15 common arguments against Ethereum and the reasons for their mistakes

Original author: Justin Drake, researcher of Ethereum Foundation, and Lucas Campbell, editor of Bankless.

Compilation: The Way of DeFi

On the eve of the merger, it seems to be a good time to resolve many misunderstandings surrounding Ethereum.

The transition of Ethereum from workload proof to equity proof has been planned for more than 7 years.

It's a long journey, but today it's here.

Ethereum's mission is to become the settlement layer of the Internet of Value, which is a grand goal. Over the years, with people's understanding of this emerging technology, supporters and opponents have many doubts and hot voices.

Some of them are good, and some are wrong.

In view of this historic event, we would like to take this opportunity to eliminate some of the bad views we have seen.

The following are researchers of Ethereum Foundation  Justin Drake The 15 worst Ethereum viewpoints put forward.

1. Merger will never happen

It is an obvious falsifiable statement that mergers will never happen - it will probably prove wrong! We will know whether it will happen in a few hours.

If you want to see a simple countdown, please always search for "merge" on Google, or Ultrasound.money Search for more information on.

Tip: It will happen.

2. The goal of Ethereum will never be achieved

From the Genesis block to EIP 1559 and then to the merger, the saying that "the goal of Ethereum will never be achieved" has a long history.

It is constantly believed that Ethereum cannot complete its roadmap. However, Ethereum has proved time and again that it can and does continue to develop despite hundreds of billions of dollars in funding.

People also confuse Ethereum with its technology stack: consensus layer, execution layer and data availability layer. In reality, Ethereum strives to be greater than the sum of its parts, some of which may be incomplete. Its mission is to solve the Internet of Value, and early signs show that Ethereum is successful.

The last big function in the roadmap is the high bandwidth data availability of rollup, also known as "sharding".

The sharding research has been completed. Once the merging is completed, the developers can focus on implementing it proto-danksharding Start.

In addition to a small group of about 100 consensus researchers and developers, Ethereum now has hundreds of application level engineers who are committed to pushing the execution ability of Ethereum to the limit through optimization and zk rollups.

This is not the brightest timeline, but Ethereum will achieve it.

3. Ethereum is trying to be everything at the same time

Over the years, many applications -- from DAO to ICO, to DeFi, to NFT -- have been built on Ethereum.

In this regard, people have this view: Ethereum is constantly changing its narrative according to the current yuan (we will talk about this later).

But these are strictly based on the application of Ethereum. This is not the actual situation of Ethereum itself, but a settlement layer of digital value.

This is like saying that the Internet is trying to do too much. The Internet is the world's digital communication layer, which has various applications, including video streaming, social media, e-mail, e-commerce, and so on.

Ethereum just conducts economic transaction settlement on the Internet -- that's all.

4. Ethereum cannot be both a currency and a smart contract platform

Critics often argue that Ethereum is trying to be both a clearing house and a currency. Moreover, if Ethereum wants to succeed, it cannot have both.

Instead, it needs to focus on one thing. If you want to be a sound currency, be a sound currency. If you want to be a settlement layer, you should be a settlement layer.

But in fact, this is just the opposite.

If you want to succeed in one of these areas, you need to succeed in both.

The reason is quite simple. In order for billions of people to trust Ethereum as the safe settlement layer of world economic activities, you need trillions of dollars of economic security.

Why?

If the attacker wants to launch 51% network attacks, he needs to pledge 13.7 million ETHs, equivalent to about 21 billion dollars. A large nation state can complete such attacks and shake its confidence in Ethereum as the global settlement layer. Therefore, we need trillions of dollars of economic security so that no nation state can control Ethereum.

No matter what consensus mechanism (PoW or PoS) is, only by allowing the original currency of the settlement layer to accumulate a currency premium can the economic security of the three wars be achieved.

Currency and settlement are not dual -- if you want to become a global settlement layer, you need a standard currency valued in trillions.

5. The supply of ETH is unlimited

Unlike Bitcoin, Ethereum's monetary policy does not impose a supply ceiling.

In addition, due to the permanent tail issue, there is a misunderstanding that the supply of ETH will tend to be unlimited.

However, with the launch of EIP-1559 in June 2021, the situation has changed.

Before EIP-1559, the issuance of tail ETH may push the supply of ETH to infinity. However, after EIP-1559, the basic gas cost previously paid to miners has been burned.

This new burning rate offsets the release of ETH, and will produce a balanced supply of burning and release completely offset in the long term.

With the increase of supply, the circulation of Ethereum (including PoW and PoS) shows a sub linear growth, while the combustion rate shows a linear growth. This simple model ensures the supply balance and prevents the supply from growing out of control to infinity.

Interestingly, there is also a view that the supply of liquidity ETH will not grow to infinity before EIP-1559.

This is because a part of all ETHs (such as 0.1%) will be lost every year, for example, due to the loss of the private key.Peter Todd An article emphasized that even if the upper limit of 21 million bitcoins is removed and the tail issue is used to fund long-term bitcoin security, there will still be an upper limit for bitcoin.

In other aspects, the same is true of Ethereum!

6. The supply of ETH is unpredictable

Another common argument against ETH is that supply is unpredictable. Specifically, its monetary policy has changed over the years through the social layer (we will discuss this issue more later) rather than through procedures (such as halving bitcoin every four years).

This is a fact and a recognized view. The goal of Crypto as a whole is an unbiased monetary policy. Cancels the human, lets the robot dominate it. Fortunately, this is what happened in Ethereum within a few hours.

The monetary policy from the social level (resulting in the "manual" reduction of circulation from 5 ETH/blocks to 3 ETH/blocks and 2 ETH/blocks) will be eliminated, while the market driven and programmed monetary policy will be included.

With the advent of the merger, the future supply of ETH depends on two market leading forces, rather than any magic number such as 2 ETH/block or 21 M BTC.

The two market forces are: 1) the capital cost of pledge (compensated by the issuance) and 2) the demand for block space (transaction cost).

The future ETH supply can be Ultrasound.money Model with two simple sliders, one capturing the release and the other capturing the combustion.

You can build your own model!

7. Ethereum is a chaebol managed by the pledgee

A common misconception is that the verifier manages Ethereum through governance rights. To put it bluntly, the Ethereum verifier has no governance right on the chain (different from some chains such as Tezos, Polkadot or Dfinity).

Let's explore this issue in more depth. There are two layers of consensus: the machine layer and the social layer.

The machine layer is responsible for daily consensus; It is computer driven and runs in seconds. The social layer is responsible for formulating the rules of the machine layer; It is driven by humans and operates on a time scale of weeks, months and years.

Ultimately, it is human software that decides how machines run: they have primary control over machine consensus.

In each blockchain system, including Bitcoin and Ethereum (before and after the merger), the social layer takes precedence over the machine layer. This means that the machine layer can be modified through the consensus of the social layer. It is the social layer that has upgraded Bitcoin with functions such as SegWit and Taproot.

There is no chaebol on the chain in Ethereum. ETH holders and verifiers have no control. There is no ETH denominated vote to change the consensus rule.

Like Bitcoin, the social layer sets consensus rules.

8. The rich get richer

Similarly, one of the biggest misconceptions about PoS is that it is a plan to make the rich richer. But this is not the case.

In PoS, everyone can get the same APR. Whether you pledge $1 million ETH or $100 ETH, it is a fair competition environment for everyone.

In addition, the barriers to entry are low - especially when compared to proof of workload. You can try to search for the tag # stakefromhome on Twitter this week.

Under PoW, you have to spend millions of dollars to achieve economies of scale in terms of hardware and energy, so as to have a remote competitive (and profitable) system.

The larger your scale is, the lower the mining cost will be.

In contrast, pledge agreements such as Rocket Pool and Lido allow anyone to obtain the same benefits as those who run $100 million worth of authenticators. This is very easy for everyone to get.

PoS is a more democratic system.

9. Deflation is not good

In the long run, deflation is bad for the Ethereum economy - it encourages hoarding and non consumption.

This concern stems from traditional economist thinking. This is a common view. Even some people in the Ethereum circle hold this view. Of course, it is also aimed at the deflationary economics of Bitcoin.

But it is important to distinguish between two different currencies: mortgage currency (non tradable, low speed) and debt currency (tradable, high speed).

For example, gold is the mortgage currency, while French currency is the debt currency.

These are two different types of coins, each of which thrives with different attributes.

Debt currency is money you borrow and spend. Examples include DAI, RAI, USDT, and USDC. You want the debt currency to be inflationary, because as time goes by, it will be easier and easier to repay debt. In addition, price inflation creates an incentive for people to spend it rather than hoard it, promoting the development of high-speed economy. If the debt currency is deflationary, you will increase the risk of default and reduce consumption (not good).

On the other hand, a mortgage currency like ETH is the hard currency you borrow. Mortgage money gives you leverage. You want the mortgage currency to be deflationary to reduce the risk of liquidation and increase your purchasing power over time.

ETH and BTC are both optimized as a collateral currency. For ETH, it is the collateral of pledge and DeFi, supporting billions of dollars of pledged liabilities and loans.

Please note that Ethereum, as a network, benefits from these two types of currency operations. High speed transaction funds generated billions of dollars of cash flow for Ethereum through transaction costs.

When ETH -- the only original collateral on Ethereum -- is used to lock in the beacon chain and DeFi, the ETH speed decreases and the ETH currency premium increases.

10. The higher the ETH price, the higher the gas fee

This is a common misunderstanding. It is believed that since the fees are paid by ETH, if the ETH price rises, the fees will also rise.

The reality is that there are two different markets at work: ETH market (each ETH is priced in USD) and gas market (each gas is priced in ETH).

We may encounter such a situation: one ETH is worth one million dollars, but the price of natural gas is very low (only a fraction of Gwei), and the transfer only needs 0.01 dollars. At present, only the complete bifurcation of ETH and gas markets is possible, but this is actually the direction of our progress!

Admittedly, there is a certain correlation between the ETH price and the gas price -- especially on a smaller time scale. If the price of ETH rises, it means that the network of Ethereum has better security and higher economic bandwidth.

This makes the Ethereum block space more useful, increases the demand for block space, and increases the price of gas.

According to experience, in a bull market, people are willing to spend more, while in a bear market, people are more willing to spend less. In other words, fundamentally speaking, nothing can force these short-term and medium-term correlations to determine the long-term trend of the ETH and gas markets.

The ETH price can rise -- even to $1000000 per ETH -- while the transaction cost decreases directionally, even to $0.01 per transaction.

It should also be noted that this criticism has not taken into account the emergence of Layer-2 blockchains, which are committed to expanding Ethereum by moving transactions out of the main network.

11. ETH is a security

This is a falsifiable statement.

The Securities Law operates on the basis of each jurisdiction. I can go to each jurisdiction to ask whether ETH is a security in that jurisdiction.

There are about 200 jurisdictions in the world, none (none Declare that ETH is a security.

When people say "ETH is a security", they actually mean "ETH is a security in the United States".

But this directly violates the SEC'sInformal guidanceThat is, ETH is not a security. In addition, CFTC has officially appeared, and has repeatedly expressed that ETH is a commodity

Similarly, CME has been launched ETH Futures -- You know, they can only market products.

In addition, this also violates the 7 years limitation of action -- It has been more than 7 years since the birth of ETH, and the regulatory authorities have not yet proposed law enforcement actions.

In the United States, it is obvious that ETH is not a security (not legal advice!). However, the resurgence of this view is mainly attributed to the Chairman of the Securities and Exchange Commission of the United States Gary Gensler The hatred of cryptocurrency and his insistence on regulating most cryptocurrency assets as securities. ".? ‍ ♂️

What if a jurisdiction does declare it a security?

Um... Ethereum Network won't really care. It will continue to produce blocks and operate normally.

On the contrary, compliance will occur outside Ethereum, and some centralized exchanges will delist ETH.

However, even if this happens, obtaining ETH is still relatively easy. For example, people can buy different tokens (such as USDC or WBTC), then take them away from the centralized exchange and convert them into ETH on Uniswap.

12. Scalability will reduce combustion

The argument here is that if Ethereum expands, the cost of each transaction will decrease, leading to a decrease in the total combustion of ETH.

This is a common view, even in the Ethereum ecosystem. But there is a simple rebuttal. Transaction costs may decline on a personal basis, but this does not explain the fact that Ethereum now handles more paid transactions.

Overall, the total amount of combustion may decrease or increase with scalability -- both are possible.

Another important concept here is to induce demand. In other words, the more a system is improved, the more it is used.

A real-world example of induced demand is transportation. If you have a two lane expressway and the traffic volume is large, the city can decide to add a third lane. But soon after the third lane is completed, the traffic volume will increase again, because with the new lane, more people will decide to commute through the expressway.

In short: the higher the activity ability, the more activities will occur.

This is also true when looking at the historical data of Ethereum. In fact, since the creation of the world, the scale of Ethereum network has expanded by~50 times, and the annual total transaction cost has expanded to billions of dollars. Let's interpret it specifically.

At the time of creation, the block gas limit was set to 3 million gas (the maximum gas that can be consumed by Ethereum transaction in a block). As of the time of publishing, the average gas consumption of each block is 15 million gas. This has expanded five times.

But there is another more subtle 10 times in scalability: smart contract gas optimization.

In the early days of smart contracts, developers deployed contracts in Ethereum that were extremely inefficient. Over the years, developers have become better and more efficient in writing efficient smart contract code.

Reducing the gas consumption of contracts is called "gas golf". This is a bit like playing golf. One shot is the cost of one gwei, and developers are trying to get the lowest possible score.

You can see this by comparing the gas efficiency of Uniswap V2 and Uniswap V3. Between V2 and V3, there is an order of magnitude improvement in the gas used per unit of transaction volume.

When you combine the increase of gas limit with the gas optimization of smart contract, you will get about 50 times that.

Now... although this scalability has increased, has the total transaction cost decreased?

No -- it has only risen for more than seven years. At the beginning, the daily transaction cost was about $10. Now Ethereum processes millions of dollars of transaction fee income every day. Look at the chart below!

Scalability does not prevent combustion.

As a rough heuristic method, the more value Ethereum provides to the world, the greater the income from transaction fees.

13. ETH is only a technology stock

Some people will say that Ethereum is like a technology company, so ETH should be valued based on cash flow like technology stocks. This statement is partly correct. The truth is more subtle and better than it seems.

When we see the cash flow of Ethereum (combustion=transaction income, issuance=security expenditure) andprofit marginAt that time, the price earnings ratio of Ethereum was~32, equivalent to Google or Apple.

But this is only one part of the story. It ignores the use of ETH as a low-speed mortgage currency, and therefore ignores the potential of ETH's cumulative currency premium. You can use ETH as the collateral of DeFi, or you can use the collateral to ensure the security of the network. But you can't do these two things with Apple stock!

As more and more ETH supplies become illiquid through these mechanisms, the currency premium of ETH will accumulate on the "basic" cash flow valuation. If, over time, most ETHs are used as collateral (which should be because this is the purpose of ETH optimization), then most of the market value of ETH will be a currency premium.

If X% of all ETHs are used as collateral, then the "fair" multiplier currency premium factor will be 1/(100% - X%). For example, if 90% of all ETHs are mortgage currencies, and only 100% - 90%=10% are liquid, which is related to cash flow valuation, then the "fair" currency premium coefficient is 1/10%=10 times.

14. The narrative of Ethereum is always changing

Over the years, with the rise of various applications based on Ethereum, the narrative of Ethereum is also changing. ICOs, DeFi, NFTs, and even DAO -- all these are emerging stories of Ethereum.

However, one should not confuse Ethereum with the applications built on it. Early Internet narratives developed with Internet applications (from email, to forums, to picture sharing, to social media, to streaming media).

However, it is now clear that the core purpose of the Internet is simply to become a communication protocol.

Similarly, we can expect that Ethereum will eventually be appreciated for its own sake: that is, it is just a settlement layer of the Internet of Value.

15. Udi Wertheimer: Ultra Sound Money is disgusting

Ultra Sound Money is disgusting and a stolen meme.

Some Bitcoin holders believe that the "Ultra Sound Money" meme is stolen from the "sound money" meme of Bitcoin. Others think "Ultra Sound Money" is disgusting - it will remind them of pregnant women, while the symbol of bat reminds them of COVID.

As for the fact that "Ultra Sound Money" is stolen, it is especially ironic that the "sound money" meme of Bitcoin is copied verbatim from gold bugs. 100% theft, no innovation. Sound money meme has a history of several centuries, and people have forgotten the history of this meme.

On the other hand, ultra sound money is a novel derivative of sound money.

Meme is a viral fragment of cultural information.

They replicate, mutate and evolve (like biological viruses!), Spread in human culture. And this is the origin of "ultra sound money" -- it is a powerful memory mutation, which has now spread toThousands of believers

We can't refute the unpleasant topic.

Hate is subjective.

However, if we go deep into the etymology of sound money, "sound money" meme itself is (or at least) objectionable. The concept of sound money originated from the "jingle" of pure gold coins to test its authenticity. Therefore, even the origin of sound money meme is ridiculous.

Opponents of Sound money can easily ridicule it as "ding ding money" or "la la money"..

If the purity test of gold is based on taste or smell, gold can also be called "taste money" or "smart money" -- this is the reason why the word "sound money" was first coined as an offensive word.

Anyway, this is just a mem!

Finally, Happy Merge Day