In Search of the Meaning of Ethereum

While the fun of watching euphoric rises and exciting terror of trying to catch falling knifes in order to optimize that perfect dip buy have returned to the crypto space, things have changed since my first round of cryptocurrency market cycles.

Making money is easier than it's ever been. There are a lot of bad reasons for that, but I won't get into those specifics. Let me just say that policies have strongly favored the "owning" class from the working class.

I have found myself slowly turn toward Bitcoin maximalism. I won't say that the Hive / Steem split was the primary motivating factor but my involvement in multiple non-Bitcoin cryptocurrencies has led me in that direction.

However, I'm a skeptic at heart and am always trying to challenge some of those ideas that I have developed over the past three years. The one thing at the center of that skepticism of maximalism is Ethereum. It keeps sticking around and recently has done a good job of establishing itself in midst of the current Bitcoin run to $40k.

Bitcoin is obvious to me. Bitcoin is the hardest money powered by the most secure network on the planet. What is the meaning of Ethereum? That's what I'm trying to find out.


Ethereum.png

First off, I'll explain what I don't believe Ethereum to be. I do not believe it is hard money or a better version of money than Bitcoin is. Bitcoin is specialized to be money while Ethereum is designed much more generically as a smart contract platform and general purpose blockchain.

The main reason for this belief focuses around security. And Bitcoin emphasizes security while Ethereum has focused more on a more aggressive development stance. While this development attitude is great at developing prototypes and trying out new ideas, it's typically not the greatest idea when constantly playing with infrastructure that now valued at over $100 billion.

Proof-of-Work is also a more secure algorithm versus Proof-of-Stake. As many of us have seen in the Steem and now Hive ecosystems, Proof-of-Stake systems tend to be more political due to their forced centralization of stakeholder and block producer positions. One has to be a large stakeholder and block producer in a PoS system where miners and stakeholders can be separate in PoW systems and are driven to become separate especially when miners aren't doing their best to uphold the security of the chain.

Security is fundamentally a belief in the users of the network that change will only occur under certain rules. The more changes that are unexpected and break the rules or that change the ruleset itself decrease the notion of security. A system that changes little and has a minimal attack surface is a secure one. Bitcoin has that and Ethereum was never really designed in that way. If anything, Ethereum is moving away from that sort of description. Ethereum's planned roadmap (to PoS, implementing sharding, etc.) make it less secure.

However, the point of the last few paragraphs was not to declare that Ethereum is worthless or a scam. Just because Ethereum is not Bitcoin doesn't make it useless. Sure, Bitcoin is hard money. But life isn't only about the money is it?

And being hard money has it's draw backs. Every decision has to be made on the basis of security. Because the value of secure systems is based on the idea that the system only changes following very strict, predictable rules. This makes development, enhancement, and improvement of the protocol very hard.

So, let's get back to the topic of this discussion. What is the meaning of Ethereum? What's the point of holding Ether and what ideas are built into Ethereum that make it destined to be a useful platform and product moving into the future?

Over the past couple of weeks I only looked at Ethereum through the maximalist lens and couldn't find any value in it at all. Ethereum wasn't hard money so why should the token have any value? But I was looking at Ethereum at something it clearly wasn't. I was too focused on the intrinsic value of the token rather than its instrumental value.

Ethereum isn't money. Ethereum is a key. Both cryptographically and from a more abstract philosophical perspective. Ether is an access token to a network with some security built into it. Its a token to utilize resources (mainly data storage) on a network. By making these access tokens scarce, there is an incentive to hold these tokens and for stakeholders to preserve that value of the network to preserve the integrity of those access tokens. If anything, the move to PoS makes sense within this model. Those with the most access tokens in the network should both have the most control of the network (the most access).

So, Ethereum and smart contract focused blockchains aren't useless and have mechanics built into them that have value, but rather than the token being focused on being money in itself, the focus is on being able to access, interact, and be in control of changes made in the network.

Unfortunately, Ethereum has significantly more competition in this space than Bitcoin has in its domain and by being stuck on the PoW blockchain currently that limits how we evaluate what it is worth. Sure it has the name recognition, but name recognition and first mover advantages can sour as the space evolves and new ideas come around.

There are so many questions I still need to look into and consider within the new domain outside of Bitcoin. Will a system with fees outcompete one without fees? How will the role of security of the blockchain play? How will the role of the security of the contracts play? How will the role of having to adapt a complex system to change via hard forks play versus new chains getting to start with this knowledge and a lack of restrictions on their development?

I see smart contract platforms as some blend of a SaaS organization and marketing platform for the users and developers (decentralized organizations, transparent companies, etc.) utilizing that software. These ecosystem-as-a-service platforms will be worth the number of users and developers that are on them. This makes things like scalability crucial versus security and is why scalability is such a selling point on some of these platforms.

Ultimately, I believe that the space itself is smaller than that of Bitcoin at the moment from a philosophical point of view. Smart contract platforms may be the future of software, but Bitcoin (by itself) is the future of money and operates at a much more fundamental and lower level.

It will be interesting to see what platform(s) win in the developing platform-as-a-service domain, but as of now I 'm still reluctant to put anything outside of betting money on these platforms as more value on these ecosystem is purely speculative until their software development and platforms stabilize.

H2
H3
H4
3 columns
2 columns
1 column
1 Comment
Ecency