Ethereum: Only when ETH becomes a currency, Ethereum can succeed

Ryan Sean Adams, founder of Mythos Capital, a cryptocurrency investor, believes that ETH is undervalued and he will explain to us why ETH is a currency-like function of value storage, exchange media and account units, and tells us why this idea is important.

Ryan Sean Adams

ETH is the currency. this point is very important!

In the Ethereum culture, people seem to be less willing to talk about prices, and community members seem to always use " BUIDL " as a mantra. Although it is worth promoting this spirit in many aspects such as community service, it will also make people underestimate or even misunderstand the strong potential of Ethereum as an " asset ."

Yes, ETH is underrated!

What is ETH?

ETH is practical, but it is not only a practical token; ETH can be used for staking, but not just an equity mortgage; in fact, Ethereum is an emerging economy, while ETH is Reserve assets of this economy.

ETH is a "comprehensive" asset with three qualities :

  1. ETH is a capital-like asset, like government bonds. When the ETH of the mortgage is exchanged to protect the security of the network, it will generate a return, which will result in a continuous "value stream."
  2. ETH is a convertible asset, like oil. When used in a payment transaction, ETH is converted to another asset. As a convertible asset, ETH is priced by supply and demand, but in this case there is no continuous flow of value.
  3. ETH is a currency, just like gold or dollars. As an alternative to the "currency" of legal currency, ETH is priced by supply and demand. This attribute gives ETH a "currency premium" characteristic, in which case the value of ETH is higher than the value of capital assets and the value of convertible assets.
Now, the currency attribute of ETH can be split into several parts. The common definition of currency is value storage (SoV), exchange medium (MoE), and account unit (UoA). When used for mortgages or to protect wealth, ETH is a value-storage (SoV) asset; when used for pricing, or for purchasing collectibles and for initial coin issuance (ICO), ETH plays another role. The role of the exchange medium and account unit.

What are the views against "ETH is money"?

However, not everyone agrees that "ETH is money." At present, there are three main objections to the view that "ETH is a currency":

The first is volatility, and ETH is not stable enough, so people think it can't be a reliable exchange medium and account unit. Although the expansion of the network value to the "trillion" level will reduce the volatility of ETH, it is undeniable that ETH is indeed too unstable compared to many other currency use cases.

But ETH can solve the problem of value stability with "ETH-synthetics", just as the dollar is endorsed by gold under the gold standard. Take DAI as an example. DAI is tied to the US dollar to ensure stability, but DAI cannot be directly converted to US dollars. It can only be exchanged for ETH. The DAI is anchored to the US dollar for convenience only and can be switched to another account unit at will.

Therefore, this is the answer to the problem of volatility. In the form of DAI, ETH can become a medium and currency unit of low volatility.

The second is monetary policy. People questioned the ETH issue and thought it might generate inflation like a legal currency. But in fact, there are a lot of misconceptions about ETH distribution, but we have to clarify some facts:

  • The Ethereum release rate is now at 4.6% and will decrease over time;
  • The main goal of Ethereum's Prosperity Proof (PoS) design is to reduce the cost of issuance and improve safety – under the proof of equity, the Ethereum issue rate will be reduced to around 1%;
  • ETH equity holders will be motivated by a reduction in circulation – this is in complete contrast to the incentives of the central bank's fiat currency issuer;
  • The scarcity of ETH and the scarcity of BTC depend on the social contract support enforced by the nodes and the developer community. They can “rebel against authority” at any time through hard forks.
ETH's monetary policy is to ensure network security with minimal circulation as much as possible. This structure ensures the long-term sufficiency of security predictions, rather than implementing a policy of halving security every four years like Bitcoin. Under the proof of equity, ETH's annual circulation will be lower than existing value storage assets, such as gold.

It can be said that ETH's monetary policy is more than enough to be a value storage currency. The market will achieve this goal over time, and smart participants have begun to do so.

Third, although some people admit that ETH is a currency, they only recognize the currency in the Ethereum economy.

However, we have no reason to believe that ETH should be confined to its own native economy. In fact, if we use ETH bonds to guarantee and use trillions of ETH as a currency and financial instrument to support value storage, then Ethereum can be a “neutral global settlement” for open finance (a neutral global Settlement layer). In the future, ETH should also be included as a globally held non-sovereign asset in the balance sheets of all major institutional funds and central banks.

Chain News Note: For this last point, it is recommended to read an article by Cuy Sheffield, Visa's Cooperative Affairs: " Opening the Brain: From the perspective of national security, the value of Ethereum may be underestimated. "

Therefore, this last objection to "ETH is money" may depend on people's limitations on the Ethereum vision.


Who cares most about ETH is money?

The following is a question we can explore: Why is "ETH is a currency" important? The author always communicates with some people about this issue. We usually have the following dialogue:

Questioner: Who cares if ETH is a currency?

Me: If ETH is not considered a currency, its value will never reach the trillion dollar level.

Questioner: So who cares in the end? Regardless of whether ETH is $10 or $10,000, will it work in a different way?

Me: No, not like this. At lower prices, ETH does not perform well.

If the price of ETH is very low, the following problems may occur:

  • The economic security of Ethereum network assets will be reduced; (see Note 1)
  • The economic bandwidth of “synthetic tokens” and currencies (such as DAI) stored based on Ethereum value will be reduced; (see Note 2)
  • Paying for the economic resources developed by Ethereum will become less;
  • Ethereum’s economic credibility as a global financial system will be affected.
For the above reasons, the key to winning an open financial network is to become a value storage asset at the base currency level. If it is not ETH, then a network that is not so open, not so unauthorized, or even less decentralized will replace it.

Libra offers a closed currency and a closed banking system. Bitcoin offers an open currency, but it is a closed banking system. (See Note 3) Only Ethereum can provide an open currency and an open banking system.

Ethereum is an unlicensed system that is very similar to the Internet. It can also resist censorship like BitTorrent, while at the same time acting as a public protocol like TCP/IP.

In my opinion, Ethereum is a decentralized financial system born for the whole world. I hope that Ethereum can be successful because such results are very important; but only ETH is a currency, and Ethereum can succeed.

Note 1: In the workload proof and equity proof consensus, the growth of Ethereum security is directly proportional to the ETH value . Especially in some bearers assets, such as assets that can only be cleared in the Ethereum blockchain, including DAI and REP, rather than revocable USDT and GUSD, they require higher blockchain security. Prevent double flower attacks. While it is difficult to explain how much security they need, it is clear that a more secure public blockchain will be trusted by higher value assets and the network effect will be compound.

Note 2: “ Economic Bandwidth” refers to the ability of a value storage asset to support the assets it supports . The Ethereum network is assumed to have a value of 10 billion, and 10% of ETH is locked to support $666 million in DAI. Then when the network value reaches 1T US dollars, it can support the DAI of 66 billion US dollars. In other words, the higher the value of the base currency, the greater the economic bandwidth of the system.

Note 3: Bitcoin requires the use of centralized cryptocurrency exchanges such as BitMex, Coinbase, Coin and BlockFi. Although Ethereum also needs these "encrypted banks", it does not depend on them. In fact, Ethereum allows decentralized banking protocol networks such as Uniswap, Maker, Set and Compound. Programmability in the Ethereum Smart Contract Agreement provides a more open bank layer than the more closed bank layer.

Written by: Ryan Sean Adams, founder of cryptocurrency investor Mythos Capital

The chain is authorized by the author of this article to translate and publish the Chinese version.