Ethereum’s Demise as a Cryptocurrency is Foreseeable

The fate of cryptocurrencies is dynamic, the roadblocks to ETH are considerable. Last year we loved to speculate about Bitcoin, this year we are talking about Ethereum a bit more, it’s only natural. This is also since decentralized app platforms and their interactions with cryptocurrencies and altcoins are more intimately tied to the evolution of public blockchains than niche coins such as privacy, stable or crypto assets.

Ethereum is like a promise to the future that decentralization will one day actually matter.

There’s been talk lately that ETH the asset will inevitably be worth nothing one day, that its collapse is inevitable. That’s an amusing dialogue since it forces us to consider just how fast things are moving. ETH has problems to mass adoption:

  • Scalability
  • Transactions are too expensive
  • The technology is getting old
  • Newer more scalable blockchains will eclipse it
  • Developers will migrate to more “shiny” ecosystems

It’s feasible in 2018 to talk about how many of the things Ethereum set out to do, others will do better. Ethereum has a massive community and is decentralization-orientated in a way that feels much more genuine than many other projects; however that’s not to say that its value as ETH is eternal.

It doesn’t run unstoppable applications. It’s created a shared global infrastructure for ICOs, something we must admit has damaged the reputation of crypto to be synonymous with fraud and scams, in dire ways. Bitcoin purists have many valid points for being critical of Ethereum. It’s scaled “mistrust”, probably more than it’s scaled trust and used blockchain to create a new world.

Blockchain is and crypto is in early garden mode

As TechCrunch points out, there’s no future for GAS in its current state. It’s expensive AF. ETH fees are not a sustainable model as they work circa 2018. The Gas metaphor is legit but an ugly model as the same time:

The Ethereum network is like a shared car. When a contract wants to be driven by the shared car, the car uses up fuel, which you have to pay the driver for. How much gas money you owe depends on how far you had to be driven and how much trash you left in the car. — TechCrunch

But we need blockchain platforms and dApps with the equivalent of self-driving and electric cars. We need clean energy. Is Ethereum ever going to be that model? In 2018 as dominant a position as ETH has, relative to other cryptocurrencies, we can’t say it’s so, or will be so. The ERC-20 won’t be relevant forever, that’s a given.

Crypto has a regulation problem, there’s a lot of manipulation in the space. Smart contracts are just in their infancy. Ethereum is the first-mover, not the end-game of this stuff. It’s inspiring, rather than a delightful product. That’s okay, that’s how technology works and how innovation happens.

But is Etheruem the solution to cryptoeconomics and economic abstraction obstacles?

  1. Lack of software support for economic abstraction
  2. Difficulty in pricing many tokens
  3. Existence of contracts not tied to tokens (speculative)
  4. Need for ETH for Proof-of-Stake

In the evolution of our understanding of cryptoeconomics, we can probably do better than ETH. It’s what we compare public blockchains and some ecosystems to, (like how DFINITY chose to copy their branding lingo), but is it the end-game of public blockchains? Certainly not.

ETH is in some respects, I think, a compromise between Vitalik Buterin and Vlad Zamfir, which is not necessarily a bad thing but doesn’t solve all problems of economic abstraction. This and the scaling issue mean basically that ETH is vulnerable to disruption.

Whatever issues in software support, market pricing, non-token contracts and PoS ETH might have, it’s certainly still the dominant model in public blockchain cryptoeconomics today. We should be critical of the standard bearer, that’s only fair. But then decentralization advocates have a way of turning crypto influencers into prophets. Google may have tried to hire him as an intern recently, but we have to remember he’s just some mid-20s person who is dedicated to the development of the blockchain.

Do we Need More Crypto Prophets?

We have Satoshi Nakamoto, do we really need to evangelize the personal brands of more crypto influencers? Does Vitalik Buterin really want that kind of scrutiny and influence? Do we want him to think, like Musk or Trump, that Twitter is somewhat important to his legacy?

Vitalik Buterin (Ethereum Foundation) at TechCrunch Disrupt SF 2017

The papers he works on with E. Glen Weyl, may turn out to be his most important contributions to humanity: Liberal Radicalism: Formal Rules for a Society Neutral Among Communities.

ETH felt very new in 2017, but we have a tendency to get wrapped up too much in the cult of crypto. Bitcoin is a perfect example of this. The utility of these things as the founding crypto Bitcoin and the founding ecosystem Ethereum, is that they are inspirational and will not live forever.

The current crypto marketplace has attracted a lot of free-riders, scammers, profiteers, pump-and-dump investors, shitcoins and regulatory hoodwinkers, and Ethereum is at least somewhat responsible for this. If Technology as a whole has trust issues, it’s nothing in 2018 compared to the trust issues crypto has. In an era defined by misinformation, cyber hacking and fraud online, being skeptical is the least we can do.

Free-riders are people or businesses that profit from the under-provision of public goods. While Vitalik Buterin explores this in his recent paper with Microsoft researcher Glen Weyl and Ph.D. of economics at Harvard Zoë Hitzig, the irony is ETH is being exploited by such types. So much for decentralization guys. ETH’s ethereal value is a cryptoeconomics and decentralized use-case and obstacle in and of itself.

TechCrunch argues that in a stateless ecosystem, replacing ETH is a Pareto Improvement (i.e., all parties are better off). That’s an interesting interpretation to me. ETH is a success in terms of developer opt-in and public blockchain enthusiasm, but for technical reasons it does appear to be flawed. Ethereum’s contribution to to the evolution of cryptoeconomics may or may not be important, it’s too soon to tell.

When the cryptocurrency entrepreneur Jeremy Rubin wrote the TechCrunch article where he outlines and stipulates that the price of ETH is bound to plummet it was nice to see that Vitalik Buterin agreed in a response on Reddit, “In Ethereum as it presently exists, this is absolutely true.” Timeless Ethereum, immortal Bitcoin, what are we going to do with you?