BTC Dips are Normal; Prepare Your Mind
I also very much appreciate your explanations (and reassurances!!) VTGothic.
If one is speculating on BTC ETH and others then each comes with the caveat do your own research because there are a number of ways to play. One can play the BTC/ETH ratio, you can read white papers and deep dive into valuable pro so, you can follow one or several long time bloggeryon new projects just hitting uniswap and throw a few bucks at a bunch of maybes hoping one will 100x and cover all the ones that never flew. If however one believes in the base reasons for the existence of each then it doesn’t matter the fluctuations of one in relation to the other. There’s a place for BTC and a place for ETH and a place for layer 2 solutions and a place for NFTs(after the froth settles). One can also be both a believer/hodler and a speculator, they don’t have to be mutually exclusive.
After watching this one I decided to keep 66% in BTC and 33% in ETH. With the recent ETH explosion it’s now closer to 57% and 44% (3% in ADA)
Then, too, ETH founder Vitalek just “burned” a bunch of coins to tighten supply. Well, that has the same impact on remaining coins as does stock buyback actions: Price goes up. It’s market manipulation, and Vitalek is the primary beneficiary, holding the bulk of premined ETH.
I swear I read that in passing while researching something else, in the last couple weeks, because my dream life is not that interesting. But I can’t find the article, which I want to do to confirm my statement. I don’t want to be unfair to Vitalik or ETH.
What I have found are several articles making reference to the new protocol, EIP-1559, that proposes burning some ETH with each transaction as (or after) the coin changes over to version 2.0, which should be largely completed by the end of this year. Over time, that will tighten supply helping drive the value up, ETH’s network techs and managers say. (Example article.)
For me, it raises the question: won’t ETH eventually get all burned up? Unless some new ETH are added in? Best answer I’ve found so far is a brief statement that complete eradication won’t happen because the proof of stake protocol somehow prevents it; I don’t understand how at this point.
I also wanted to find confirmation of Buterin’s premined stash, and couldn’t. That’s something I’ve “known” for long enough that it seems to me I should check into it – increasingly I don’t trust things that are supposed to be common knowledge but that can’t be sourced.
These are two open questions I have about ETH that I’ll keep an eye out for info on as I continue reading and listening in the crypto space. Meanwhile, I have to encourage you to do as I am now doing: hold those as unconfirmed bits of common knowledge; either might or might not be true.
On the other hand, the fact that the development team can decide to change protocol, even dramatically – like the change from proof of work to proof of stake, which is a very big change in how transactions are verified, and that appears undemocratic in terms of who can operate a node – demonstrates two concerns I have about ETH: (1) that it is not really decentralized; (2) that ETH is in continual experimentation from top to bottom, even deep into its base layer. Both of those tell me that however well ETH might perform some day as a foundational Layer 1 designed to enable various use cases on Layer 2, it is not at its essence reliably beyond the whims of key persons, cabals, or governments; therefore, is not a store of value.
ETH has been trying to find its use case since its founding 6 years ago. Many things have been tried by a variety of app developers, nothing has stuck. Now it’s changing its core protocol in an effort to make it more appealing to developers who have objected to various features of the base layer. We’ll see if it can now find a use case to justify its continued existence.
Meanwhile, layer 2 applications for bitcoin are achieving some of the use cases ethereum has claimed as its promise. And without compromising or changing the base layer. By the time ETH 2.0 achieves some layer 2 features and benefits to justify its use, bitcoin’s free-standing app developers might be well on the way to providing all of those same services – on the dominant network.
The next 5 years or so will tell the story in some detail.
So here is a nice piece from ZH today explaining the bright future of ETH.
The trouble is that I don’t know the motivation of the author. Should I accept all he says and implies as true?
Less serious is that I don’t know enough crypto technical stuff to weight the content.
I could wish MM were here to comment. He had far more interest in ETH than I have.
My relative lack of interest comes from the fact that I am not in crypto primarily to make big money, but to secure myself against fiat inflation. (It has been my experience, however, that just by securing my savings in BTC I make a significant ROI. I’m not greedy: a safe 200% per year is good enough for me.) My lack of core interest is why I’m playing catch-up these days.
That said, my read is that the author of the Zero Hedge article is pro-ETH and is glad to see it coming back into vogue. His treatment of the issues around the upcoming transformation is a bit light, but a careful reading indicates a divided house with the miners taking a haircut. Given that they’ve had to invest ETH into the system in order to qualify as miners in the new proof-of-stake system, their irritation at having their ROI screwed with is understandable. It changes their investment thesis after the fact.
I also notice from reading the linked article on the London Hard Fork that the developers have the power to push through these changes even against the wishes of the miners, and with an uncertain interest from the users. This does not strike me as either democratic (certainly not the way bitcoin is) or decentralized. As I read up these last couple days it seems increasingly that developers are the center of power and, as a group (or cabal) guide and direct the development of ETH.
That might not mean the planned changes work against the functionality of the ethereum platform – in fact I’d bet they are good changes from a functionality standpoint. However there seems to be a risk of the network imploding or splitting – it is such a concern that the London Fork article notes
Ethereum developers decided to pair EIP 1559 with a delay to the difficulty bomb. Also called the “Ice Age,” the bomb incrementally increases the difficulty of mining on the Ethereum network. Geth team lead Péter Szilágyi said that pairing EIP 1559 with the delay helped ensure no one would fork Ethereum at that time without having to undergo some technical hurdles.
Yikes. Put down the revolution by temporarily postponing the most distasteful aspect of the change. Do the miners really not see down the road? I think they do; how will they respond, now and when Ice Age takes effect?
Well, one response seems to be selectively front-running valuable transactions:
a new revenue replacement is quickly becoming available for mining networks. Called miner extracted value (MEV), miners can take advantage of their place as arbiters in how blocks are packaged to “front-run” profitable trades. MEV is currently popular among decentralized finance (DeFi) traders who bid up gas prices to secure their place in the block. Many Ethereum mining pools are currently implementing MEV software to gather this untapped source of revenue.
So in response to the EIP1559’s effort to reduce the cost of transactions, which the miners do not like, the miners are now going to use their power to pool transactions into blocks to bid up prices anyhow.
How many months down the road will the developers force through some new protocol changes to try to rein in the miners again? It all seems very like what we see in fiat currency regimes, because the ETH protocol does not provide an integrated set of incentives that encourage all vested interests to pull in the same direction. Instead, they have competing interests that encourage them to battle one another. That’s a weak system.
This comment from the Zero Hedge article seems to confirm the embedded problems in ETH:
Whatever Ethereum lacks in terms of technical specs (which is plenty) it more than makes up for in terms of aggregate user experience, development tools and supporting infrastructure. When it comes to technological adoption, the best tech often does not win. The first application to reach critical mass does, because the switching costs are too high. This is especially true when there are network effects in play. To that point, I would argue that Ethereum has already passed the point of no return.
The pro-Ethereum author acknowledges ETH has technical issues and might not be the best tech available. But, he says, it’s a fait accompli for having reached critical network mass first, so get over it and come aboard.
What kind of an argument is that? “It’s not good, but it’s the biggest, so deal with it.” Plus, “whatever its shortcomings, we’ve been through a lot, learned a lot, and made improvements.” Or, alternatively: “sure we’re bad, but we’re getting better.”
Well, okay; perhaps that’s good enough for the developers and pro-ETH columnists. But maybe a lot of ETH’s users and Layer 2 developers don’t think they should meekly accept something less than adequate. Maybe the answer to his question about why ETH prices are a focus of criticism is that the users and developers don’t think ETH in its current (and perhaps upcoming) form is worth the toll.
I’m also struck by the position of the Zero Hedge author that as long as the issuance of new ETH is slower than the demand curve it’s functionally deflationary. Or perhaps he just means its not inflationary; mildly disinflationary:
Lastly, some people are bothered by Ethereum’s linear inflation, as they’ve been trained by Bitcoin to expect their coin to be disinflationary. This is an incomplete argument, as it only looks at the supply side of a cryptocurrency. Just as important is the demand curve, and Ethereum has far more of it than any other smart contract platform.
He certainly doesn’t think that ETH has a hard cap (something I suspected, as reflected in my previous comments in this thread, but wanted to confirm), he just assumes – or hopes – that new ETH will be released at a rate slower than demand.
Hopefully he’s right. But either way, his comment confirms that ETH is fundamentally inflationary. All that’s at issue is whether that inflation front runs or lags transactional demand. Whichever, an investor’s supply of ETH will get watered down by new issuance. Saylor’s comment about an ice cube melting 2% a year comes to mind.
Not to threadjack, but I’m about to finish accumulating my BTC goal and intend thereafter to take it offline and store in a cold wallet. Any favorite units people like? I’m a total newb… Mahalos in advance!
May Fortune smile, and VIVA — Sager