Money Talks: Why not Ethereum?
From the barter system to coins, commodities, and now the credit-based system, the story of money continues. Money is everywhere; it plays a pivotal role in defining what society is meant to strive for. It rewards productive people and allows a fair foundation upon which civilization is intended to build on to be established. At least, that was what it was meant to function as. With rising inflation rates, increases in energy prices, commodities, unemployment, and currency devaluations, the question of sound money has once again popped up.
So what exactly is sound money, and does something like that exist? Let’s first get into what money is. Money is a medium of exchange, a store of value, and a unit of account. It is that liquid asset that serves as a settlement for a transaction. You accept money for your goods and services as everyone else will take it if you seek goods or services. So it has become a means of social trust and connects the economic outlooks of each individual. Money affects everyone, from the small business owner to a billion-dollar corporation. So for it to be “sound” is crucial. Sound money is what can preserve purchasing power and is liquid enough to absorb volatility, thereby remaining stable to any economic activity. You don’t want a currency that is, in one instance, able to buy your whole groceries. Then some major political or economic catastrophe happens because now you can only buy one item from that list. Does dollar function as sound money? The following graph speaks otherwise.
But why not gold? It is a precious entity used as money for decades and has seen a modest increase in value. The thing about gold is that it is too slow. It cannot keep up with the rising prices because of the unjust government intervention in the free market. In addition, it is easily confiscatable by the government if they want to establish their monetary regime and deprives the right of every individual of self-sovereignty. It is also not easily divisible, so it can not function as a unit of account.
Finance and health are the primary sectors that affect every individual. They are inevitable. There will always be health-related problems and improvements that need to be addressed, and there will always be economic interactions between people. The health sector has seen its fair share of development with new technologies improving our lifestyle and combatting fatal diseases. However, the same cannot be said about financial institutions. A thick layer of verification procedures must be dealt with for an international payment. The transactions are often processed by hand, and dependence on handwritten signatures increases the chances of fraud. In addition, transparency is lost in such an environment. Also, how often do you see financial education being taught from a young age?
Cryptocurrencies pose as a breakthrough in finance to revolutionize any economic activity. They allow seamless transactions, decentralization, and secure payments. However, to function as mainstream money, they must fit precisely to tits definition. The independence from a centralized entity to control cryptocurrencies often hampers this ability. The top one, Bitcoin, is often criticized for being slow and inefficient. Ethereum, the second-largest cryptocurrency, is bashed around for its lack of scalability and transaction throughput. Most crypto enthusiasts highlight that this industry has only been in existence for approximately 12 years, which means it is still in its infancy.
“…the organisms that are the Bitcoin and Ethereum ecosystems are capable of summoning up billions of dollars of capital, but have strange and hard-to-understand restrictions on where that capital can go.”
-Vitalik Buterin
There are close to 20,000 cryptos that have come into existence after tweaking the model proposed by Satoshi Nakamoto in his invention, Bitcoin, in 2009. Let’s quietly accept that 95% of them will go to zero as their token price only resembles a lack of technology, a more excellent vision, or an outright scam. What Satoshi envisioned for Bitcoin is explicit when he included The Times front page with the headline “Chancellor on brink of second bailout for banks.” Bitcoin is meant to pose as a secure and decentralized network to exchange value in the form of the valuable asset, BTC. However, the only competitor that has stood the test of time and has gained popularity and credibility among the people is Ethereum with its native asset ether(ETH).
Ethereum emerged to be a universal computer for developers where different smart contracts could be developed on and secured by the underlying network. Its native asset was meant to act as transaction fees, a gateway for governance, and collateral on different protocols built on it. As Andreas M. Antonopoulos describes on the podcast What Bitcoin Did, Ethereum was never meant to function as a store of value. A smart contract platform was not built on Bitcoin because it had to obey the consensus rules of Bitcoin, which are meant for valuing security rather than running complex transactions, which Ethereum needs.
“…the tradable asset is, in fact, counterproductive in the use of Ethereum.”
Andreas M. Antonopoulos
With a fixed supply, no money printing possible, independence from the control of a single entity, and high security, Bitcoin is poised to be the top contender for a global currency and fits precisely to the definition of sound money, that is, if we ignore the volatility. However, the term “ultrasound money” has been made famous by ETH proponents because the new EIP-1559 upgrade on August 2, 2021, has led to an economic structure that decreases the supply and supercharges the concept of sound money. Because of its deflation, ETH is now scarce and can preserve value and purchasing power more effectively than Bitcoin, as the ETH maxis advertise it. But should a utility token be used as money? Should it not be spent more than preserved for the network to remain vibrant?
Ethereum founder Vitalik Buterin in his blog post, explained that Bitcoin developers are intolerable to more complexity as it undermines the underlying security. In addition, fewer developers are needed when complexity is more minor, which reduces the chances of tampering with the fundamental principles of Bitcoin. Ethereum, in stark contrast, needs developers to sustain the complexity. The tradable asset ETH functions as transaction fees and an incentive for maintaining the network. The top priority of Ethereum is and should be to scale so that activities on the network can be carried out seamlessly. The asset ETH was never meant for price discovery or a speculative play. A similar case is as if you make a movie’s tickets valuable, people would decide to hold onto that ticket rather than watch the film. Doesn’t that sound dumb? The need for ETH scaling solution has arisen because of this issue and diverting attention from innovation to making Ethereum scalable. Although the tokenomics of ETH support its claim of being ultrasound money, the primary purpose for which it was built dwindles along the way. Bitcoin is meant to be peer-to-peer cash, and it uniquely does that. Just because an asset meant for utility holds value does not mean it can compete with an asset primarily founded on being exchanged for value.
Ethereum is a gift to Bitcoin. All the complex use cases, including NFTs, gaming, smart contracts, and the latest soul-bound NFTs, can be efficiently executed on Ethereum and puts Bitcoin in the spotlight regarding sound money. Censorship resistance, free from government intervention and a tool for self-sovereignty, Bitcoin stands out. Bitcoin and Ethereum are similar to the lion and the shark. The lion is the king of the jungle, but it would die if put in water. The shark reigns supreme there. Bitcoin and Ethereum individually have their niche, a subtle fact that only maturity in the crypto ecosystem will set forth.
Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing
