The fact that something is scarce doesn't make it a store of value. Scarce simply means is in short supply, but prices aren't determined by supply alone, they are determined by supply and demand. Moreover, if an asset is in fixed supply, then its price is determined entirely by the demand. This means such an asset will only be a store of value if the demand for the asset remains strong over a long period of time, which is something the asset issuer/producer has zero influence on.
The money behind big tech has mastered manipulating demand and that is exactly what you are seeing in the Ethereum/NFT ecosystem.
It is one giant fraud bankrolled by unlimited capital that can artificially increase prices at which point there becomes demand from people in fear of missing out, once the early capital has the suckers locked in the prices plateau at first as the capital stops buying and driving the price up, and then begins a steep crash as they cash out and lock in the gains, this only causes fear and panic among the late entries that made investments at the peak which they couldn't afford to lose...rinse and repeat.
The NFTs may be even more blatant and egregious than the ERC20 coins in terms of fake sales driving up interest, media and demand for shit no regular investor will ever flip. A lot of it is just transparent fraud and money laundering, with the people involved not even shying away from it but openly justifying it on the basis they feel the stock market and art collectors have always engaged in the same misconduct.
Take Elon Musk, openly pumping Doge...I'm not judging, I get the humor in it, but a lot of people have been crushed over the years in the crypto bubbles, yesterday was a prime example where Elon was likely the sole cause of Doge exploding in value (maybe 5x in a few days and 100x over a month) and as the big money way slowly cashing out these massive media campaigns were behind a marketing scam of "DogeDay" essentially making their killing on the backs of the poor uneducated late investors. One would hope his Tweets shined a bright light on the dystopia of it all, but it seems everyone is either so greedy or in such bad positions financially they would rather take part.
My guess is now that they have reaped their profits at the expense of the little guy, they will buy back in with the profits and we should see another pump following the -25% DogeDay scam.
Exactly, Ethereum is a better Store of Value than Bitcoin, not only because it is scarce, but because it provides utility, which creates demand.
People need ETH for:
* Paying transaction fees to use the network. For example, Visa is now settling payments with card issuers using USDC on Ethereum, so Visa needs to pay these fees with ETH.
* Collateral in financial applications: Over 11 million ETH (over $24 billion) have been locked as collateral in various financial protocols
* Staking & validating: In the same way that Bitcoin miners must purchase mining hardware to earn money, Eth2 validators must purchase ETH to earn staking rewards
You are correct, but only in theory: this requires the precondition that people are rational economic actors.
In practice, people are weird, and the scarcity of supply creates a demand.
There is therefore a weird feedback loop between the supply and the demand, and scarcity alone is enough to create "value".
Examples:
- Beanie babies
- Magic the gathering cards
- Pokemon cards
- Baseball cards
- DaVinci paintings (where anyone can have an 8k x 8k exact reproduction, but the original is worth a fortune)
- etc...
The point is that customers are already paying a lot of fees in Ethereum for financial services on the blockchain. Right now that money goes to run a lot of powerplants and gpu farms but will sometime in the future go to Ethereum staker. PoS coins are a combination of money, store of value and investment in a financial service "cloud".
> "prices aren't determined by supply alone, they are determined by supply and demand"
What we saw with the ICOs in 2017 and early 2018 is that there was a surge in demand for Ethereum to participate in the ICOs, which in turn sent the price shooting up. However, when new ICOs started to dry up in mid-2018 the demand also dried up, and when the companies that received all the Ethereum started to cash out the supply shot up, sending the prices right down. We could see something similar with NFTs.
> Scarce simply means is in short supply, but prices aren't determined by supply alone, they are determined by supply and demand
You can't predict demand, nobody can. So all things being equal (demand being unpredictable) you are better off holding something which is in low supply.
People are absulutely scared to death about inflation. It's deeply rooted in our brain and rightfully so. The first governments would dilute their citizen by adding lead to coins and reduce the silver %.
The same thing has been going on for millennia.
This is the reason why people hate inflation and have a strong preference for deflation.
What mostly excites me about Ethereum ist the very vibrant ecosystem of developers and builders around it. You can think of NFTs and DeFi whatever you want, the sheer amount of new applications and innovative ideas on the ethereum blockchain has been mind-boggling.
My personal favorite is Sorare, which combines NFT collectibles with fantasy soccer. And sure, right now everything suffers from high gas prices but it looks like that might be solved over the next 12 months
I don't believe Ether is a great store of value as OP claims because it has uncertain scarcity. OP neglected to mention that supply of Ether is unlimited and tends to change readily with scaling updates and is hence unpredictable.
Currently, the argument for scarcity looks good with EIP1559 where the gas fee will consist of a burned base fee and a tip to the miner resulting in overall lower fees causing a potentially deflationary supply. But Ethereum's scarcity is to a larger extends a moving target than say Bitcoin or Monero.
The other reasons for investing OP mentioned were enough for me to go deep a year ago: cash flow, network effects and developer tooling/adoption like no other L1 chain. I looked at other smart contract chain's developer resources for dapp dev and no other's come close to Ethereum. I have been learning Solidity dapp development in my free time since and can recommend the experience.
I don't think scarcity is a realistic point in the investment thesis.
To be fair, I don't think you can really compare many others to Monero, which is the only major cryto with the property of fungibility. Personally I consider that property so important that if a crypto doesn't consider it a first class citizen, I don't buy much or any of the crypto.
Ethereum doesn’t know what it is. The rules are always changing, running a full node is practically impossible, and issuance is always changing. It’s not even clear that the features claimed in this paper will be true one year from now.
Multiple consensus failures (most recently this last month) and constant design changes do not provide a secure foundation for sound money.
I found it super easy to setup a full (non-mining) ETH1 node on an Intel NUC running Ubuntu. And on the same NUC I’m running two validator nodes on the ETH2 mainnet, which together have earned about 3 ETH in rewards so far. The NUC is hooked to a cable Internet connection at home, nothing fancy.
>The purpose of this memo is not to denounce Bitcoin. Bitcoin enjoys a growing institutional spotlight, a compelling narrative as digital gold, and a portfolio allocation as an inflation hedge.
However, institutional allocation into the Ethereum ecosystem is currently low...
You can denounce bitcoin for the CO2 emissions though.
At least etherium is trying to go proof of stake. If institutions pile into bitcoin the price and emissions will 10x which I'm not sure is on. Governments can't control bitcoin but they can control institutions.
Put another way, if institutions pile into bitcoin, the value of produced energy will rise, and green energy infrastructure projects which were previously marginal would become profitable and thus executed.
A domain where its default home page is a PDF? That's a new one...
ps. And I'm not buying the "environmentally friendly" argument until proof-of-stake is actually live and completely displaces PoW in mainline production.
If the issue is whether PoS will work is troubling you: other PoS chains like Algorand have been successfully running for well over a year. Seems in no doubt.
Did Etherium actually switch to proof of stake? That's been talked up for years, but has been delayed several times. The original date was January 2020, but as of now, I can't find a firm date. One Etherium page intended to get people to lock up ETH to stake the system says "Withdrawals won't be live right away.
You won't be able to withdraw your stake until future upgrades are deployed. Withdrawals should be available once mainnet has docked with the Beacon Chain system."
It's always a bad sign in the cryptocurrency world when withdrawals are delayed.
The paper is written as if the change to proof of stake has happened.
If I am not mistaken, Wikipedia says that more than half of current supply of ETH was distributed among initial investors. That’s also another part of supply formula to consider.
You said high cash flow due to transaction fees but it's planned a reduction in transaction fees. So in next 6 years the cash flow will be lower, right?
Ethereum is easy to change (hard forks often) and so cannot be expected to preserve any key characteristics like emission curve or even the permissionless nature.
In fact, Ethereum's monetary policy did change in the past.
Personally, I've moved all of my funds from other currencies into Ethereum. Not that I think it will make lots of money, but because Ethereum actually could have utility, and has a solution to the climate change impacts of Bitcoin.
So really, if I'm going to hold any cryptocurrencies, that's where I want them
It will be interesting to see if interest rates in government controlled currencies and crypto currencies will stay diverged in the long run.
Without the distorting action of governments printing money, interest rates might be set by market forces in "crypto land".
This might lead to a long term situation where artificially low interest rates are paid in government controlled currencies, but market prices are paid in crypto currencies.
Or will cheap interest rates in government controlled currencies somehow bring down the interest rates in crypto currencies?
The 10 year yield of bonds in Europe is at 0%. While US bonds are currently at 1.5%. This might be an indicator, that rates in one currency will not completely control rates in other currencies.
I am one of the implementers of Ethereum Proof of Stake (https://github.com/prysmaticlabs/prysm) and I would like to clarify a lot of misconceptions around Ethereum and why we find this technology so exciting:
- Proof of stake has serious flaws if done from scratch, as you are trying to secure a network using value created out of thin air. Ethereum is migrating to proof of stake from proof of work, and has already built up a security pool of over $200bn USD market cap and a significant amount of activity. ETH as the native asset required for proof of stake has enough security pool to allow the migration to make sense.
- "You have been talking about proof of stake for years, wake me up when it happens". We launched proof of stake on December 1st, 2020 https://www.coindesk.com/valid-points-ether-staked-eth-2-0-q.... This runs as a parallel chain that users deposit ETH into to participate in consensus via a bridge contract. The next step is to merge the current Ethereum chain to use this new chain's consensus, and we are working on this to happen late this year.
- "There is a vibrant developer community, but for what? All speculation?" Yes, speculation was and is ever present in this new technology given how permissionless it is. This means anyone around the world can interact with the blockchain without a gatekeeper. However, there is an incredible amount of financial innovation happening on Ethereum that didn't even exist back in 2017. Really well-thought out stablecoins, flash loans (which are a blockchain native concept), automated market makers such as Uniswap which had more trading volume than Coinbasehttps://www.theblockcrypto.com/linked/79775/uniswap-coinbase.... We have privacy technologies such as Aztec Protocol or Tornado Cash. We have zero-knowledge proof games such as DarkForest. What makes me personally excited is that Ethereum is like this global, shared computer where every application deployed immediately opens a composable API for others to interact with by design, creating infinite possibilities.
- Ethereum's development is far more decentralized today than it was years ago. Ethereum proof of stake was developed by 4 independent teams, unaffiliated with the Ethereum Foundation, and had a successful launch this past December 1st, 2020, and no, Vitalik cannot roll back the chain.
- "Some other blockchain already had proof of stake and have been running for years". What makes Ethereum proof of stake special is it takes no compromises between decentralization, security, and scalability. At the base layer of the blockchain, Ethereum uses really neat cryptography known as BLS signatures (https://medium.com/cryptoadvance/bls-signatures-better-than-...), which allow for signature aggregation at scale. This means there can hundreds of thousands or millions of consensus participants with minimal network overhead, compared to other chains which have a permissioned set of < 100 consensus participants. Moreover, Ethereum is fully permissionless at the consensus. Anyone can run a validator at home easily on a consumer laptop. You don't need to buy ASICs, live in a country where electricity is cheap, or anything of that nature.
I urge everyone here to look deeper into Ethereum for what it offers and look at the depth of innovation happening in this ecosystem. Happy to answer any questions, as there seems to be a lot of misinformation.
It's disturbing how tribalism is allowing people to completely ignore reality.
Ethereum's blockchain uses up over 1 terrabyte of space. Because Ethereum nodes do not provide any search feature natively, most third-party software integrations end up being implemented via the use of centralized services (which defeats the whole purpose of Ethereum).
As for Bitcoin using the same amount of electricity as an entire country to perform 2 transactions per second, that is also shocking.
But modern fiat money-printing allows all pyramid schemes to thrive. I'm convinced that if Bernie Madoff had managed to keep his ponzi scheme going just one more decade, he would never have been caught.
If there is a promise of future cash flows from transaction fees that is dependent on new holders, doesn’t that make it a pyramid, ponzi or MLM scheme?
A planned upgrade of 6 years? How would that be in the future? How long does it take to fix a minor issue?
Tezos for example is able to evolve every 3-4 months without forking and is PoS since 2017. Also they're doing a better job on security. https://tezos.com/
[+] [-] lottin|4 years ago|reply
[+] [-] throwaway_isms|4 years ago|reply
It is one giant fraud bankrolled by unlimited capital that can artificially increase prices at which point there becomes demand from people in fear of missing out, once the early capital has the suckers locked in the prices plateau at first as the capital stops buying and driving the price up, and then begins a steep crash as they cash out and lock in the gains, this only causes fear and panic among the late entries that made investments at the peak which they couldn't afford to lose...rinse and repeat.
The NFTs may be even more blatant and egregious than the ERC20 coins in terms of fake sales driving up interest, media and demand for shit no regular investor will ever flip. A lot of it is just transparent fraud and money laundering, with the people involved not even shying away from it but openly justifying it on the basis they feel the stock market and art collectors have always engaged in the same misconduct.
Take Elon Musk, openly pumping Doge...I'm not judging, I get the humor in it, but a lot of people have been crushed over the years in the crypto bubbles, yesterday was a prime example where Elon was likely the sole cause of Doge exploding in value (maybe 5x in a few days and 100x over a month) and as the big money way slowly cashing out these massive media campaigns were behind a marketing scam of "DogeDay" essentially making their killing on the backs of the poor uneducated late investors. One would hope his Tweets shined a bright light on the dystopia of it all, but it seems everyone is either so greedy or in such bad positions financially they would rather take part.
My guess is now that they have reaped their profits at the expense of the little guy, they will buy back in with the profits and we should see another pump following the -25% DogeDay scam.
[+] [-] asenna|4 years ago|reply
Ethereum has always had demand (due to the growing ecosystem of DeFi, NFT, etc) but the supply was arbitrary.
What's coming with EIP-1559 fixes this by directly linking the supply (or rather burning of tokens) to the demand of the network.
[+] [-] dmihal|4 years ago|reply
People need ETH for:
* Paying transaction fees to use the network. For example, Visa is now settling payments with card issuers using USDC on Ethereum, so Visa needs to pay these fees with ETH.
* Collateral in financial applications: Over 11 million ETH (over $24 billion) have been locked as collateral in various financial protocols
* Staking & validating: In the same way that Bitcoin miners must purchase mining hardware to earn money, Eth2 validators must purchase ETH to earn staking rewards
[+] [-] ur-whale|4 years ago|reply
You are correct, but only in theory: this requires the precondition that people are rational economic actors.
In practice, people are weird, and the scarcity of supply creates a demand.
There is therefore a weird feedback loop between the supply and the demand, and scarcity alone is enough to create "value".
Examples:
[+] [-] Paradigma11|4 years ago|reply
[+] [-] delaaxe|4 years ago|reply
Demand is what creates value, not scarcity, although scarcity has an amplifying effect
[+] [-] astoor|4 years ago|reply
What we saw with the ICOs in 2017 and early 2018 is that there was a surge in demand for Ethereum to participate in the ICOs, which in turn sent the price shooting up. However, when new ICOs started to dry up in mid-2018 the demand also dried up, and when the companies that received all the Ethereum started to cash out the supply shot up, sending the prices right down. We could see something similar with NFTs.
[+] [-] ObserverNeutral|4 years ago|reply
You can't predict demand, nobody can. So all things being equal (demand being unpredictable) you are better off holding something which is in low supply.
People are absulutely scared to death about inflation. It's deeply rooted in our brain and rightfully so. The first governments would dilute their citizen by adding lead to coins and reduce the silver %.
The same thing has been going on for millennia.
This is the reason why people hate inflation and have a strong preference for deflation.
[+] [-] sherlock_h|4 years ago|reply
My personal favorite is Sorare, which combines NFT collectibles with fantasy soccer. And sure, right now everything suffers from high gas prices but it looks like that might be solved over the next 12 months
[+] [-] gillesjacobs|4 years ago|reply
Currently, the argument for scarcity looks good with EIP1559 where the gas fee will consist of a burned base fee and a tip to the miner resulting in overall lower fees causing a potentially deflationary supply. But Ethereum's scarcity is to a larger extends a moving target than say Bitcoin or Monero.
The other reasons for investing OP mentioned were enough for me to go deep a year ago: cash flow, network effects and developer tooling/adoption like no other L1 chain. I looked at other smart contract chain's developer resources for dapp dev and no other's come close to Ethereum. I have been learning Solidity dapp development in my free time since and can recommend the experience.
I don't think scarcity is a realistic point in the investment thesis.
[+] [-] liquidify|4 years ago|reply
[+] [-] zoshi|4 years ago|reply
Ethereum doesn’t know what it is. The rules are always changing, running a full node is practically impossible, and issuance is always changing. It’s not even clear that the features claimed in this paper will be true one year from now.
Multiple consensus failures (most recently this last month) and constant design changes do not provide a secure foundation for sound money.
[+] [-] michaelsbradley|4 years ago|reply
Can you elaborate?
I found it super easy to setup a full (non-mining) ETH1 node on an Intel NUC running Ubuntu. And on the same NUC I’m running two validator nodes on the ETH2 mainnet, which together have earned about 3 ETH in rewards so far. The NUC is hooked to a cable Internet connection at home, nothing fancy.
[+] [-] meowkit|4 years ago|reply
https://ethereum.org/en/what-is-ethereum/
[+] [-] tim333|4 years ago|reply
I mean Ethereum isn't perfect but not much else is either.
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] tim333|4 years ago|reply
>The purpose of this memo is not to denounce Bitcoin. Bitcoin enjoys a growing institutional spotlight, a compelling narrative as digital gold, and a portfolio allocation as an inflation hedge. However, institutional allocation into the Ethereum ecosystem is currently low...
You can denounce bitcoin for the CO2 emissions though.
At least etherium is trying to go proof of stake. If institutions pile into bitcoin the price and emissions will 10x which I'm not sure is on. Governments can't control bitcoin but they can control institutions.
[+] [-] cwkoss|4 years ago|reply
[+] [-] needle0|4 years ago|reply
ps. And I'm not buying the "environmentally friendly" argument until proof-of-stake is actually live and completely displaces PoW in mainline production.
[+] [-] fumblebee|4 years ago|reply
[+] [-] ddrdrck_|4 years ago|reply
[+] [-] Animats|4 years ago|reply
It's always a bad sign in the cryptocurrency world when withdrawals are delayed.
The paper is written as if the change to proof of stake has happened.
[+] [-] EVa5I7bHFq9mnYK|4 years ago|reply
[+] [-] ur-whale|4 years ago|reply
And that's assuming the ETH crowd doesn't change the supply formula (which no one currently understands) on a whim.
[+] [-] nlitened|4 years ago|reply
[+] [-] inter_netuser|4 years ago|reply
How is "minimal" and "viable" determined?
[+] [-] devops000|4 years ago|reply
[+] [-] qertoip|4 years ago|reply
In fact, Ethereum's monetary policy did change in the past.
[+] [-] crispyporkbites|4 years ago|reply
So really, if I'm going to hold any cryptocurrencies, that's where I want them
[+] [-] ArtTimeInvestor|4 years ago|reply
Without the distorting action of governments printing money, interest rates might be set by market forces in "crypto land".
This might lead to a long term situation where artificially low interest rates are paid in government controlled currencies, but market prices are paid in crypto currencies.
Or will cheap interest rates in government controlled currencies somehow bring down the interest rates in crypto currencies?
The 10 year yield of bonds in Europe is at 0%. While US bonds are currently at 1.5%. This might be an indicator, that rates in one currency will not completely control rates in other currencies.
[+] [-] rauljordan2020|4 years ago|reply
- Proof of stake has serious flaws if done from scratch, as you are trying to secure a network using value created out of thin air. Ethereum is migrating to proof of stake from proof of work, and has already built up a security pool of over $200bn USD market cap and a significant amount of activity. ETH as the native asset required for proof of stake has enough security pool to allow the migration to make sense.
- "You have been talking about proof of stake for years, wake me up when it happens". We launched proof of stake on December 1st, 2020 https://www.coindesk.com/valid-points-ether-staked-eth-2-0-q.... This runs as a parallel chain that users deposit ETH into to participate in consensus via a bridge contract. The next step is to merge the current Ethereum chain to use this new chain's consensus, and we are working on this to happen late this year.
- "There is a vibrant developer community, but for what? All speculation?" Yes, speculation was and is ever present in this new technology given how permissionless it is. This means anyone around the world can interact with the blockchain without a gatekeeper. However, there is an incredible amount of financial innovation happening on Ethereum that didn't even exist back in 2017. Really well-thought out stablecoins, flash loans (which are a blockchain native concept), automated market makers such as Uniswap which had more trading volume than Coinbase https://www.theblockcrypto.com/linked/79775/uniswap-coinbase.... We have privacy technologies such as Aztec Protocol or Tornado Cash. We have zero-knowledge proof games such as DarkForest. What makes me personally excited is that Ethereum is like this global, shared computer where every application deployed immediately opens a composable API for others to interact with by design, creating infinite possibilities.
- Ethereum's development is far more decentralized today than it was years ago. Ethereum proof of stake was developed by 4 independent teams, unaffiliated with the Ethereum Foundation, and had a successful launch this past December 1st, 2020, and no, Vitalik cannot roll back the chain.
- "Some other blockchain already had proof of stake and have been running for years". What makes Ethereum proof of stake special is it takes no compromises between decentralization, security, and scalability. At the base layer of the blockchain, Ethereum uses really neat cryptography known as BLS signatures (https://medium.com/cryptoadvance/bls-signatures-better-than-...), which allow for signature aggregation at scale. This means there can hundreds of thousands or millions of consensus participants with minimal network overhead, compared to other chains which have a permissioned set of < 100 consensus participants. Moreover, Ethereum is fully permissionless at the consensus. Anyone can run a validator at home easily on a consumer laptop. You don't need to buy ASICs, live in a country where electricity is cheap, or anything of that nature.
I urge everyone here to look deeper into Ethereum for what it offers and look at the depth of innovation happening in this ecosystem. Happy to answer any questions, as there seems to be a lot of misinformation.
[+] [-] svarog-run|4 years ago|reply
[+] [-] takeiteasyy|4 years ago|reply
[+] [-] cryptica|4 years ago|reply
Ethereum's blockchain uses up over 1 terrabyte of space. Because Ethereum nodes do not provide any search feature natively, most third-party software integrations end up being implemented via the use of centralized services (which defeats the whole purpose of Ethereum).
As for Bitcoin using the same amount of electricity as an entire country to perform 2 transactions per second, that is also shocking.
But modern fiat money-printing allows all pyramid schemes to thrive. I'm convinced that if Bernie Madoff had managed to keep his ponzi scheme going just one more decade, he would never have been caught.
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] manfredz|4 years ago|reply
[+] [-] RichardHeart|4 years ago|reply
[+] [-] ddeyar|4 years ago|reply