I must not be afraid. Fear is the killer of the soul.
“I must not be afraid. Fear is the killer of the soul. Fear is the cause of total destruction. I will face my fear. I will allow it to pass through my body. When it passes, I will turn my gaze into my body, Look at the path it has traveled. There will be nothing where the fear disappears. Only I will stay.”
–Paul Yatridis’s Sci-Fi Novel “Dune”
I like science fiction. At any given time, I will read at least one science fiction novel. “Dune” by Frank Herbert is the best science fiction novel ever. The complete six-volume series is pretty good, but the quality of this series gradually declines after the first book. The best science fiction book series is Liu Cixin’s “Three-Body” trilogy. Its writing is amazing. I hope my Mandarin is better so that I can read the original version in Chinese instead of reading the English translation. If you like science fiction, this is the truth. I am also very excited about the upcoming TV series “Foundation”. Asimov is a mafia.
American businessmen and investors are simple creatures driven by fear and greed. Greedy people make mankind do many incredible things, while fear of loss overwhelms everything. Daniel Kahneman’s rich work describes how human decision-making is not as rational as classical economists believed. In particular, compared with monetary gains, monetary losses cause more damage to our psychology. As we explore this epic crypto bull market more deeply, the assessment of panic is crucial, as one or more of these narratives may replace the punter’s desire to retain BTFD (buy the dip).
A few weeks ago, I got a message from Suzhu of Three Arrows Capital. He asked me, I think during this bull market, the market value of Ether may exceed the possibility of Bitcoin. My answer is 0%, and then ask his opinion. He responded to me that ETH has a 50% possible advantage. Soon thereafter, Raoul Pal (Raoul Pal) published “Global Macro Investor” (Global Macro Investor) in May 2021. This always surprising report contains a lengthy summary of the report written by Nikhil Shamapant, which explains why Ether can reach $150,000 by January 2023. After reading the report, I sent another message to Su, increasing the probability of a reversal to 30%.
There is a branch in the Bitcoin community. The root cause of their sleepless night lies in the fear that Ethereum will one day surpass their beloved Bitcoin, including the Apostle of God V and the Great God of Lubin. I don’t know about tribalism, but please check out Crypto Twitter for some epic Bitcoin and Ethereum rants. Bitcoin supremacists believe that Bitcoin is a true currency god in the crypto market. All other encrypted digital currencies can only be God’s aid at best, or they are pure evil.
On the other hand, the person in charge of mETH believes that Ethereum can be both the most difficult form of cryptocurrency and the best decentralized computer in the world. For them, after ETH 2.0 starts and completes the transition from proof of work to proof of stake consensus algorithm (currently scheduled for later this year), the market value of Ether will quickly surpass Bitcoin.
I tried my best to eliminate my dogmatic thoughts, lest I marry a thought that becomes obsolete over time. As everyone, I will fail, but I hope I remind myself that I can only predict probabilistic results and take corresponding actions to reduce future losses. The dogma surrounding Bitcoin and Ethereum must be reduced to the actual basic idea of each cryptocurrency. We can then return to the current situation and assess whether the narrative is fundamentally meaningful.
What are Bitcoin and Ethereum?
There is no industrial precedent for the best form of currency. Fiat currencies are very useful for business because they are essentially worthless. The need to use specific commands depends entirely on the availability of the network. In this case, the network is to accept a specific legal currency in exchange for the quantity of goods or domestic labor or international counterparties.
The reason commodity currencies are not well-used for daily use is that they have value associated with certain practical use cases. A barrel of oil is a terrible currency. Oil will have two sources of demand, affecting its price, not labor and commodities. The first is the demand function of energy consumers. The second is the demand function as a medium of exchange. How do I use a barrel of oil to price my labor? I have to estimate the value based on the usefulness of oil for my daily energy needs. I think other people think that the value of oil is the value of the goods or services I trade. As the number of economic participants increases, it becomes quite complicated, and the supply of oil and the speed of money contain interdependent vectors.
Ethereum’s primary task is to power the world’s largest distributed computer. Ethereum is valuable because the Ethereum network is the most commonly used smart contract protocol. It has the most developers, the most Dapps, and the largest total value lock (TVL). Ether is a commodity used to pay for GAS fees, so you can use the Ethereum decentralized computer.
The use case of Ether is not purely money. The best example is hack DAO. For those who have not experienced 2016 or so, this is a series of very short-lived events that led the Ethereum network to decide to hard fork the network in order to save DAO investors:
A project called DAO was launched, trying to become the first truly distributed autonomous organization to run the Ethereum protocol VC fund.
Users put ETH into the DAO smart contract, and in return, they can vote on how to invest the pooled funds into promising projects.
DAO attracted approximately $150 million worth of ETH at the time, making it one of the largest crowdfunding activities in human history.
A procedural error in the smart contract allows an entity to withdraw funds from the DAO. I am against calling it a hack; smart contracts are executed as planned like code. The problem is that the creators of DAOs do not fully understand the performance of their smart contracts in the open world.
Loosely, the Ethereum community had to make a very clear decision under the leadership of V God:
Allow DAO funds to be withdrawn, but do not roll back the transaction, and adhere to the immutability of the blockchain. This would have made Ether more like a hard currency tool, but given that the Dapp ecosystem is in a new stage in 2016, due to its losses, it will weaken investors’ enthusiasm for participating in future DeFi projects.
Push miners to accept the hard fork, which will allow the Ethereum blockchain to fall back to before the DAO is used and allow investors to withdraw their ETH. This makes Ether a bad currency tool because the history of the blockchain can be rewritten under duress, but it will give investors the confidence to continue trying DeFi applications.
The community is faithful to its actual mission and chooses to enhance the status of Ethereum as a decentralized computer, rather than becoming a real currency tool.
This decision also made many community members attach great importance to immutability. Therefore, after the hard fork, they continued to mine the original chain, but changed its name to Ethereum Classic (ETC). It has the same community commitments as Bitcoin, behaviors like hard currency, and Ethereum’s smart contract logic.
The market is my religion, and in the past 5 years, it announced that ETH should be worth 30 times or more than ETC. The focus of the market’s emphasis on Ethereum is to become the best smart contract protocol, and it also hopes to become a cryptocurrency A good hard collateral. It is impossible to serve two masters.
If there is any doubt at some point in the future, the Ethereum community will always place the need for decentralized computers on the need to turn it into a real hard currency tool. Let’s look at the future of ETH 2.0. There is a newly emerging narrative that Ethereum may be the most difficult form of cryptocurrency and the best distributed computer.
Ethereum inflation schedule
If approved, EIP-1559 will greatly change the inflation schedule of Ethereum. In essence, Ether will not transfer from users to miners in the form of network GAS usage fees, but burns basic fees and provides tips to miners. It is estimated that up to 70% of the gas in the transaction can be burned. In my article “Yes…I have read the white paper”, I talked about the potential substantial increase in Ethereum gas fees if DeFi can replace even a small part of CeFi.
If the amount of GAS increases exponentially with usage, and these costs are consumed, then the inflation schedule will happen soon. As the platform becomes more and more useful, the supply of ether will decline. If we underestimate the impact of DeFi on human economic interaction, then in the future, Ethereum will not be able to provide enough Ethereum for the system to use.
The counterargument to this is that the high price of Ethereum solves the supply problem. But this is not the case. If the marginal mining profit is expanded enough, then there will be no magical ETH that can be used on the ground. The network will not generate enough ETH through block rewards to satisfy its use in Ethereum tasks.
At this point, network economics has failed. The price is high, and the trump card suddenly appeared in the hands of the tokenists, but if the DeFi application that needs fuel cannot obtain it at any cost, then Ethereum is only one step away from the slum. Consider how the community responds to existing threats in order to complete their tasks (see: DAO hack), do you expect them to sit around and watch the Internet hurt itself due to a flawed inflation plan? If there is a hard fork, you can hard fork again. Deflationary issuance and the GAS fee burning plan will be sacrificed, so Dapps can be used with the capacity required to drive distributed computers.
Therefore, those who bet that the current EIP-1559 inflation schedule will never change, need to look at the history of the agreement. The main driving force of the bull market reversal is the exponential growth of on-chain transactions required by DeFi, which causes more fees to be spent and burned, thereby reducing supply and boosting prices.
If the price of Ethereum really reaches $150,000, and the Defi network is eliminating the parasitic CeFi mechanism, then just the proposal that the agreement must change its issuance schedule to continue to smash the CeFi skull will make the price of Ethereum tend to Maria The bottom of Na Hai Ditch. Failure to understand the significance of the deflationary issuance schedule for the currency that powers the underlying technology can be fatal. The practicality of this technology underpins the price. In fulfilling its true mission of powering distributed computers worldwide, Ether will never become the most difficult form of cryptocurrency.
However, this does not mean that the market value of Ether cannot exceed the market value of Bitcoin. This just means that it will be more difficult to achieve this goal, because the ether cannot get cakes and food.
Money is not as valuable as technology
The global reserve currency is the most valuable because it has the largest network of participants, and they will accept it in exchange for goods and labor. Currently, this is the U.S. dollar. The approximate value of currency value is M0 or the amount of base currency in circulation. Currently, the US dollar M0 is 5.8 trillion US dollars.
The total value of FAANG (Facebook, Apple, Amazon, Netflix and Google) is $6.36 trillion. The U.S. dollar just relies on the pure currency of the US financial system network. It is no more valuable than companies that provide actual goods and services in dollars.
People who hold U.S. dollars will not cry like babies on social media, because companies that sell products that are priced in U.S. dollars are worth more than U.S. dollars. So why is the inevitability threatened by Bitcoin fanatics so great that they believe that other cryptocurrencies with industrial use cases will be worth more than Bitcoin? This feeling does not seem to be mutual-many of the most successful alternative currencies have used Bitcoin to raise the initial capital.
If Bitcoin’s market value dominance is significantly lower than the current level, then it will not have inherent practicality as the most difficult form of encrypted collateral. Bitcoin holders must believe that Bitcoin collateral exists in any cryptocurrency-enabled economy. They should work hard to support this mission, because doing so will further strengthen Bitcoin’s role as the foundation of the crypto pyramid.
The ghost of Sir Thomas Gresham
Fiat currency and gold require human breath to exchange them for other forms of money, goods or services. These traditional forms of money rely on human networks. As long as there are people, the network can operate normally.
Although Bitcoin is the hardest money in history, in addition to humans, it also requires a group of selfish miners to consume real-world energy to maintain the network. Miners only receive Bitcoin rewards. If the exchange rate of Bitcoin to energy fluctuates due to various reasons, miners will not mine Bitcoin and the network will disappear. This means that both Bitcoin and Proof of Work are about to disappear.
The higher the rate of Bitcoin transactions, the more on-chain fees are incurred. These fees, in addition to large rewards, also allow miners to purchase energy to maintain the network. As we all know, the block reward will decrease approximately every 4 years until it ends in 2140. Fortunately, the number of transactions on the chain is rising, and it is from the right side. However, with the development of the culture of buying paper bitcoin derivatives and the continued HODLing of the older generation of bitcoin legends, in the near future, the influence of Gresham’s law (bad money drives out good money) will increase.
Some money was wasted, such as U.S. dollars and other legal currencies; good currencies, such as Bitcoin, were hoarded. This is now Gresham’s law. However, although hoarding gold will not reduce its value, in the future, extreme hoarding of Bitcoin without using Bitcoin in any way will destroy the network economy that gives Bitcoin value-because after the end of the block reward , Miners will only pay fees in the form of transactions. If there is no transaction, there will be no fees, and there will be no incentive for miners to maintain the network.
Not your private key, not your Bitcoin
Most of the newcomers entering our circle hope that there is an easy way to obtain Bitcoin to hedge against the risk of fiat currency. In other words, they believe that the price of Bitcoin will rise, but they have no interest in becoming their own bank. They want to call the customer service phone number when they forget their password, and someone complains when things don’t go as planned. Service providers are happy to sell paper-based bitcoin derivatives that provide asset exposure, while charging for all annoying blockchain issues.
Judging from the successful collection of Grayscale’s GBTC, Coinshare’s XBT Provider and other paper derivatives, ordinary investors only need price risk. My close friends are actively trading, they also use these products because they are easy, and they fully realize that when you don’t keep your coins, the truly revolutionary aspect of the Bitcoin blockchain is completely gone. . But this is irrelevant, because they are more eager to hedge against inflation than the new financial ecosystem.
In the long run, a pile of bitcoins sitting in escrow accounts that are not used for business, or as collateral for the new digital financial economy, may have a potential drag on the profitability of miners. Another resistance is those who are completely “becoming your own bank” spirit, but would rather spend money for their necessities than precious bitcoins. If both ends of the belief system are determined, then the growth of on-chain transaction volume will slow down or drop completely.
Due to the continuing shortage of semiconductor chips needed to manufacture new mining machines, the high profit margins of Bitcoin mining will continue to exist when Bitcoin and energy prices are so high. Even if you have the money to buy a machine, there are not enough chip opportunities to significantly increase the network hash rate.
As a reminder, the important real exchange rate is the price of Bitcoin to energy. Fiat currencies come and go, but miners must use the earned bitcoins to purchase electricity in some way to maintain their operations. The remaining bitcoins after purchasing such products are their profits. One dollar can buy 1 kWh or 1,000 kWh; however, 1 kWh is always 1 kWh.
The current output of large-scale mines does not require a significant increase in network transaction volume to withstand continuous capital expenditures. They also used second-generation mining machines and printed a lot of banknotes, so that it didn’t matter whether Bitcoin was used in actual business.
From mine to table
When the main goods, intermediate goods and final goods are all priced in Bitcoin, the credit expressed in Bitcoin terms can be extended to all steps of the value chain. The real Bitcoin economy allows unsecured loans to be offered on Bitcoin terms. If this future comes, the volume of transactions on the chain will surge.
The use of bitcoin from the mine to the table is an ointment to relieve the constant itching of Gresham’s Law. We have time to correct the rational but destructive impulse to buy paper bitcoin derivatives and hoard physical bitcoins.
Currency belonging to the dog
The most powerful force in the universe is the power of human collective imagination. Every unnatural physical object we interact with begins with the imagination of one or more individuals. Everything starts with believing and then transitions to physical reality.
The value system that safeguards our collective delusion is strictly protected. We only need to record the millions of people who lost their lives in the millennia of human civilization due to differences in views on political systems and religions. When it comes to the realm of the monetary system, it is not surprising that people take their beliefs very seriously. They should be so, because the monetary system you believe in may be the difference between leisure life and boring labor.
Humans are born to know that money is pure fiction. Therefore, when you challenge their belief system with other stories, they may become hostile. The best way to respond is humor.
The most talented comedians take our most cherished beliefs as a social phenomenon, and show logical fallacies through humorous upward arcs. If you can’t joke, you might want to meditate for a while to understand why your beliefs are so insecure. Maybe it’s because you know deep down in your heart that they are utter nonsense.
Dogecoin has angered the traditional financial system and crypto cowboys. This is an incredible Internet currency, without any pretense of lack of technological innovation. It is a cute dog displayed on the computer screen. Jackson Palmer, the founder of Dogecoin, quit Doge furiously a few years ago, which highlights the absurdity that he thinks this straightforward cryptocurrency joke is still valuable.
It is appropriate that Elon Musk, one of the best salesmen in human history, used Dogecoin to illustrate the absurdity of our current monetary system. Elon’s company, Tesla, is worth more than most auto companies, and it produces only one-sixth of the number of cars in the world. It is undoubtedly pure hype. Elon has created more stock value through its Twitter broadcaster instead of delivering safe, fast, and environmentally sustainable electric vehicles.
Love him or hate him, he is a role model for price speculation! Dogecoin jokes have created many millionaires from the basement. Since the global financial crisis in 2008, when central banks around the world have expanded their balance sheets at a compound annual growth rate of 15%, traditional finance that has invested in value and growth on television while barely achieving a single-digit percentage return For the guardian, it was really shocking. This is a real mockery.
Dogecoin also ridiculed those utopian players who are paramount in distributed technology. Their dogma is also threatened by Dogecoin. How can this poorly-technical agreement make it into the top ten? How does this affect the value system of peers? They lament that Dogecoin “makes us look like a joke” and “makes cryptocurrency look unprofessional”. If professionals are wearing suits, ties, and black pencil skirts while earning substandard pay, then please give me some Dogecoin. You are also trading incredible Internet currency and pushing electronics across the computer screen while promoting the development of philosophy. Maybe you just want Earl Elon to tout your skyrocketing token on “Saturday Night Live”.
Doge is fearless about cryptocurrencies. Instead, it should be used as a thin layer of paper to show that the emperor is not wearing clothes. Money is a psychological abstraction. The sooner a generation realizes that everything is fictitious, the faster they can transition from government-issued tangible banknotes to purely digital distributed currencies. It’s all the same fake. Given the rising costs of energy, food and housing, which novel to choose to preserve your purchasing power? Which novel is inclusive, not exclusive? Which novel can you participate in?
Dogecoin is a blessing. Long live the cute dog!
I will face my fear
It’s simple-I’m afraid global central banks will slow down the growth of their balance sheets. Without this, any cryptocurrency should not be a multiple of today’s value. When currency prices are no longer distorted, traditional cash flow analysis will again become meaningful.
The various fears I talked about in this article are unique to a particular cryptocurrency. Just like stocks, real estate and commodities, as currency issuance increases, the prices of all asset classes will continue to rise. Understand your fears and choose the right ecosystem to protect your wealth from inflation. As Chuck Prince, the former head of Citigroup, once said:
“When the music stops, things will get complicated in terms of fluidity, but as long as the music is playing, you have to get up and dance.”
Don’t be afraid to jump off the dance floor, anyone can sit on the electric slide of crypto assets!
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.