独家优惠奖金 100% 高达 1 BTC + 180 免费旋转

Will Stablecoins Replace Ether?

Bitcoin is Bitcoin, but Ether is not Ethereum

Our team has been working on decentralized services for Ethereum, and I’m a fan of the platform and its potential.

Many people I talk to, including many of our developers, lump Ether’s behavior with Bitcoin. Although there are parallels, Ether is not only a digital currency, but an enabler of applications.

Having more uses for Ether should intuitively increase its relevance, and its value should grow in proportion to Ethereum’s ecosystem.

However, I believe that Ether’s price is unlikely to track Ethereum’s growth, and that this isn’t a bad thing.

While working on this article, another was published on Tech Crunch that said Ether was doomed. Although I agree that there are factors that will push Ether’s price down, I believe there is intrinsic value to Ether that will create a floor.

If Ethereum becomes the dominant platform for smart contracts, I think Ether’s price is unlikely to match Ethereum’s rise and may even fall. If you’re a fan of the Ethereum platform, that may sound bad but it really isn’t.

If Ether is a fuel like gas and the Ethereum platform are the cars powered by Ether, then smart contracts and their applications are the transportation services (rider services, delivery services, rentals, etc) using the cars. Not a perfect analogy, but close enough for now.

As with any commodity, gas prices are governed by supply and demand. More transportation services increase gas demand and price. If people hoard gas (Ether), the price increases, too.

Reducing the demand for gas pushes its price down. New transportation services that can handle more traffic with less gas can reduce demand. Introducing new cars with greater fuel efficiency will also reduce the need for gas.

If Ether is primarily a fuel (gas), what influences its price?

On the demand side, applications generating more blockchain transactions will push the price of Ether up, as will hoarding Ether. Protocol improvements in the future may burn Ether to prop its price.

But upcoming improvements to scale Ethereum’s performance will reduce the amount of Ether needed to drive transactions.

The other uses for Ether are for investment and its requirement as a digital currency. If applications become more mainstream on Ethereum, Ether will be the digital currency that drives the Ethereum economy, right?

Going back to our analogy, consider what payment methods real-life transportation services accept — cash, cards, or tokens. Some services let customers fuel the cars, but none of them accept gas for payment.

Most Ethreum smart contracts use Ether as a digital currency, because it’s built into Ethereum and easy. The problem is that Ether’s price fluctuates a lot, and can change 50% over a few months or 10% in a day. This makes Ether a poor currency for most people.

The downward trend is not nearly as important as the fluctuations. When it comes to their savings, people can extrapolate value from trends but they cannot handle unpredictability. The $100 check someone receives today needs to be worth close to $100 tomorrow when rent is due.

For mass adoption of Ethereum, applications that interact with the real world will need to support digital currencies that are more stable. Although there are some exceptions, volatility is detrimental to applications that interact with the real world.

If Ether isn’t the best currency for the Ethereum platform, what is?

Ethereum excels at managing tokens, including fungible ERC-20 tokens that can be linked to currencies, commodities, and even cryptocurrencies like Bitcoin. A combination of market forces and legal frameworks can ensure that such tokens fairly track their underlying asset’s price.

As their name implies, stablecoins are tokens that are linked to stable assets, like the US dollar. Stablecoin values change slowly because the value of their underlying assets change slowly.

For example, in the last few months while Ether and BTC fluctuated 30% to 50%, the price of TrueUSD remained within a 1 percent of the USD.

Stablecoins can be traded on the Ethereum platform if they are ERC-20 compatible. Some are available now, but more will come in the future.

If stablecoins become the primary digital currency, Ether’s role will revert to fueling the Ethereum platform. Running the platform is an important job, but Ether’s value only needs to be high enough to reward miners.

I don’t know what Ethereum’s future performance will be, so I’m basing this on some order of magnitude estimates for Casper, sharding, and other trends.

In the next few years Ethereum improvements should accelerate transactions by a factor of 100. Proof of Stake will replace Proof of Work, which will reduce the cost of running servers at least 10 times.

If transactions cost a thousand times less, can increased transaction volume maintain the demand for Ether?

Today, Ethereum averages 7 TPS (transactions per second), so 7000 TPS would be needed to maintain demand after these changes. That’s many times the 1700 TPS that the Visa network processes in the average second, so the answer is… no, not within a few years.

There are arguments to be made otherwise.

A thriving Ethereum platform implies thriving decentralized applications. Will investors hang onto Ether if the growth is in applications and other tokens? I expect investors will move their money to whatever is gaining momentum.

Although burning Ether would eventually stabilize the price of Ether, this won’t happen fast enough to counter reduced demand due to performance enhancements.

78% of full time workers in the US live paycheck to paycheck, so they literally cannot take the chance that their primary currency will fall 10% the next day. Anything that fails to meet the needs of 4 out of 5 people is not going to become a mass adopted currency.

Ether’s price is based on demand, which will vary whether it’s a digital currency or a commodity. Unless Ether is linked to a fiat currency, which is unthinkable, its price will fluctuate like any other commodity.

Very possible, but that will make it hard for Ethereum to achieve mass adoption. The mass market doesn’t need Ethereum. Ethereum needs the mass market, which will drive its usage.

A token exceeding the market cap of Ether may be inevitable if Ethereum is successful. The value of successful applications on a platform are often worth more than the platform. Apple is worth far more than the NASDAQ stock exchange that it’s hosted on.

Similarly, a low price for Ether in a thriving Ethereum ecosystem isn’t necessarily bad. It may mean that Ethereum runs decentralized applications efficiently, quickly, and affordably.

These are good things.

Thanks for the read, and I’m looking forward to comments, consensus, and healthy debate. I’ll update this article (and my opinions) from time to time.

Disclaimer: Everything stated is my own opinion. Although Misbits plans to uses stablecoins, I am not an investor in them at this time.

Add a comment

What is your view?

Send

Related posts:

Disney and People of Color

The Disney Company is a corporation that many people around the world love and admire. One of the reasons that Disney fans love to watch Disney films is for its diversity among its characters…

Planning for business continuity in times of uncertainty

Organisations must continue to deliver throughout this time of uncertainty. For many this will mean enforced working from home is the new normal. How do you maintain productivity? And how do you plan…

What is SIP Trunking? SIM trunking all details with examples.

With the growth of many business across glob. SIP trunking in Voip is the new and convenient method of communication. Almost every business requires large calling volume. Sip trunking is the…