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An Economic Analysis of Ethereum

137 points by jger15 6y ago

ogogmad 6y ago
I'm wondering whether Bitcoin has a chance of being anything other than a store of value, or a means to settle accounts (if even that). Given the long list of problems with Lightning (e.g. [1]), and the many years it's been in development for, I'm growing increasingly skeptical. I'm wondering how that fits into people's economic analysis of Bitcoin. P.S. I'm long Bitcoin, so I hope I'm wrong! [1] - https://www.coindesk.com/bitcoin-lightning-network-vulnerabilities-not-exploited-yet https://www.coindesk.com/bitcoin-lightning-network-vulnerabi...
- porknubbins 6y ago
  I’m starting to see Bitcoin and ETH/ other alt coins a kind of mutually dependent relationship. Bitcoin succeeding as a store of value allows that narrative to continue, drawing in institutional investment while other faster projects allow the narrative about changing all monetary transactions to continue. I don’t think maximalists on either side would like the price if the other side failed.
  - dustymcp 6y ago
    I completely agree with this
  - grubles 6y ago
    I predict more and more blockchains in the future won't have extraneous speculative tokens (like ETH) since BTC has remained dominant for more than a decade. There are simply less and less reasons to buy or hold ETH when sidechains like Rootstock replicate the technology used on Ethereum...but without needing to use another less dominant less liquid asset.
    - x3sphere 6y ago
      But BTC is only dominant in market cap, ETH is the most widely used blockchain. Sidechains on BTC have been a topic of discussion for awhile now, and frankly none have gotten a huge amount of traction. At some point the network effects that ETH has are too big to ignore. But whether the most used blockchain should be the highest in market cap is a totally different discussion. It's possible ETH goes mainstream, but BTC is still valued higher as "digital gold." I have no idea what will be the outcome.
    - CryptoPunk 6y ago
      The network effects are on Ethereum, with virtually the entire DeFi space on it. Moreover, Bitcoin doesn't have the necessary opcodes for secure/trustless bridges to sidechains. Rootstock, for its part, is controlled by trusted third parties, so doesn't come close to providing the trustless-ness and permissionless-ness guarantees of Ethereum. Unsurprisingly, Rootstock has insignificant adoption, with Ethereum having on the order of one thousand times more capital/users utilizing it.
- UShouldBWorking 6y ago
  The Bitcoin core project died years ago as soon as the GitHub repo was hijacked by corporate interests like Adam Back's Blockstream. Bitcoin cash is much closer to what is described in satoshi's white paper and infinitely more useful than Bitcoin core at this point.
- mlthoughts2018 6y ago
  I think alternatives like Litecoin and Bitcoin Cash are more likely to be adopted as a transactional tool in that case. Bitcoin - speculation on digital store of value and solutions to hedge against fiat currency risks. The valuation model is to try to determine what X% of the global demand for store of value assets might shift towards Bitcoin in the long run. Probably nowhere close to the level of a fiat currency market or the gold market, but perhaps much higher % than it is today. Litecoin, Bitcoin Cash - attempting to make crypto transactions common. Higher capacity, faster transaction processing. The valuation model is X% of casual transactions. X is probably never going to be an appreciable percentage compared to big transaction platforms like Visa or Mastercard, but it may grow steadily and find niche areas where the ability to quickly transact in a cryptocurrency is highly valued. This is likely to remain correlated to cryptocurrencies that act as a store of value because one main area for demand of casual cryptocurrency transactions will be hedging risk of fiat currencies. Eg if I live in a region with government currency instability, I’ll want to decouple my cash asset values from that government risk, and look to a platform where I can still buy toilet paper or bread without hyperinflation. Ethereum, Polkadot, Cosmos - network effects and ecosystems of smart contracts. The valuation model is like an app store mixed with a cloud vendor. Much harder to state a clear valuation model, likely very volatile due to perceptions of “killer apps” and how much staying power they would really have, as well as the interplay with regulators.
- chrisco255 6y ago
  Sure it is, on Ethereum: https://defipulse.com/btc https://defipulse.com/btc More tokenized Bitcoin is transacted on the Ethereum network every day than on the Lightning network, by orders of magnitude.
  - grubles 6y ago
    Most of the "tokenized Bitcoin" you're referring to is just an ERC20 promise of redemption from Bitgo's coffers. It's not at all comparable to Bitcoin's Lightning Network.
    - chrisco255 6y ago
      All I know is there's 148K Bitcoin locked in tokens, which is nearly 1% of all Bitcoin and that people are finding more utility in tokenizing it and providing it for liquidity and yield on various DeFi platforms than on Lightning network. Maybe that will change in the future, but right now, that's the case.
- xorcist 6y ago
  Even if Bitcoin only gets to be the reserve currency of all digital currencies in the future, the petrodollar that oils the defi machinery, that's enough of a use case to drive valuation. People like to ask Bitcoin investors if they really think it will be the last and optimal digital currency. And no, that's not likely. But that reasoning must be applied to each and every other coin as well, including Ethereum, and that is doubly likely for them. One could easily imagine a future coin that does what they do, only better.
tchalla 6y ago
TL;DR from the Author Lyn Alden > TLDR; Ethereum could indeed do very well over the next year in terms of price, but as long as it's transforming its base layer, it remains a speculation in alpha development, rather than a finished/stable product. https://twitter.com/lynaldencontact/status/1350821129636737024?s=21 https://twitter.com/lynaldencontact/status/13508211296367370...
- brightball 6y ago
  Thank you
ogogmad 6y ago
Is it at the moment possible (or even advisable) to use stablecoins like DAI to buy things directly on the Dark Web? Because if not, then that forces you to use exchanges to convert the stablecoins to fiat, which themselves are still subject to KYC regulations. So in that case you haven't really got around KYC.
- dannyw 6y ago
  The Dark Web is transitioning into exclusively Monero.
  - gruez 6y ago
    Which is funny given this talk that was linked a few months ago in hn comments: https://www.youtube.com/watch?v=9s3EbSKDA3o https://www.youtube.com/watch?v=9s3EbSKDA3o
    - gaspard234 6y ago
      I'm not going to watch a half hour long talk without a summary but zcash has never had more than 1000 transactions in a day, Monero regularly has 30k+ day. Those dismal numbers from zcash make it very easy to trace transactions.
RyanShook 6y ago
Thankful for the in-depth analysis. I'm still bullish on ETH because the entire blockchain economy is very speculative. Trying to fault Ethereum because it's not as stable or secure as BTC doesn't seem very fair.
TTPrograms 6y ago
I feel like I disagree with the bottom-line a bit - a 100/0 split seems to ignore the possibility that a future stable state of the Ethereum network will be capable of supporting stablecoins or other coins with arbitrary monetary policy that are capable of matching or surpassing Bitcoin in all metrics of technical merit. I would not want to be a Bitcoin maximalist in that situation.
- The_rationalist 6y ago
  Stablecoin is an untractable problem by design, isn't it being solvable in the future by crypto a myth?
  - rglullis 6y ago
    Is it? I have been using MakerDAO and it has been holding up without any problem. Even the crash last March didn't cause a major lack of liquidity or lost backing value.
    - ogogmad 6y ago
      Can you explain what you use it for exactly?
      - rglullis 6y ago
        Three cases for now, mostly: - It's an excellent way to make payments and transfer value without giving up on your position on more volatile assets that you'd like to hold. E.g, I am long BAT. I can deposit my BAT stash on a MakerDAO vault to make an overcollaterized loan of DAI. I go on then to use DAI to pay people and services and other investments (see next point). If BAT's value falls between a certain threshold and the loan is no longer collaterized, then the loan is liquidated. - Provide liquidity in a volatile-stable pair (e.g, ETH/DAI) on a decentralized exchange like Uniswap and reduce what is commonly called impermanent loss or impairment loss. - Provide liquidity on Curve Finance on the DAI/USDC pool. The fees I get to collect from that so far more than offset the interest rate from the original loan, and if you put on top of that that Curve gives their own tokens as an incentive to liquidity providers, I am getting around 2% ROI per month by holding fairly stable and low-risk crypto assets.
flignats 6y ago
ETH past 3k in 2021
hehehaha 6y ago
I was hoping for a real economic analysis. You know one written by someone who studied monetary theories and policies.
- u678u 6y ago
  In this day an age a previously unknown writer who rights long blog posts with lots of words counts as an expert. Especially if they recommend BTC.
  - llampx 6y ago
    Lyn is previously unknown?
- sova 6y ago
  "as an oil-like enabler of dapps, rather than as a gold-like scarce collateral" is an economic statement (!)
- bo1024 6y ago
  I've read a few of her articles recently and been very impressed. I understand a default stance of skepticism but the writing speaks for itself. I would be curious for your criticisms on this "petrodollar" article, for instance: https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
- worik 6y ago
  They are a investor in Bitcoin. So they clearly do not get it
  - dustymcp 6y ago
    No reason why both cant coexist and compliment each other like they do today.
- reducesuffering 6y ago
  She definitely studies monetary theory and policy. Read a few more articles that are unrelated to crypto.
bo1024 6y ago
Enjoyed the article. I think one can boil it down pretty simply: decisionmakers at Ethereum don't care about investors. They're going to make decisions that support and enable interesting decentralized applications, and "defi" is incidental to that, but in they end they wouldn't care if Eth gets massively devalued or something as long as the ecosystem is healthy and growing. Disclaimer: this is just my own perspective and speculation based on a bit of reading and brief convos with Ethereum foundation people.
- chrisco255 6y ago
  That's not true. If ETH gets devalued through inflation by too much the security of the network would be compromised. They are explicitly moving to a 100% proof of stake model for securing the network (already partially deployed). This directly incentivizes stakeholders to protect the valuation of ETH. Finally, if EIP-1559 is implemented, the network will begin burning transaction fees. That is to say, it's possible in the future more ETH will be burned via transaction fees than produced from staking, in which case ETH issuance will go negative.
  - bo1024 6y ago
    I don't think it follows that my summary is wrong. I'm suggesting Ethereum people are happy to incentivize investment and stakeholders to protect ETH's value -- but not because they actually care about investors getting a good return, rather, because they want good security properties for their decentralized applications.
- grubles 6y ago
  That's not true at all. The decision makers in Ethereum care overwhelmingly about maximizing the value of their massive premine holdings. The latest EIP-1559 proposal (tl;dr ETH gets burned in every transaction) makes their stash an even larger percentage of the overall ETH distribution. Which is even more egregious when you learn that proof-of-stake rewards those with the most money (read: the decision makers).
  - CryptoPunk 6y ago
agumonkey 6y ago
I wonder if this is not part of a ramp up of subtle marketing toward ETH. The google trends is already growing up https://trends.google.com/trends/explore?date=all&geo=US&q=ethereum https://trends.google.com/trends/explore?date=all&geo=US&q=e...
- jondwillis 6y ago
  Anecdotally, Google Trends correlates with the market price of cryptocurrencies. Ether has gone up in value substantially this year.
  - elwell 6y ago
    I assume Google Trends fluctuations lag behind market price changes, so it probably isn't very useful. Would be curious to see the times that the two metrics are out of out sync, and speculations as to why.
- satellite2 6y ago
  I had a similar feeling. The net effect of reading that article was to make me want to invest in ETH.
  - agumonkey 6y ago
    And if the usual saying is true, be prepared to sell soon.
porknubbins 6y ago
I hadn’t really sat down and thought how much more complicated ETH 2.0 is than Bitcoin so that was interesting. I don’t think that the Concord metaphor is very meaningful though. Isn’t supersonic flight hard and inconvenient for real world physics and engineering reasons while cryptocurrency relies on CS/ math developments but if those problems are solved there is no reason to think the solution will remain impractical. Crypto won’t burn excess fuel or make sonic booms.
- RockyMcNuts 6y ago
  The Concorde never burned as much fuel as a small country. You could argue that crypto will always have to burn a lot of fuel (electricity) because it needs to be bound to a computationally hard problem to be secure. https://www.statista.com/statistics/881472/worldwide-bitcoin-energy-consumption/ https://www.statista.com/statistics/881472/worldwide-bitcoin...
- ThalesX 6y ago
  You just gave me a small glimpse of a world where the electricity goes down some evenings because Megacorp X’s DApp is peaking usage.
  - CryptoPunk 6y ago
    Ethereum is transitioning fully to Proof of Stake, which will eliminate the need to consume massive amounts of energy to arrive at consensus.
tubbyjr 6y ago
Some good points, but for as many good points, there is a similar amount of misinformation, whether purposefully or due to lack of understanding. - The claim that BTC chose a non-scalable solution for ease of running a node isn't true. The claim at the time was that Segwit and LN were sufficient to solve all the scaling issues, the hardforks were going to solve anyways with their block size increase. It also falsely states that the hard forks take up more hard disk space, when in fact BTC still takes more... - The hashrate comparison, the way it is charted is completely nonsensical, between BTC & ETH... it is quite literally comparing apples to oranges, their POW algorithms are completely different from one another and cannot be compared in hash/s terms. They are each respectively at the top of their hash domains. I'm doubtful this is due to ignorance, but moreso malice. Would love to see BTC miners do a 50% attack on ETH, which the author is essentially trying to instill into the minds of readers.
- spurdoman77 6y ago
  I havent heard of any claims that segwit and LN would be sufficient. It is very clear mathematics that they cant scale far. However they provide safe way to scale for short-term. Long-term solutions have to be found. If they are not found there is thousands of shitcoins claiming to solve the scalability issues better.
  - tubbyjr 6y ago
    I agree that mathematically, they are not the scaling solutions they were touted to be, as they both have a direct dependence on the base layer size, among many other issues respectively. You did mention yourself, under however, that it can help scale in the short-term. Many of the 'tech gurus' were essentially saying that Segwit was the short-term fix, and LN wich would take 18 months(seemingly a perpetual timeframe), would be the medium-term fix. The BTC maxi thought leader morons, like Tone Vays, who are technically ignorant, were selling noobs that both were a complete fix. I didn't choose the thought leaders for BTC.
- tubbyjr 6y ago
  I really feel the article's quality would greatly improve, focusing on just Ethereum 2.0, where fair points regarding its issues are brought up. Showing the node count for BTC and making it seem huge, while trying to sell the fact of how terrible it is to run a ETH node instead, and not mentioning the fact that there are actually more active ETH nodes online than BTC, is highly disengenious, and unfortunately just makes this seem like a bagholder trying to discredit competition.
EGreg 6y ago
I think the same analysis applies to Bitcoin in fact. Funny that this upvoted article says much of what I said yesterday in a comment that was originally heavily downvoted, then went back: The Ethereum solution to serve this demand, however, ironically has semi-centralized clusters. While it’s more decentralized than purely-centralized systems, it’s not really the level of decentralization that some were hoping for, and Buterin has admitted as such. These clusters of centralization serve as potential attack surfaces for governments to crack down on these methods of going around regulated and fully centralized and KYC-regulated firms. One could almost say it’s a veneer of decentralization over a system that is actually quite centralized. There’s a step here towards decentralization, but it’s not actual decentralization in its current form. I went further. Let me reproduce it here: No, blockchains are not the future, they are really the reason why one transaction can happen at a time in the whole world. Even Ethereum 2.0 will have shards which will do away with this anomaly. The only reason flash loans even work with no collateral is because you can be sure nothing else is running on the “world computer” while your transaction runs, so you can roll it back with no risk except gas fees. Vitalik himself acknowledges this, the guy is quite honest and straightforward about its limitations: Vitalik Buterin: Using Ethereum is expensive, and its blockchain is ‘almost full’ He also said blockchain's 'problem' is that every computer verifies every transaction Actually blockchains are a first-generation technology that do global consensus for every block, which literally means all transactions in the world must go through one computer in the world (the miner) although it’s a different one each time. And the situation is actually worse, since you don’t know who would mine the next block in advance, every transaction must be sent to every potential miner! Imagine if BitTorrent had every computer store and seed every movie instead of using DHT. The ability to send or loan arbitrarily large amounts for a fixed fee is a symptom of centralization. In a fully distributed network, transaction fees would have to be proportional to transaction size! Almost every other protocol on the Internet does not have such bottlenecks in its design. No one asks how many emails or websites can be served per second. Blockchain is trying to secure every transaction using the entire network! That is why so much electricity is wasted just to do 7 transactions per second. The next generation of crypto will actually be able to power payments using embarrasingly parallel architecture. Until then, we have blockchain. Ethereum is nicknamed the “world computer” for a reason. Gas fees are super high for small transactions like paying for coffee or voting in a secure election. Just one app KryptoKitties can clog up the entire network. As one example, we built Intercoin apps on top of Ethereum (https://intercoin.org/applications https://intercoin.org/applications) but we are not going to wait around for Ethereum 2.0 - which is blockchain also. Kik Messenger and others have long gotten off. Ripple, MaidSAFE and Solana use different technologies.
skybrian 6y ago
There is still a big question of whether a panic that breaks Tether's peg might cause enough chaos to discredit the entire market for a while. It's odd that Alden doesn't address that. Some other cryptocurrencies could go up when that happens, but it seems like it would be bad for demand in the slightly longer run.
- seibelj 6y ago
  I keep reading people post this on HN but I promise you it won’t matter. The shock of Tether not being fully backed already happened back in 2018 and the $1 peg briefly broke before recovering. What’s the next shock? It’s still not backed? The market already knows this and doesn’t care. Retail currently can’t cash out USDT and still won’t later. IMO the only way USDT dies is if the US government makes using it illegal. Nothing else will make a dent in it.
  - skybrian 6y ago
    Maybe short-sellers could do it if there were a big enough market for lending Tether to short-sellers?
seibelj 6y ago
The majority of the serious innovation and development in the crypto space currently happens on Ethereum, which keeps the money people interested and sniffing around. The existence of Ethereum IMO helps the price of bitcoin increase, especially as ever more bitcoin is "wrapped" and ported to the ETH network.[0] I think this article is really solid, as are all of her articles. Part of what I love about Ethereum and altcoins is exactly because of the speculative, fast-money, insanely risky and exotic assets and protocols it creates. Where she sees that as a negative, I see it as a positive. ETH and its tokens have helped my crypto friends amass more wealth than we would have made working at FAANG companies, and without slogging through all of the bullshit and pain of working at huge corporations. Plus we get to work on super interesting tech rather than middleware that powers the middleware that powers the data mining pipeline that extracts money out privacy violations. If you want the "safe" crypto play, I tell people to do 60/40 BTC/ETH on Coinbase so they can hold it safely and never look at it again. If you want to make the 10x fast money gains speculating like a crypto degen trader, then the only game in town is ETH and the alts running on its ecosystem. [0] https://wbtc.network/ https://wbtc.network/
- grubles 6y ago
  "Wrapped Bitcoin" is not "porting" BTC to Ethereum. It's merely a token that represents some sort of claim on actual BTC held with a single custodian (Bitgo).
  - CryptoPunk 6y ago
    It's effectively porting BTC to Ethereum, given the value of the BTC can be utilized on Ethereum by the tokenized claim on BTC. And there are wrapped BTC tokens on Ethereum that utilize cryptoeconomic incentives instead of the reputation of a custodian to guarantee redeemability for BTC: renBTC and tBTC. WBTC was just the first to launch so has the largest market cap. It's also possible that WBTC's reliance on a trusted third party is perceived as less risky than reliance on novel cryptoeconomic incentive schemes.
bhaak 6y ago
Overall, a very good and thorough analysis with a completely comprehensible explanation why she's preferring a 100% BTC, 0% ETH strategy. I have only some minor quibbles. GPUs are very much not abundant. Gamers were complaining a lot during the last bull run that those crypto nuts were buying up all available high-end GPUs. Also comparing the hashrates of Bitcoin and Ethereum doesn't make sense. Those are different algorithms that run on completely different hardware. Bitcoin ASICs can only be used for Bitcoin (or Bitcoin forks that haven't changed the POW algorithm) where GPUs as more general programmable devices can be repurposed for mining other cryptocoins which might be more profitably to mine at any given time. Together with the fact (as stated in the article) that Ethereum has reduced the block rewards over time, it's not surprising that the hashrate isn't bigger than during the previous bull run. This leads to the criticised monetary policy of Ethereum. This wasn't explicitly mentioned in the article but Ethereum's monetary policy can best be summarized as "don't overpay the miners for securing the network". Many see it as a necessary evil that Ethereum is still running on POW and they are eagerly awaiting the jump to POS. It is seen as a design flaw of Bitcoin that it has a rigid coin issuance that isn't dynamically adjusting to the actual demand.
- sjtindell 6y ago
  To your point, some farms will swap the coin they are mining in real time on the fly (given some baking period to see a real price difference) based on profitability and are continually selling on exchanges to capture current rate.
- hertzrat 6y ago
  That gpu shortage is worrying me because I’m working on a game right now with a certain hardware requirement. By X date I have been anticipating that 50-55% of gamers will have Y gpu or better, based on previous years steam hardware survey data. Gamers are having some trouble getting the new cards though (not from lack of trying). Hopefully it won’t be an issue but it’s hard to say
  - krageon 6y ago
    You could just develop for something that you can actually get today and live with the fact that it's not taking advantage of all the shiny new toys an RTX 3090 offers.
CryptoPunk 6y ago
This is a fake quote from a parody website: >>I happily played World of Warcraft during 2007-2010, but one day Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring.

137 points by jger15 6y ago

I'm wondering whether Bitcoin has a chance of being anything other than a store of value, or a means to settle accounts (if even that). Given the long list of problems with Lightning (e.g. [1]), and the many years it's been in development for, I'm growing increasingly skeptical. I'm wondering how that fits into people's economic analysis of Bitcoin. P.S. I'm long Bitcoin, so I hope I'm wrong! [1] - https://www.coindesk.com/bitcoin-lightning-network-vulnerabilities-not-exploited-yet https://www.coindesk.com/bitcoin-lightning-network-vulnerabi...

porknubbins 6y ago
I’m starting to see Bitcoin and ETH/ other alt coins a kind of mutually dependent relationship. Bitcoin succeeding as a store of value allows that narrative to continue, drawing in institutional investment while other faster projects allow the narrative about changing all monetary transactions to continue. I don’t think maximalists on either side would like the price if the other side failed.
- dustymcp 6y ago
  I completely agree with this
- grubles 6y ago
  I predict more and more blockchains in the future won't have extraneous speculative tokens (like ETH) since BTC has remained dominant for more than a decade. There are simply less and less reasons to buy or hold ETH when sidechains like Rootstock replicate the technology used on Ethereum...but without needing to use another less dominant less liquid asset.
  - x3sphere 6y ago
    But BTC is only dominant in market cap, ETH is the most widely used blockchain. Sidechains on BTC have been a topic of discussion for awhile now, and frankly none have gotten a huge amount of traction. At some point the network effects that ETH has are too big to ignore. But whether the most used blockchain should be the highest in market cap is a totally different discussion. It's possible ETH goes mainstream, but BTC is still valued higher as "digital gold." I have no idea what will be the outcome.
  - CryptoPunk 6y ago
    The network effects are on Ethereum, with virtually the entire DeFi space on it. Moreover, Bitcoin doesn't have the necessary opcodes for secure/trustless bridges to sidechains. Rootstock, for its part, is controlled by trusted third parties, so doesn't come close to providing the trustless-ness and permissionless-ness guarantees of Ethereum. Unsurprisingly, Rootstock has insignificant adoption, with Ethereum having on the order of one thousand times more capital/users utilizing it.
UShouldBWorking 6y ago
The Bitcoin core project died years ago as soon as the GitHub repo was hijacked by corporate interests like Adam Back's Blockstream. Bitcoin cash is much closer to what is described in satoshi's white paper and infinitely more useful than Bitcoin core at this point.
mlthoughts2018 6y ago
I think alternatives like Litecoin and Bitcoin Cash are more likely to be adopted as a transactional tool in that case. Bitcoin - speculation on digital store of value and solutions to hedge against fiat currency risks. The valuation model is to try to determine what X% of the global demand for store of value assets might shift towards Bitcoin in the long run. Probably nowhere close to the level of a fiat currency market or the gold market, but perhaps much higher % than it is today. Litecoin, Bitcoin Cash - attempting to make crypto transactions common. Higher capacity, faster transaction processing. The valuation model is X% of casual transactions. X is probably never going to be an appreciable percentage compared to big transaction platforms like Visa or Mastercard, but it may grow steadily and find niche areas where the ability to quickly transact in a cryptocurrency is highly valued. This is likely to remain correlated to cryptocurrencies that act as a store of value because one main area for demand of casual cryptocurrency transactions will be hedging risk of fiat currencies. Eg if I live in a region with government currency instability, I’ll want to decouple my cash asset values from that government risk, and look to a platform where I can still buy toilet paper or bread without hyperinflation. Ethereum, Polkadot, Cosmos - network effects and ecosystems of smart contracts. The valuation model is like an app store mixed with a cloud vendor. Much harder to state a clear valuation model, likely very volatile due to perceptions of “killer apps” and how much staying power they would really have, as well as the interplay with regulators.
chrisco255 6y ago
Sure it is, on Ethereum: https://defipulse.com/btc https://defipulse.com/btc More tokenized Bitcoin is transacted on the Ethereum network every day than on the Lightning network, by orders of magnitude.
- grubles 6y ago
  Most of the "tokenized Bitcoin" you're referring to is just an ERC20 promise of redemption from Bitgo's coffers. It's not at all comparable to Bitcoin's Lightning Network.
  - chrisco255 6y ago
    All I know is there's 148K Bitcoin locked in tokens, which is nearly 1% of all Bitcoin and that people are finding more utility in tokenizing it and providing it for liquidity and yield on various DeFi platforms than on Lightning network. Maybe that will change in the future, but right now, that's the case.
xorcist 6y ago
Even if Bitcoin only gets to be the reserve currency of all digital currencies in the future, the petrodollar that oils the defi machinery, that's enough of a use case to drive valuation. People like to ask Bitcoin investors if they really think it will be the last and optimal digital currency. And no, that's not likely. But that reasoning must be applied to each and every other coin as well, including Ethereum, and that is doubly likely for them. One could easily imagine a future coin that does what they do, only better.

tchalla 6y ago

TL;DR from the Author Lyn Alden > TLDR; Ethereum could indeed do very well over the next year in terms of price, but as long as it's transforming its base layer, it remains a speculation in alpha development, rather than a finished/stable product. https://twitter.com/lynaldencontact/status/1350821129636737024?s=21 https://twitter.com/lynaldencontact/status/13508211296367370...

brightball 6y ago
Thank you

ogogmad 6y ago

Is it at the moment possible (or even advisable) to use stablecoins like DAI to buy things directly on the Dark Web? Because if not, then that forces you to use exchanges to convert the stablecoins to fiat, which themselves are still subject to KYC regulations. So in that case you haven't really got around KYC.

dannyw 6y ago
The Dark Web is transitioning into exclusively Monero.
- gruez 6y ago
  Which is funny given this talk that was linked a few months ago in hn comments: https://www.youtube.com/watch?v=9s3EbSKDA3o https://www.youtube.com/watch?v=9s3EbSKDA3o
  - gaspard234 6y ago
    I'm not going to watch a half hour long talk without a summary but zcash has never had more than 1000 transactions in a day, Monero regularly has 30k+ day. Those dismal numbers from zcash make it very easy to trace transactions.

RyanShook 6y ago

Thankful for the in-depth analysis. I'm still bullish on ETH because the entire blockchain economy is very speculative. Trying to fault Ethereum because it's not as stable or secure as BTC doesn't seem very fair.

TTPrograms 6y ago

I feel like I disagree with the bottom-line a bit - a 100/0 split seems to ignore the possibility that a future stable state of the Ethereum network will be capable of supporting stablecoins or other coins with arbitrary monetary policy that are capable of matching or surpassing Bitcoin in all metrics of technical merit. I would not want to be a Bitcoin maximalist in that situation.

The_rationalist 6y ago
Stablecoin is an untractable problem by design, isn't it being solvable in the future by crypto a myth?
- rglullis 6y ago
  Is it? I have been using MakerDAO and it has been holding up without any problem. Even the crash last March didn't cause a major lack of liquidity or lost backing value.
  - ogogmad 6y ago
    Can you explain what you use it for exactly?
    - rglullis 6y ago
      Three cases for now, mostly: - It's an excellent way to make payments and transfer value without giving up on your position on more volatile assets that you'd like to hold. E.g, I am long BAT. I can deposit my BAT stash on a MakerDAO vault to make an overcollaterized loan of DAI. I go on then to use DAI to pay people and services and other investments (see next point). If BAT's value falls between a certain threshold and the loan is no longer collaterized, then the loan is liquidated. - Provide liquidity in a volatile-stable pair (e.g, ETH/DAI) on a decentralized exchange like Uniswap and reduce what is commonly called impermanent loss or impairment loss. - Provide liquidity on Curve Finance on the DAI/USDC pool. The fees I get to collect from that so far more than offset the interest rate from the original loan, and if you put on top of that that Curve gives their own tokens as an incentive to liquidity providers, I am getting around 2% ROI per month by holding fairly stable and low-risk crypto assets.

flignats 6y ago

ETH past 3k in 2021

hehehaha 6y ago

I was hoping for a real economic analysis. You know one written by someone who studied monetary theories and policies.

u678u 6y ago
In this day an age a previously unknown writer who rights long blog posts with lots of words counts as an expert. Especially if they recommend BTC.
- llampx 6y ago
  Lyn is previously unknown?
sova 6y ago
"as an oil-like enabler of dapps, rather than as a gold-like scarce collateral" is an economic statement (!)
bo1024 6y ago
I've read a few of her articles recently and been very impressed. I understand a default stance of skepticism but the writing speaks for itself. I would be curious for your criticisms on this "petrodollar" article, for instance: https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
worik 6y ago
They are a investor in Bitcoin. So they clearly do not get it
- dustymcp 6y ago
  No reason why both cant coexist and compliment each other like they do today.
reducesuffering 6y ago
She definitely studies monetary theory and policy. Read a few more articles that are unrelated to crypto.

bo1024 6y ago

Enjoyed the article. I think one can boil it down pretty simply: decisionmakers at Ethereum don't care about investors. They're going to make decisions that support and enable interesting decentralized applications, and "defi" is incidental to that, but in they end they wouldn't care if Eth gets massively devalued or something as long as the ecosystem is healthy and growing. Disclaimer: this is just my own perspective and speculation based on a bit of reading and brief convos with Ethereum foundation people.

chrisco255 6y ago
That's not true. If ETH gets devalued through inflation by too much the security of the network would be compromised. They are explicitly moving to a 100% proof of stake model for securing the network (already partially deployed). This directly incentivizes stakeholders to protect the valuation of ETH. Finally, if EIP-1559 is implemented, the network will begin burning transaction fees. That is to say, it's possible in the future more ETH will be burned via transaction fees than produced from staking, in which case ETH issuance will go negative.
- bo1024 6y ago
  I don't think it follows that my summary is wrong. I'm suggesting Ethereum people are happy to incentivize investment and stakeholders to protect ETH's value -- but not because they actually care about investors getting a good return, rather, because they want good security properties for their decentralized applications.
grubles 6y ago
That's not true at all. The decision makers in Ethereum care overwhelmingly about maximizing the value of their massive premine holdings. The latest EIP-1559 proposal (tl;dr ETH gets burned in every transaction) makes their stash an even larger percentage of the overall ETH distribution. Which is even more egregious when you learn that proof-of-stake rewards those with the most money (read: the decision makers).
- CryptoPunk 6y ago

agumonkey 6y ago

I wonder if this is not part of a ramp up of subtle marketing toward ETH. The google trends is already growing up https://trends.google.com/trends/explore?date=all&geo=US&q=ethereum https://trends.google.com/trends/explore?date=all&geo=US&q=e...

jondwillis 6y ago
Anecdotally, Google Trends correlates with the market price of cryptocurrencies. Ether has gone up in value substantially this year.
- elwell 6y ago
  I assume Google Trends fluctuations lag behind market price changes, so it probably isn't very useful. Would be curious to see the times that the two metrics are out of out sync, and speculations as to why.
satellite2 6y ago
I had a similar feeling. The net effect of reading that article was to make me want to invest in ETH.
- agumonkey 6y ago
  And if the usual saying is true, be prepared to sell soon.

porknubbins 6y ago

I hadn’t really sat down and thought how much more complicated ETH 2.0 is than Bitcoin so that was interesting. I don’t think that the Concord metaphor is very meaningful though. Isn’t supersonic flight hard and inconvenient for real world physics and engineering reasons while cryptocurrency relies on CS/ math developments but if those problems are solved there is no reason to think the solution will remain impractical. Crypto won’t burn excess fuel or make sonic booms.

RockyMcNuts 6y ago
The Concorde never burned as much fuel as a small country. You could argue that crypto will always have to burn a lot of fuel (electricity) because it needs to be bound to a computationally hard problem to be secure. https://www.statista.com/statistics/881472/worldwide-bitcoin-energy-consumption/ https://www.statista.com/statistics/881472/worldwide-bitcoin...
ThalesX 6y ago
You just gave me a small glimpse of a world where the electricity goes down some evenings because Megacorp X’s DApp is peaking usage.
- CryptoPunk 6y ago
  Ethereum is transitioning fully to Proof of Stake, which will eliminate the need to consume massive amounts of energy to arrive at consensus.

tubbyjr 6y ago

Some good points, but for as many good points, there is a similar amount of misinformation, whether purposefully or due to lack of understanding. - The claim that BTC chose a non-scalable solution for ease of running a node isn't true. The claim at the time was that Segwit and LN were sufficient to solve all the scaling issues, the hardforks were going to solve anyways with their block size increase. It also falsely states that the hard forks take up more hard disk space, when in fact BTC still takes more... - The hashrate comparison, the way it is charted is completely nonsensical, between BTC & ETH... it is quite literally comparing apples to oranges, their POW algorithms are completely different from one another and cannot be compared in hash/s terms. They are each respectively at the top of their hash domains. I'm doubtful this is due to ignorance, but moreso malice. Would love to see BTC miners do a 50% attack on ETH, which the author is essentially trying to instill into the minds of readers.

spurdoman77 6y ago
I havent heard of any claims that segwit and LN would be sufficient. It is very clear mathematics that they cant scale far. However they provide safe way to scale for short-term. Long-term solutions have to be found. If they are not found there is thousands of shitcoins claiming to solve the scalability issues better.
- tubbyjr 6y ago
  I agree that mathematically, they are not the scaling solutions they were touted to be, as they both have a direct dependence on the base layer size, among many other issues respectively. You did mention yourself, under however, that it can help scale in the short-term. Many of the 'tech gurus' were essentially saying that Segwit was the short-term fix, and LN wich would take 18 months(seemingly a perpetual timeframe), would be the medium-term fix. The BTC maxi thought leader morons, like Tone Vays, who are technically ignorant, were selling noobs that both were a complete fix. I didn't choose the thought leaders for BTC.
tubbyjr 6y ago
I really feel the article's quality would greatly improve, focusing on just Ethereum 2.0, where fair points regarding its issues are brought up. Showing the node count for BTC and making it seem huge, while trying to sell the fact of how terrible it is to run a ETH node instead, and not mentioning the fact that there are actually more active ETH nodes online than BTC, is highly disengenious, and unfortunately just makes this seem like a bagholder trying to discredit competition.

EGreg 6y ago

I think the same analysis applies to Bitcoin in fact. Funny that this upvoted article says much of what I said yesterday in a comment that was originally heavily downvoted, then went back: The Ethereum solution to serve this demand, however, ironically has semi-centralized clusters. While it’s more decentralized than purely-centralized systems, it’s not really the level of decentralization that some were hoping for, and Buterin has admitted as such. These clusters of centralization serve as potential attack surfaces for governments to crack down on these methods of going around regulated and fully centralized and KYC-regulated firms. One could almost say it’s a veneer of decentralization over a system that is actually quite centralized. There’s a step here towards decentralization, but it’s not actual decentralization in its current form. I went further. Let me reproduce it here: No, blockchains are not the future, they are really the reason why one transaction can happen at a time in the whole world. Even Ethereum 2.0 will have shards which will do away with this anomaly. The only reason flash loans even work with no collateral is because you can be sure nothing else is running on the “world computer” while your transaction runs, so you can roll it back with no risk except gas fees. Vitalik himself acknowledges this, the guy is quite honest and straightforward about its limitations: Vitalik Buterin: Using Ethereum is expensive, and its blockchain is ‘almost full’ He also said blockchain's 'problem' is that every computer verifies every transaction Actually blockchains are a first-generation technology that do global consensus for every block, which literally means all transactions in the world must go through one computer in the world (the miner) although it’s a different one each time. And the situation is actually worse, since you don’t know who would mine the next block in advance, every transaction must be sent to every potential miner! Imagine if BitTorrent had every computer store and seed every movie instead of using DHT. The ability to send or loan arbitrarily large amounts for a fixed fee is a symptom of centralization. In a fully distributed network, transaction fees would have to be proportional to transaction size! Almost every other protocol on the Internet does not have such bottlenecks in its design. No one asks how many emails or websites can be served per second. Blockchain is trying to secure every transaction using the entire network! That is why so much electricity is wasted just to do 7 transactions per second. The next generation of crypto will actually be able to power payments using embarrasingly parallel architecture. Until then, we have blockchain. Ethereum is nicknamed the “world computer” for a reason. Gas fees are super high for small transactions like paying for coffee or voting in a secure election. Just one app KryptoKitties can clog up the entire network. As one example, we built Intercoin apps on top of Ethereum (https://intercoin.org/applications https://intercoin.org/applications) but we are not going to wait around for Ethereum 2.0 - which is blockchain also. Kik Messenger and others have long gotten off. Ripple, MaidSAFE and Solana use different technologies.

skybrian 6y ago

There is still a big question of whether a panic that breaks Tether's peg might cause enough chaos to discredit the entire market for a while. It's odd that Alden doesn't address that. Some other cryptocurrencies could go up when that happens, but it seems like it would be bad for demand in the slightly longer run.

seibelj 6y ago
I keep reading people post this on HN but I promise you it won’t matter. The shock of Tether not being fully backed already happened back in 2018 and the $1 peg briefly broke before recovering. What’s the next shock? It’s still not backed? The market already knows this and doesn’t care. Retail currently can’t cash out USDT and still won’t later. IMO the only way USDT dies is if the US government makes using it illegal. Nothing else will make a dent in it.
- skybrian 6y ago
  Maybe short-sellers could do it if there were a big enough market for lending Tether to short-sellers?

seibelj 6y ago

The majority of the serious innovation and development in the crypto space currently happens on Ethereum, which keeps the money people interested and sniffing around. The existence of Ethereum IMO helps the price of bitcoin increase, especially as ever more bitcoin is "wrapped" and ported to the ETH network.[0] I think this article is really solid, as are all of her articles. Part of what I love about Ethereum and altcoins is exactly because of the speculative, fast-money, insanely risky and exotic assets and protocols it creates. Where she sees that as a negative, I see it as a positive. ETH and its tokens have helped my crypto friends amass more wealth than we would have made working at FAANG companies, and without slogging through all of the bullshit and pain of working at huge corporations. Plus we get to work on super interesting tech rather than middleware that powers the middleware that powers the data mining pipeline that extracts money out privacy violations. If you want the "safe" crypto play, I tell people to do 60/40 BTC/ETH on Coinbase so they can hold it safely and never look at it again. If you want to make the 10x fast money gains speculating like a crypto degen trader, then the only game in town is ETH and the alts running on its ecosystem. [0] https://wbtc.network/ https://wbtc.network/

grubles 6y ago
"Wrapped Bitcoin" is not "porting" BTC to Ethereum. It's merely a token that represents some sort of claim on actual BTC held with a single custodian (Bitgo).
- CryptoPunk 6y ago
  It's effectively porting BTC to Ethereum, given the value of the BTC can be utilized on Ethereum by the tokenized claim on BTC. And there are wrapped BTC tokens on Ethereum that utilize cryptoeconomic incentives instead of the reputation of a custodian to guarantee redeemability for BTC: renBTC and tBTC. WBTC was just the first to launch so has the largest market cap. It's also possible that WBTC's reliance on a trusted third party is perceived as less risky than reliance on novel cryptoeconomic incentive schemes.

bhaak 6y ago

Overall, a very good and thorough analysis with a completely comprehensible explanation why she's preferring a 100% BTC, 0% ETH strategy. I have only some minor quibbles. GPUs are very much not abundant. Gamers were complaining a lot during the last bull run that those crypto nuts were buying up all available high-end GPUs. Also comparing the hashrates of Bitcoin and Ethereum doesn't make sense. Those are different algorithms that run on completely different hardware. Bitcoin ASICs can only be used for Bitcoin (or Bitcoin forks that haven't changed the POW algorithm) where GPUs as more general programmable devices can be repurposed for mining other cryptocoins which might be more profitably to mine at any given time. Together with the fact (as stated in the article) that Ethereum has reduced the block rewards over time, it's not surprising that the hashrate isn't bigger than during the previous bull run. This leads to the criticised monetary policy of Ethereum. This wasn't explicitly mentioned in the article but Ethereum's monetary policy can best be summarized as "don't overpay the miners for securing the network". Many see it as a necessary evil that Ethereum is still running on POW and they are eagerly awaiting the jump to POS. It is seen as a design flaw of Bitcoin that it has a rigid coin issuance that isn't dynamically adjusting to the actual demand.

sjtindell 6y ago
To your point, some farms will swap the coin they are mining in real time on the fly (given some baking period to see a real price difference) based on profitability and are continually selling on exchanges to capture current rate.
hertzrat 6y ago
That gpu shortage is worrying me because I’m working on a game right now with a certain hardware requirement. By X date I have been anticipating that 50-55% of gamers will have Y gpu or better, based on previous years steam hardware survey data. Gamers are having some trouble getting the new cards though (not from lack of trying). Hopefully it won’t be an issue but it’s hard to say
- krageon 6y ago
  You could just develop for something that you can actually get today and live with the fact that it's not taking advantage of all the shiny new toys an RTX 3090 offers.

CryptoPunk 6y ago

This is a fake quote from a parody website: >>I happily played World of Warcraft during 2007-2010, but one day Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring.