long-term issuance alone determined BTC's price then it wouldn't have such huge fluctuations.
Likewise, when Ethereum's issuance reduction forks were deployed there wasn't any noticeable effect on the price charts. People just don't seem to factor years-from-now supply into day-to-day pricing much.
I think a case can be made that we've got at least some idea of what ETH's demand will be, though, since we can be reasonably confident that ETH will be needed in order to make transactions on Ethereum. As long as there's demand for making transactions on Ethereum there'll be demand for ETH.
I totally agree that ETH won't be everything to everyone. It's not *meant* to be, and trying to force it into roles it's not meant for will likely require damaging its ability to fill the roles that it *is* meant for. The main role it's meant for is to keep Ethereum secure and functioning, everything else is secondary or in support of that.
A statement like "ETH will have demand cause of dapp transactions" has orders of magnitude worth of margin of error right now and projected forward. If you can't reasonably quantify that demand, then you're not really saying anything. If we're going to make unqualified and unquantified blanket statements like that then I might as well say we at least have some idea of what BTCs demand is because despite limited functionality, it's generally accepted to have the right mix of properties for a store of value, which will drive demand. That's a technically a true statement whether BTC is 1 cent or 1 million, or used by 10 people or 10 million. Its so broad and vague that its basically meaningless.
Dude this is brilliant. You also need 20 Karma to stay visible. You should post this in the daily and then ping me. I will try to help you get it if you want it. Otherwise we will see you around. Thanks for sharing this tweet. So spot-on.