Anthony Pompliano rejected the “ETH is money” narrative, arguing that Bitcoin, not Ethereum, is solid money. Is this a fair assessment?
Pompliano rejects “ETH is Money”
In its latest edition of Out of the chain, Morgan Creek Digital co-founder Anthony Pompliano challenged the idea that Ethereum is solid money. The famous defender of cryptography has argued that the idea that Ether could be configured to become the basic unit of account, store of value and medium of exchange in DeFi is “fundamentally wrong”.
Pompliano’s argument was prudent and welcomed comments from anyone who disagreed with his position. However, the piece, “ETH is no different from a Fiat currency” has exposed some basic reasons why he thinks that Ether’s credentials as healthy currency are questionable.
Features that make ether like Fiat
Pompliano argued that “ether is no different from fiat money”. He described fiat currencies as being characterized by the lack of a fixed supply, inflationary supply programs and a monetary policy determined by a small group of individuals. For Pomp, these characteristics are shared by Ether.
He alluded to Ethereum Monetary Policysaying his “Better described as” minimum transmission to secure the network “.” The network avoided applying a fixed supply model, as this could be arbitrary, and because “A fixed supply would also require a fixed security budget for the Ethereum network.”
Specifically, Pompliano’s concern with Ether as a healthy currency was the potential to centralize decision-making regarding its issuance policy. According to EthHub, Ethereum’s issue policy, which governs the rate of inflation of Ether supply, describes how issue decisions are made and by whom:
“Ethereum’s minimum necessary emission policy is applied by a wide range of stakeholders within the ecosystem, including:
- Developers
- Community members
- Ecosystem departments / projects
- Minors and other network participants
As Ethereum is a decentralized network, monetary policy cannot be successfully changed without an overwhelming consensus of the aforementioned stakeholders. Ethereum follows a off-chain governance process, which means that all decisions about network changes occur out of protocol. “
The presence of human decision-makers
Ethereum does not, unlike Bitcoin, have an encoded algorithmic reduction in its emission rate. Emission rate decisions are made collectively by members of the Ethereum community. While there is a potential for collusion and excessive levels of power exercised by too few people, there are many decision makers.
Pompliano’s argument that the Ethereum network can be characterized as that on which “monetary policy decisions that are made by a small group of individuals” is quite controversial. In February Medium post, R&D Manager of ShapeShift, Kent Barton said:
“The number of Ethereum nodes seems to be high enough to avoid network attacks … The Ethereum ecosystem is large and diverse. Miners, investors, DApp developers, large companies, scrappy startups, ConsenSys, EF and of course end users all have varying goals and values. No group or individual can override all the others. This panoply of interests has only increased over time as more and more developers and DApps join the ecosystem. “
How healthy should solid money be?
If Ether does not respond to the levels of central control that concern Pompliano, his problem is that human decision-makers are involved at all. The network has no coded maximum supply ceiling or coded transmission policy. He is convinced to avoid “new shows in a non-programmatic way”.
While admitting that Bitcoin’s monetary policy could be changed by the consensus of a majority of stakeholders, he identifies the fact that it never happened as a testament to the likelihood of it happening in the future. .
Bitcoin has properties that can be compared to those of gold. Indeed, Grayscale’s Drop Gold campaign made explicit reference to the story of Bitcoin as digital gold. the Gold standard is often described as a hard money system because the fiat money issued within it is backed by a commodity with a maximum supply (known or unknown).
The problem with using hard money-like features to declare currency is that a number of altcoins with questionable security information or a demonstrated store of valuable properties can be included in the same category. Fixed supply ceilings may be necessary, but they are not sufficient to meet “healthy money” standards.
In addition, the fact of not imposing a fixed maximum offer or an annual emission rate on Ether has a number of advantages. It provides the network with the flexibility to keep it secure in the face of changing circumstances that may not have been foreseeable when it was created.
It also ensures that the network has the ability to prompt participants appropriately over time. Bitcoin’s upcoming halving of block rewards has raised the specter of the possibility for miners to suspend transaction processing if the price of BTC drops to a level where this is economically impossible.
According to Pompliano, with a rigid, coded supply cap, much like the physical of gold, “decentralized financial services will ultimately be built around really solid money (Bitcoin). “That may be true. But an unshakable belief that Bitcoin-like properties are necessary for a cryptocurrency to represent a healthy currency may underestimate the positive elements of projects like Ethereum.