Created: October 08, 2021
Modified: October 08, 2021
Modified: October 08, 2021
ether
This page is from my personal notes, and has not been specifically reviewed for public consumption. It might be incomplete, wrong, outdated, or stupid. Caveat lector.- The currency of Ethereum.
- Why does Ether have value? It represents computing time on a shared global computer. The more Ether you have, the more computation you can fund.
- Suppose the demand for blockchain compute increases. Will Ether become more valuable? All else equal, yes. But what about:
- Improvements in network efficiency. If a sharded, proof-of-stake network can do 100x more than the current network, but demand for compute stays the same, then the amount of dollars needed to fund that fixed amount of compute will drop 100x, and so Ethereum's market cap will also drop.
- This just seems unlikely because demand is not fixed. Making something cheaper usually makes it more valuable, not less.
- Inflation. Ethereum does not have a fixed supply. What if 'they' (Vitalik, miners, whoever) just create a ton of new Ether, diluting existing holders?
- With ETH2, the security of the network is guaranteed by the value of staked Ether. So creating new Ether would degrade the security of the network, which no one wants.
- No one is going to be able to personally airdrop themselves more Ether. If new Ether is created, it will go to miners, or to existing holders or stakers of Ether. The effective 'price' of mining is somewhat limited by market forces---mining doesn't have strong barriers to entry, and Ethereum is competing with other chains, so miners can't jack up their compensation too high before losing value. Stakers are even more strongly motivated to avoid diluting the value of Ethereum, since by definition they hold large amounts of Ethereum.
- Improvements in network efficiency. If a sharded, proof-of-stake network can do 100x more than the current network, but demand for compute stays the same, then the amount of dollars needed to fund that fixed amount of compute will drop 100x, and so Ethereum's market cap will also drop.