Why Ethereum Will Win Store of Value
michaelmcguiness.com
michaelmcguiness.com
Do I put it into Bitcoin which is simple, secure, battle tested, moves slowly but with broad consensus, has had a much fairer distribution, is not controlled by the whims of it's creator, etc?
Or do I put it into eth that's been forked pretty easily after the dao hack, moves much faster, has significantly more complexity and critical bugs go unnoticed for months[1], that's in the middle of switching over to a significantly more complex, not battle-tested long enough PoS system with significant technical and also philosophical problems like embedding "rich gets richer" deep into the protocol, that's been pitched as a smart contract platform for years?
You can still use the smart contracts using Bitcoin on top of eth, so it's not like you don't have access to them.
The way I look at it, Bitcoin is my data (aka value) and eth is my computer (aka financial transaction platform), I switch computers every other year, but my data comes along with me.
This is the question I've been pondering lately and it's pretty clear to me which one I'm choosing. That said, I have a stake in both and hope both succeed.
1: https://cryptonews.com/news/disclosed-ethereum-lived-with-a-...
If you put your life savings in crypto currencies you should be prepared to loose it all. Consider working on your FOMO before to start investing/gambling. It's a risky asset and I would say it will become worthless as store of value but that's a different discussion.
But if you don't trust your gov/central bankers then crypto is one(only?) way to opt out.
If Bitcoin can't deliver on that promise, it doesn't deserve to exist and anybody who didn't do their due diligence should lose all their money (including me).
As long as the network is alive, it will have some value to some people somewhere.
That's not really very assuring for someone who puts life savings into a such asset.
https://www.cnbc.com/2021/05/18/china-bans-financial-payment...
India is likely to just regulate crypto, not ban it outright, even though an official made the claim back in March that they were going to:
"The central government may form a fresh panel of experts to study the possibility of regulating cryptocurrency in India, three sources privy of the discussions told ET. This comes amid the prevailing view that the recommendations by a committee headed by former finance secretary Subhash Garg in 2019 for a blanket ban on these assets had become outdated."
https://economictimes.indiatimes.com/tech/technology/govt-ma...
Nigeria did not ban crypto.
"According to local publication TodayNG, Adamu Lamtek, the Deputy Governor of the monetary regulator, said that the CBN did not ban Nigerians from buying, selling or holding cryptocurrencies but protected the banking sector from the activities of cryptocurrencies.
Additionally, he clarified that the central bank did not place any restrictions on cryptocurrencies in general and is not discouraging people from trading them."
https://www.financemagnates.com/cryptocurrency/regulation/ni...
Nothing stopping people in China or Nigeria from having crypto, just certain institutions. And I doubt India goes through with a full ban on it.
CBN says: "Due to the fact that cryptocurrencies are largely speculative, anonymous and untraceable they are increasingly being used for money laundering, terrorism financing and other criminal activities." Further, it describes them as "volatile speculative assets that can be a danger to Nigerian users," and banks are "not to use, hold, trade and/or transact in cryptocurrencies."
Further, all bank accounts associated with exchanges were ordered shut down in 2017 and reiterated in 2021. Also all bank accounts associated with individual traders.
So yes, individual ownership is not illegal, although to call this an attempt to discourage would be pretty tepid.
> India.
India is, to date, moving forward with a complete ban, and the plan of record is to give folks 6 months to sell off all assets they may have. They have not completed this yet, and of course to your point they may not. We'll have to watch.
> China.
PBOC is not a fan. Exchanges are illegal, ICOs are illegal, and I'm not sure I'd want to be caught anywhere near cryptos in China. Just ask Zhao Dong. [1]
> Clarification.
I apologize for not having my facts entirely straight, I should have said "heavily restricted" instead of banned.
[1] https://www.theblockcrypto.com/post/104550/chinese-court-beg...
(though I'm not advocating anybody puts their life savings into crypto now)
Bitcoin is an easy choice for wealth preservation as the most scarce/liquid/desirable asset available to most humans.
Proof of work is a pretty clear "rich get richer" system, except it's the rich with stakes in energy companies, semiconductor fabs, and mining hardware that get richer, not the rich in Bitcoin.
As a PoS staker, all I have to do is provide a cryptographic signature and I have zero pressure to sell the coins I receive on exchanges.
Like someone staking millions of dollars worth of ETH can't set up a shell company in a tax haven to own the resulting riches?
Proof is in the pudding: Pomp's Bitcoin Pizza cannot be paid for in Bitcoin - or any other crypto.
[1] https://www.commonfund.org/blog/is-currency-an-asset-class#:....
...which got him a lot of press and attention, far more than had he accepted Bitcoin. That's kinda boring these days.
The idea that nobody spends an appreciating asset is silly. I have BTC, and I need to buy things. One way or another I need to spend my wealth. How exactly I chose to do that comes down to things like convenience, privacy, conversion costs, etc. Quite often, yes, BTC won't be the most convenient or cheapest way to buy things! But sometimes it is, and when it is, my decision to spend my wealth isn't impacted by whether or not the asset I happen to use is appreciating.
It makes sense for me to spend BTC more than most people, because I'm often paid in BTC by foreign clients. So I tend to have an excess of it. But if I were, say, buying porn on a site like ManyVids, or refilling a burner phone's credit via Bitrefill, regardless of whether or not I had excess BTC I'd much rather get the privacy benefit of paying with a BTC/BTC Lightning wallet than giving my name and address with a credit card. And yes, both those sites do in fact do Lightning payments; I won't admit whether or not I've checked that myself. :)
Keep in mind, because Bitcoin is an appreciating asset, sane investors will often need to spend their BTC to re-balance their overall portfolios. If I had never sold my BTC, essentially all my wealth would be in BTC, which is reckless. Spending my BTC directly vs trading it for fiat and then spending the fiat at minimum reduces the number of conversions needed, is better for privacy, and can even be more convenient now that Lightning works pretty well.
> Doesn't make sense, you'd just borrow against it and wait.
I have zero interest in taking that kind of risk, and I'm certainly not alone.
It's pushing endless/pointless consumerism. People will spend money on things they need, they will also spend money on things they want, but this is pushing them to spend money for the sake of spending it.
Because the way you worded it made it seem like the former, but your article makes it pretty clear to me that cryptocurrencies don't fit its definition for currency.
The US government has decided to treat crypto as a digital asset and not as a currency, at least, especially for the purposes of taxes.
It acts as a highly appreciating asset with a great upside.
Also, I agree with you, I wish IRS would treat it as currency so that we won't have to pay capital gains taxes on it.
You wake up and it's morning. That happens.
Is Bitcoin the data, or is it the harddrive?
Because i switch harddrives every other 5 years too...
This frenzy looks more like the dot com bubble when everyone was thinking domain names will become the store of value of the future(i.e pets.com).
I can see value in ICOs just like there is value in penny stocks or other secondary markets but that depends by the company that offers the shares/tokens. Of course if you know that someone will pump it and keep it up(i.e like banks do on IPOs) then there is speculative value as well but that's a different story.
This being said I'm hopeful that some good tech will stick around just like the web tech did.
That being said, I think the one difference is that ETH actually does have some intrinsic value assuming the Ethereum network is actually used to build useful things, which so far it seems like it is. As long as that is true, people will need ETH in order to pay gas fees. And if you need ETH to pay gas fees, presumably its value will scale somewhat proportionally to the real-world usefulness of the network.
Put another way: Has any project proven that there is sufficient incentive for miners or stakers to secure a blockchain without significant value stored?
This is absurd. A complete misunderstanding of what money is for. Money is a means of exchange. The "best" money is the one that's most widely accepted in places you want to spend it. It only needs to function as a store of value in the short term. Anything with less than 10% inflation per year should work.
1. Cheap, fast and easy to transact + broadly accepted.
2. Fungible.
3. Predictable.
4. Hold its value for exactly as long as it takes you to convert your earnings into either long-term value storage assets, or to spend on the necessities of life. Any longer is a non-goal.
5. [bonus] Flexible enough to respond to shocks, changes and externalities, offering mild, predictable inflation as measured against a basket of necessities.
Every crypto fails 1, 3, 4 and 5 - and all the popular ones fail (2) also - as a public ledger revealing a coins history makes each transaction quantum unique.
No idea why you got down-voted, the article is totally wrong.
Anyways, I don’t understand your extreme hard-line stance on holding money. You do realize that liquidity is important, right? Holding uninvested cash sends two important signals: that I want a buffer against adverse events without having to liquidate assets, and/or that none of the currently available investment opportunities meets my desired risk/reward criteria. These are extremely important market signals that get squashed when you abuse your money supply to bully everyone into being 110% invested at all times, good or bad.
I didn't construct the list specifically to attack cryptocurrencies, the whole crypto situation has led me to do a lot of research on just what a reasonable monetary policy is.
2. Why does a means of exchange need to be fungible? Regardless, Monero and others are fungible.
3. Not sure what this means or why its required for money, but still seems like crypto can apply here.
4. Stablecoins exist, and I'm not even counting the shady AF ones like Tether. For example there is DAI, which is fully decentralized, runs on the Ethereum blockchain, has held stable very well (certainly well enough for the above use case) and which saw $2.6B trade volume in the last 24hr.
You're describing the best medium of exchange, which you know today generally as base money of fiat currencies (cash). Acting as a medium of exchange is a property money can have but absolutely does not require to be used for its principal and only use which is to store value. Why is that its only function? Because the only way to use a medium of exchange is to find in turn someone who wants to store wealth himself. Absent that market participant your medium of exchange becomes worthless.
Acting as a medium of exchange is a transitory instant blip in the life of an asset that lives for the sole actual purpose of storing wealth.
Now if the average redemption horizon of monetary wealth was short as you seem to imply, then in effect all monetary assets would be used frequently as mediums of exchange and their capacity to preserve value over meaningful periods of time would be less of a consideration. Becoming accepted for payments everywhere would become the most important feature they could have. But this is absolutely not the case. The average redemption horizon of monetary wealth today is very long.
Some 200tn+ of monetary wealth sits today in various monetary instruments (100tn+ in fiat treasuries equivalent, real estate, 10tn in gold etc) that are absolutely never used as mediums of exchange. But they serve monetary assets' main and only role of preserving wealth through time, generally for long periods of time. Even the bulk of cash generally sits dormant as medium to long term investments by people holding onto the most liquid of reserve assets in case of crisis / emergency, very rarely to be used transactionally.
Whenever those investors need some transactional money, they simply then clip off a little bit of their monetary assets to buy whatever medium of exchange is en vogue to go about their daily spending habits. The rest sits idle to store wealth for as long as needed. And on that front, finding the hardest monetary asset you can find is your driving concern, and a digital new entrant like bitcoin with a hard cap is an extremely interesting alternative to other options available to this point which all have material drawbacks to that main goal, especially fiat currencies which get inflated by their central banks at a bare minimum of 25% per decade (but these days more like 15%+ per year).
And, because people are free to choose the better money, you can't do anything to prevent it from taking over anyway.
The reason why no one trusts Ethereum as a proper store of value is because it's not very decentralized, has a clear owner that can be pressured by governments to reverse transactions, the owner + early developers hold the vast majority of the Eth in existence, and there's been a clear precedence of the developers reversing transactions due to a bad smart contract.
Robinhood will not stake your ETH without your consent. That's absurd.
But it's still not your coins.
Maybe eventually I'll have that much ETH, but I'm nowhere near that today. If I ever get to that point I might set up my own node.
It's turtles (collective beliefs) all the way down. In my opinion if society breaks down enough, there are no secure assets besides tools of force and goodwill.