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“Here’s a prediction. ETH — the asset, not the Ethereum Network itself — will go to zero.”
His argument isn’t that Ethereum will fail from scaling issues, or from smart contracts bugs, or even from the competition of other blockchains. Even if those didn’t occur, and in ten years the Ethereum network is utilized as the ‘world’s computer,’ Rubin still thinks ETH’s price will ultimately be $0.
To understand his argument, it’s important to know how the Ethereum Network operates. Ethereum, the first platform with turing complete smart contracts, gets compensated by verifying contracts and receiving fees in ‘gas.’ Right now, network gas is priced in ETH.
“If the concept of gas isn’t immediately obvious, let’s expand the metaphor: The Ethereum network is like a shared car. When a contract wants to be driven by the shared car, the car uses up fuel, which you have to pay the driver for. How much gas money you owe depends on how far you had to be driven, and how much trash you left in the car.”
The car metaphor has been around since Ethereum was launched in 2014 to help visualize how the Ethereum Network operates. But Rubin thinks the metaphor has flaws.
“Gasoline actually burns inside an internal combustion engine; an internal combustion engine will not work without a combustible fuel. $ETH as Gas is a metaphor for how gasoline is consumed; there is no hard requirement for Gas in an Ethereum contract.”
Rubin goes on to explain that Ethereum Network gas does not need to be paid in ETH, it can be paid in other tokens, like ERC-20 tokens. He refers to this concept as ‘economic abstraction.’ An example of economic abstraction would be the use of an ERC-20 token like Binance Coin (BNB), or OmiseGo (OMG) to pay for fees instead of the ETH token.
“Paying gas in ERC20s is difficult, because it means that the abstraction scheme would need to support arbitrary operations for gas payment and for gas refunds. Previous abstraction schemes allowed this, but at the cost of much extra complexity.”
Rubin disagrees and highlights four main counterarguments to economic abstraction, which he attempts to refute in the article. For a summary of his points, below is a debate featuring Jeremy Rubin in favor of economic abstraction, with Buterin taking the negative.
1 ) Vitalik: The software support for economic abstraction is too complex.
2) Vitalik: Okay, but the difficulty in pricing that many tokens is not rational.
Rubin: Miners already do this when they run their mining operations. Predicting the future price of tokens is how they maximize profit against electricity costs.
3) Vitalik: Fine, but there are contracts on Ethereum that don’t have its own coin, so those need to use ETH to pay for fees.
Rubin: Not exactly, users can pay a tokenless contract’s fees in whichever token they want.
4) Vitalik: But miners need to use ETH for the network’s proof-of-stake consensus mechanism.
Rubin: Actually, a modified version of Proof-of-Stake with a multitude of assets could still decide consensus if each node selects a weight vector for the voting power of all assets. I call this Heterogeneous Deposit Proof of Stake or HD-PoS.
Vitalik: Damn you, Rubin!
Vitalik’s Reddit Response
While this interaction didn’t actually happen (I swear), Vitalik Buterin did take to r/bitcoin to respond to Rubin’s article. In a surprising twist, Vitalik agreed with Rubin’s conclusions.
In his comment Vitalik wrote, “In Ethereum as it presently exists, this is absolutely true, and in fact if Ethereum were not to change, all parts of the author’s arguments (except the part about proof of stake, which would not even apply to Ethereum as it is today) would be correct.”
Definitely, a shocker coming from the creator of Ethereum’s mouth. Crypto Twitter quickly took notice:
Fascinating: @VitalikButerin agrees with @JeremyRubin that the value of ETH will trend toward 0 unless changes are made to the protocol.https://t.co/9haLKJol8thttps://t.co/LuU8s2zspP pic.twitter.com/Y1kC48lKK1
— Jameson Lopp (@lopp) September 3, 2018
Others are a little more skeptical:
Officially the new “Blockchain not Bitcoin” https://t.co/bz309MMI4T
— Spencer Noon 🕛 (@spencernoon) September 3, 2018
Remains to be seen
Rubin sums up his article by making the argument that users of the Ethereum Network are incentivized (aka: better off) to use native app coins instead of ETH.
“If miners are uncoordinated, mutually disinterested, and rational, they would prefer to be paid in assets of their own choosing rather than in something like ETH. Furthermore, risk-averse users would want to minimize their exposure to volatile assets they don’t have to use. Lastly, token developers benefit because pricing in their native asset should serve to reduce sell-pressure. Thus, in a stateless ecosystem, replacing ETH is a Pareto Improvement (i.e., all parties are better off). The only party disadvantaged is existing ETH holders.”
Jeremy Rubin is best known for being one of the early founders of the Blockchain Education Network, a non-profit organization of over fifty cryptocurrency clubs across the country. He also co-founded the MIT Digital Currency Initiative and led the first Bitcoin Airdrop on MIT’s campus. Today, he is a Bitcoin Core Contributor and technical advisor to the cryptocurrency Stellar.
It remains to be seen whose arguments turn out to be on the winning side of history.