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Out Bitcoin-ing Bitcoin

Posted January 18, 2023

Chris Campbell

By Chris Campbell

Out Bitcoin-ing Bitcoin

What Bitcoin does for money, Ethereum was supposed to do for everything else.

At least that was the idea…

Ethereum’s overall goal was to use its Smart Contracts to make secure, transparent, and reliable transactions automatically.

The goal was to expand what Bitcoin had already done, not improve on it, since you can’t beat an unhackable digital asset with a hard fixed-supply.

Right?

In the months since Ethereum’s “Merge”, something dramatic has happened that suggests it may end up serving as an even more reliable digital dollar than Bitcoin.

Ultra Sound Money

Bitcoin has frequently been referred to as “Sound Money”. With a fixed supply of 21 million - which will be reached in 2140 - Bitcoin was designed to be totally reliable.

No hidden veins of Bitcoin will be randomly found in the hills of South Dakota, hurting the scarcity (and value) of your holdings.

A panicking treasury will never create millions of new Bitcoin in response to a national disaster.

So how could Ethereum possibly improve on this Sound Money model?

Ether (ETH), Ethereum’s native currency, has already reached the status of what many call “Ultra Sound Money”.

While new Bitcoins will stop being issued in 117 years, the supply of Ether is already decreasing.

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The ETH you hold today is already more scarce than what you held yesterday.

No need to wait another century.

The Upgrade That Keeps on Giving

How did this happen? What’s changed?

Ethereum’s “Merge” got a lot of attention for reducing its energy costs by over 99% and improving transaction speeds by close to 100,000%.

The move from Proof-of-Work validation to Proof-of-Stake improved usability and sustainability so much that it seems to have distracted many from a simple and beneficial “side effect”.

There are no more miners to pay.

Under the Proof-of-Work model, miners would be issued a reward of roughly 2 ETH per block mined. This accounted for almost 90% of new Ether issued.

A Proof-of-Stake model cuts this down to zero.

With no miners to pay, the “gas prices” - or amount of Ether burned during a transaction - now outpace the issuance of new ETH on average.

The total supply of ETH since The Merge - from ultrasound.money

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If this looks more volatile than you expected, here’s how it compares to Bitcoin and ETH’s old proof-of-work model.

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Bitcoin’s Rebuttal

Defenders of Bitcoin have taken offense to Ethereum leapfrogging their claim to the Digital Dollar Throne.

Ethereum has changed its issuance model eleven times in its history. 

Bitcoin has been updated…never. That’s its point.

According to Bitcoin advocates, the non-interference model of the Original Cryptocurrency makes it more reliable than Ethereum’s relative “hands-on” approach.

Ethereum’s updates are approved by its node operators. In other words, there is a community vote among the thousands of ETH holders who are most invested in the success of the blockchain.

You can see how the updates have affected the issuance of ETH over the years.

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Apologies to the Bitcoin community, but there’s nothing more reliable than a human’s self-interest.

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