Podcast Summary
ETH vs Bitcoin: Sound Money Debate: Experts debated the soundness of Bitcoin and Ethereum, emphasizing their technical capabilities and the role of scaling solutions and tools like Arbitrum and Ledger.
During this episode of the Bankless Nation podcast, a debate ensued between Bitcoin and Ether, with the focus on which one is more "sound money." The debate was moderated by David Hoffman, who was joined by Dennis Porter for round 2 of their ETH versus Bitcoin ultra sound money debate. They were also joined by technical experts Justin Drake and Muneeb Ali. The conversation delved into the technical aspects of both Bitcoin and Ethereum, with a particular emphasis on their capabilities as sound money. Arbitrum, an Ethereum scaling solution, was introduced as a sponsor, aiming to increase Ethereum's throughput and reduce gas fees. Ledger, a hardware wallet and app, was also highlighted as a crucial tool for managing private keys and accessing various DeFi apps in one place. The debate concluded with the panelists sharing their perspectives on the soundness of both Bitcoin and Ethereum, with the discussion continuing to evolve as the technology and ecosystems surrounding each digital asset continue to develop.
Understanding the unique properties of Bitcoin and Ethereum as sound money candidates: Both Bitcoin and Ethereum are seen as potential contenders for digital sound money. Sound money maintains its value without sudden changes, and both assets have unique properties that make them candidates for long-term storage and potential units of account.
Both Bitcoin and Ethereum are considered as potential contenders for digital sound money. Money is defined as a tool used for storing, transferring, and measuring value, while sound money maintains its value without sudden changes in appreciation or depreciation over the long term. Justin Drake views sound money as an asset that can accrue and maintain a significant monetary premium in both space and time. Dennis Porter believes sound money is a long-term store of value and potential unit of account, ensuring its purchasing power remains stable over extended periods. Muneeb Ali distinguishes between money and sound money, focusing on the former as a medium of exchange for day-to-day transactions and the latter as a long-term store of value. Ultimately, the conversation revolves around understanding the unique properties of each asset that make them sound money candidates.
Bitcoin vs Ethereum as Sound Money: The distinction between currency and sound money is crucial. Bitcoin, with its finite supply, predictable issuance, and resistance to manipulation, is seen as the most sound money by some, but the competition between different forms of sound money drives the market towards the most stable solution.
The distinction between currency and sound money is crucial in understanding the value proposition of Bitcoin and Ethereum. While both are used as means of exchange, their ultimate goals differ. Sound money refers to a stable monetary system that maintains its value over time. Bitcoin, with its finite supply, predictable issuance, and resistance to manipulation, is seen as the most sound money by some due to its unchangeable characteristics. However, it's important to note that sound money doesn't necessarily have to increase in value over time, but rather maintain its stability. The notion of sound money evolves with time and innovation, and the competition between different forms of sound money, like gold and Bitcoin, drives the market towards the most sound solution. In summary, the debate between Bitcoin and Ethereum as sound money comes down to which asset can best maintain its value and stability over time.
Bitcoin's value from scarcity and decentralized consensus: Bitcoin's value comes from its limited supply, decentralized consensus, and proof of work mechanism, but its long-term security relies on sufficient and stable transaction fees.
Bitcoin's value comes from its scarcity, hard supply cap, and decentralized consensus, which are key attributes of sound money. The proof of work mechanism adds to its scarcity, and the global community's commitment to upholding the 21 million cap enhances its value and immutability. However, a potential concern raised is the security aspect, as Bitcoin's security relies on transaction fees, which are currently insufficient and highly volatile, providing less transactional utility compared to other systems. This raises the question of whether Bitcoin's security can be sustained long-term.
Discussing Bitcoin's long-term sustainability: Bitcoin's lack of programmability and scalability may lead to the adoption of sidechains, but these come with challenges like capturing fees and the need for deposits and withdrawals, while Bitcoin's scarcity and security are at risk, and Ethereum's issuance raises questions about minimum viable security.
Bitcoin's current model of security, scalability, and programmability may not be sustainable in the long term. The discussion highlighted that Bitcoin's lack of programmability and scalability could lead to the adoption of sidechains like Stacks. However, sidechains come with their own challenges, such as capturing transaction fees and the need for deposits and withdrawals to and from the sidechain, which could result in paying fees on Bitcoin. Furthermore, the scarcity of Bitcoin, which is a significant part of its value proposition, could be at risk if the security of the network is compromised. Another point raised was the difference between Bitcoin's supply schedule and Ethereum's issuance. While Bitcoin has a fixed supply schedule, Ethereum has an issuance rate, which introduces the question of how much issuance is necessary for minimum viable security. Ultimately, the conversation underscored the importance of considering both the short and long-term implications of the current Bitcoin model and the potential need for changes to ensure its long-term sustainability.
Disagreement on Bitcoin's block space and transaction fees: Speakers discussed the potential for high transaction fees on Bitcoin network due to Stacks' success, disagreed on scarcity of block space, and noted the difference between Ethereum's roll-up model and Bitcoin's approach to handling data and computational power.
The success of Stacks and its potential increase in transaction fees can lead to higher transaction fees on the Bitcoin network, as Stacks relies on Bitcoin as a settlement layer. The speakers disagreed on the potential scarcity of block space in Bitcoin and whether people will be willing to pay high transaction fees for it. They also discussed the difference between Ethereum's roll-up model and Bitcoin's approach to handling data and computational power. Despite the limited block space in Bitcoin, the speakers believe that the value of transaction fees will come from how much people are willing to pay to write to the scarce resource. They also noted that the number of miners and applications on Stacks that require cross-chain consensus will contribute to the competition for block space. In conclusion, the speakers see the potential for high transaction fees on the Bitcoin network as the demand for block space increases with the success of decentralized applications like Stacks.
Bitcoin's Block Space Becomes Valuable Due to NFT Demand and Institutional Use: The increasing demand for data storage from NFTs and future institutional use makes Bitcoin's block space valuable, requiring a growing security budget to maintain its value and security.
Bitcoin's block space becomes insanely valuable due to the increasing demand for data storage from applications like NFTs. This demand is based on the number of NFTs rather than the number of transactions, making the block space valuable in Bitcoin terms. Furthermore, as we look to the future, the block space will likely be used by large institutions for global trade, requiring a sufficient security budget to maintain its value and security. This security budget needs to grow at a rate commensurate with the growing value of Bitcoin, not the dollar, to ensure the security of the network. Bitcoin's high security budget, despite recent decreases in difficulty, ensures the network's security on an absolute scale.
Efficient Security of Ethereum's Proof of Stake: Ethereum's proof of stake consensus mechanism makes it a more secure form of money with lower costs compared to Bitcoin, as it requires less capital and computational power to secure the network.
According to the discussion, Ethereum's proof of stake consensus mechanism makes it a more sound form of money compared to Bitcoin due to its more efficient security. The economic security of Ethereum, as evidenced by the value of staked ETH tokens, is already larger than Bitcoin's, and Ethereum aims to increase this security further. Proof of stake collapses the cost of providing security down to the minimum required: an Internet-connected computer and capital. This efficient security means that it costs less to secure the Ethereum blockchain compared to Bitcoin. Additionally, the guaranteed issuance of Ethereum provides a roadmap to achieve even greater economic security.
The efficiency of proof of stake consensus mechanism preserves currency value: Proof of stake's efficiency in securing blockchains reduces issuance and maintains currency value, but concerns exist over the bootstrapping problem, known as weak subjectivity, which makes it difficult for individual users to independently verify the correct version of the blockchain.
The efficiency of proof of stake consensus mechanism in securing a blockchain leads to less issuance and retains the value of the currency. However, there are concerns about the bootstrapping problem in proof of stake systems, which makes it difficult for individual users to independently verify the correct version of the blockchain. This issue, known as weak subjectivity, also exists in Bitcoin. Some argue that this is a known problem with good solutions, but others believe that the core property of independently verifying the blockchain is what sets it apart from traditional systems. The debate continues on the importance and feasibility of maintaining this property in a global reserve currency system.
Maintaining Decentralization in Cryptocurrencies: Decentralization requires users' ability to self-verify the system's correctness, including software and blockchain state. Proof of work provides security through computational effort but not in proof of stake systems. Ensuring correctness of state and state transition function is crucial for security and decentralization.
While it's possible to stay offline and not trust anyone in the context of using cryptocurrencies like Bitcoin, doing so goes against the decentralized ethos of the technology. Decentralization relies on users' ability to self-verify the correctness of the system, including the software and the blockchain state. In a proof of work system like Bitcoin, creating alternative versions of the blockchain requires significant computational effort, making it difficult for attackers to present multiple invalid versions. However, in a proof of stake system, creating multiple alternative versions only requires signatures and does not require any computational effort. Therefore, the argument that proof of work provides security through the work required to create alternative versions does not hold in the context of proof of stake systems. Additionally, tampering with the state transition function in a blockchain makes it impossible to validate the state, which is a fundamental premise. Therefore, it's crucial to ensure the correctness of both the state and the state transition function to maintain the security and decentralization of the system.
Ethereum's Transition to PoS and Concerns of Hoarding and Centralization: Speaker raises concerns about potential hoarding and centralization during Ethereum's transition to PoS, questioning its feasibility and impact on currency value and security.
The speaker expresses concerns about Ethereum's transition from Proof of Work (PoW) to Proof of Stake (PoS), specifically the potential for hoarding and centralization of supply among those minting ETH. They argue that this could lead to debasement and manipulation of the currency, as has historically occurred when large amounts of a monetary supply are held by a few individuals. Additionally, the speaker expresses doubts about the feasibility of the transition itself, suggesting it could be a complex and risky process. They also highlight Ethereum's history of reducing rewards for miners as a potential issue for maintaining security during the transition. The speaker believes that Ethereum's advantages in terms of long-term network effects, particularly in the areas of security and scarcity, may not be enough to outweigh these concerns.
Focusing on long-term potential of Bitcoin and Ethereum: Bitcoin's capped issuance eliminates money printer problem, Ethereum's proof of stake increases decentralization, focus on long-term potential, continuous innovation key.
While Bitcoin and Ethereum both have their unique advantages, the focus on short-term factors like financialization, execution risk, and distribution mechanisms should not overshadow their long-term potential. Bitcoin's capped issuance solves the seigniorage problem by eliminating the money printer, while Ethereum's proof of stake distributes the issuance to a larger number of people, reducing the cost of providing security and increasing decentralization. The comparison between Ethereum and other smart contract platforms should not be based on their use cases being single-purpose or not, but rather on their ability to execute and provide value to their respective ecosystems. The ongoing competition between these platforms highlights the importance of continuous innovation and improvement.
Interconnected Security and Monetary Premium: A strong monetary premium is crucial for security in blockchain, while trustless economic bandwidth is vital for decentralized apps. Bitcoin and Ethereum must balance both aspects for decentralization, security, and utility.
Security and monetary premium are interconnected in the blockchain world. A strong monetary premium is necessary for a smart contract platform to provide security and resistance against state actors. Additionally, trustless economic bandwidth is essential for decentralized applications. Bitcoin and Ethereum, as well as other smart contract platforms, need to embrace both aspects to achieve decentralization, security, and utility. The idea of one platform focusing solely on being a smart contract platform or a money layer is outdated. Instead, both ends of the spectrum need to interact and influence each other to create a robust and secure blockchain ecosystem.
Stacks: A Side Chain with Bitcoin's Security: Stacks is a side chain that uses Bitcoin's security while offering more throughput and programmability, ensuring all fork histories are secured by Bitcoin, and prioritizing the security of the money layer.
Stacks is not a proof of state system like Bitcoin, but rather a side chain that utilizes Bitcoin's security while providing more throughput and programmability. Stacks follows a proof of transaction security model, where Bitcoin is used as the security budget instead of electricity. While Stacks may have less security budget than Bitcoin, the design ensures that all fork histories on Stacks are secured by Bitcoin. The separation of money and contracts on Stacks is important for securing the money layer, which is considered the most valuable aspect of decentralized systems. Solana and other "ETH killers" can be seen as execution-optimized blockchains that prioritize scale over decentralization. Despite the differences in security budgets and approaches, the importance of securing the money layer is a common belief among various blockchain communities.
Ethereum: Balancing Security and Execution: Ethereum could improve security by focusing on proof of work, limiting layer 1 activity, and encouraging layer 2 solutions, rather than transitioning to proof of stake and implementing sharding.
Ethereum's design aims to have a highly secure and decentralized layer 1, while also allowing for highly executable layer twos for financial activity. However, the speaker suggests that Ethereum could benefit from focusing more on proof of work, limiting the types of activity on layer 1, and encouraging the development of layer 2 solutions, rather than attempting to move to proof of stake and implementing sharding. They argue that defining security outside of the system is crucial for ensuring recovery in case of issues, and warn of potential risks in the current staking system, such as centralization and the ability to manipulate the network through slashing. Lido, a decentralized staking as a service protocol, is mentioned as an example of a decentralized solution, but concerns remain about its centralization and potential risks.
Ethereum's PoS system: Decentralization with challenges: Ethereum's PoS system eliminates cost for participation but introduces economic security risks and potential centralization concerns. Attacks can occur but come with a cost, and recovery processes like slashing make it difficult to repeatedly attack. The debate continues on the merits of Ethereum's internal security.
While Ethereum's proof-of-stake (PoS) system offers decentralization through staking networks like Lido, it also introduces new challenges, such as economic security and potential centralization risks. The costliness of money is eliminated with PoS as users can participate in staking and issuance without any cost. However, the claim that it's impossible to attack the network with PoS is not entirely accurate. Attacks can still occur, but they come with a cost, measured in terms of economic security. Slashing, a recovery process for bad actors, makes it difficult to repeatedly attack the network. Bitcoin, on the other hand, has external security, meaning it can't delete its hardware, but Ethereum has internal security, which can delete its own ether, giving it an extra layer of defense. However, if a massive attack occurs, and someone gains control of more than 33% of ETH, they could potentially slash and remove validators, making it harder for the network to progress. The debate between internal and external security continues, with some arguing that Ethereum's internal security provides an extra layer of defense, while others argue that it creates new vulnerabilities.
Bitcoin vs Ethereum: Different Approaches to Security: Bitcoin prioritizes immutability and decentralization, relying on automatic slashing for security, while Ethereum allows for community intervention through social slashing via hard forks.
While both Bitcoin and Ethereum networks have mechanisms to address potential attacks, their approaches differ significantly. In the case of Bitcoin, the network relies on cryptographically approved slashing for security, which is automatic and enforced by the network itself. On the other hand, Ethereum allows for social slashing, where the community can identify and ostracize malicious actors through hard forks. This difference in philosophy stems from the fundamental design of each network. Bitcoin prioritizes immutability and decentralization above all else, while Ethereum is more flexible and open to interventions when necessary. This was highlighted in the discussion of user-activated soft forks and the DAO hack. While Bitcoin would not roll back transactions or change balances, it could potentially freeze funds through a user-activated soft fork. In contrast, Ethereum did roll back transactions and recover stolen funds after the DAO hack. This historical precedent does not necessarily make Ethereum less secure, but it does illustrate the different philosophies at play. Ultimately, the choice between these two paths depends on individual beliefs about the role of decentralization, immutability, and community intervention in blockchain networks.
Debate over immutability and human intervention in digital currencies: Bitcoin prioritizes maximum immutability to prevent manipulation, while Ethereum values transparency and community consensus in making changes, but Ethereum's more open approach could lead to future issues and concerns about miner community harm.
The Ethereum and Bitcoin communities hold different views on the importance of immutability and human intervention in the monetary supply of digital currencies. While Bitcoin prioritizes maximum immutability to prevent human manipulation, Ethereum values transparency and community consensus in making changes. However, Ethereum's more open door for changes, although done in a transparent way, could potentially lead to future issues if a majority of people make decisions that don't benefit all users. The frequency and scale of Ethereum's hard forks, which are intended to address specific issues, are a point of contention, with some arguing that they occur too frequently and may require more upgrades in the future due to inflation of the platform with money. Additionally, the Ethereum community's approach to changes, which may not always benefit all users, raises concerns about potential harm to the miner community. Ultimately, both approaches have their pros and cons, and the ongoing debate highlights the importance of understanding the philosophical differences between different digital currencies and their respective communities.
Ethereum's intertwined layers limit optimization and innovation: Ethereum's shift to proof of stake aims to align incentives and reduce the need for a distinct mining class, but changes take longer than in Bitcoin, and eventual ossification is inevitable due to increasing value and activity.
The Ethereum network, with its money and smart contract layers intertwined, can limit its ability to optimize and innovate, unlike separate layers seen in Bitcoin and Stacks. Proof of stake, Ethereum's upcoming consensus mechanism, aims to align incentives and reduce the need for a distinct mining class, making it more accessible for various users. However, changes in Ethereum, such as the shift to proof of stake and the implementation of EIP 1559, take longer than in Bitcoin. The Ethereum network's eventual ossification, similar to Bitcoin, is inevitable due to increasing value and activity, making backwards-compatible changes necessary. Despite the current changes and short-term noise, Ethereum's long-term goal is to ensure its success and maintain its ability to adapt to future challenges.
Decentralizing finance with Bitcoin and Ethereum: Bitcoin and Ethereum, despite differences, aim to decentralize finance and create a decentralized financial system. Bitcoin's innovation lies in mining hardware and renewable energy, while Ethereum focuses on smart contracts and innovation.
While Bitcoin and Ethereum have their differences, particularly around the monetary supply and innovation, they share similar values and goals in decentralizing finance and creating a decentralized financial system. The illusion of Bitcoin's fully programmatic monetary supply may change in the future, but Bitcoin's innovation lies in the mining hardware and renewable energy production, as well as the development of layers like Stacks and Liquid to enable more complex functions. Ultimately, both Bitcoiners and Ethereum supporters are working towards the same industry goals, and the debate between the two is more about execution than fundamental values.
Discussing the future of Bitcoin with Dennis Porter, Muneeb Ali, and Justin Drake: Community, innovation, and political activism are crucial in the Bitcoin space. Check out Bankless HQ for more info and consider becoming a Bankless premium subscriber.
Dennis Porter, Muneeb Ali, and Justin Drake, active figures in the Bitcoin community, discussed their perspectives on the current state and future of Bitcoin during a live stream. Dennis Porter shared his experience in politics and his efforts to fight for the community against regulatory challenges. Muneeb Ali, the founder of Stacks, discussed his work on smart contracts for Bitcoin and the potential of Bitcoin NFTs. Justin Drake, a researcher at the Ethereum Foundation, highlighted his work and encouraged viewers to engage with him on various platforms. Overall, the discussion underscored the importance of community, innovation, and political activism in the Bitcoin space. For those interested in learning more and developing their crypto investing skills, the speakers recommended checking out Bankless HQ and becoming a Bankless premium subscriber.
