Successful Ethereum with Worthless ETH?

Successful Ethereum with Worthless ETH?

Jeremy Rubin, a technical advisor to Stellar and a Bitcoin Core contributor, explains how ETH the currency can become worthless, while Ethereum the platform prospers

In his article on TechCrunch, Rubin presents and rationalizes a possible future scenario where ethers as an asset have no market value whatsoever, despite Ethereum’s massive adoption.

Rubin first takes a look at Ethereum’s official description and underlines that it provides no value proposition for ETH. He goes to say that the value of ETH derives from the value of Ethereum only because users need to use ETH to pay for gas which powers smart contracts. Rubin then explains why economic abstraction, i.e. paying for gas in other assets, is a better approach.

Rubin clarifies that Ethereum can adopt a system where users can pay for gas in contract tokens, e.g. ERC-20 tokens. When one uses the ‘BuzzwordCoin’ contract, they simply transfer a necessary amount of BuzzwordCoins to the block’s miner as transaction fees. This relieves users from the need of converting tokens to ETH before interacting with the contract, and tokens do not depend on ETH’s market value.

Counterarguments to economic abstraction

There are four counterarguments to the economical abstraction of Ethereum:

  1. the lack of software support for economic abstraction
  2. difficulty in pricing many tokens
  3. the existence of contracts not tied to tokens;
  4. the need for ETH for Proof-of-Stake.

Software support

Opponents of economic abstraction claim that ‘the added complexity is not worth the ecosystem gains’. In response to this, Rubin argues that if the software does not meet the needs of its userbase, then it should be altered to do so.

Market pricing

To mine on economically abstracted Ethereum, miners simply need software which orders pending transactions based on available pricing information on corresponding tokens, which is already the case.

Non-token contracts

A user of a tokenless contract can pay in whatever asset they want. If a miner does not want those assets, the miner can process fees through a DEX and exchange the tokens for more preferred ones.

Proof-of-Stake

Stakeholders do not need to hold ETH to have voting power. The community can still establish consensus by using a variation of PoS dubbed Heterogeneous Deposit PoS by Rubin. In HD-PoS, each node determines the voting power of each asset, or a weight vector, and if all weight vectors are similar enough, consensus is possible. There is yet much research to be done in this area, Rubin adds, but if an HD-PoS algorithm proves impossible, this failure is only a shortcoming of Ethereum PoS specifically.

If all the applications and their transactions can run without ETH, there’s no reason for ETH to be valuable unless the miners enforce some sort of racket to require users to pay in ETH. But 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

Jeremy Rubin, tech adviser at Stellar, Bitcoin Core contributor

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