Jeremy Rubin, a technical advisor to Stellar, a Bitcoin Core Contributor, advisor to early-stage crypto startups, and founder of the MIT Digital Currency Initiative, has said that Ether (ETH), the native cryptocurrency of the Ethereum blockchain network, will eventually lose its value and hit zero.
“Here’s a prediction. ETH — the asset, not the Ethereum Network itself — will go to zero,” Rubin said, emphasizing that if decentralized applications (dApps) and ERC20 tokens can run on the Ethereum protocol without utilizing ETH to cover gas costs, then there exists no value for ETH.
“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.”
Vitalik Buterin and Gnosis Founder Respond
Ethereum co-creator Vitalik Buterin and Gnosis founder Martin Koppelmann responded to the claims of Rubin, both acknowledging merit in Rubin’s argument.
Currently, there is no hard requirement for gas in an Ethereum smart contract and in that sense, it is possible that a dApp with its own token pays for gas to broadcast its smart contract across the Ethereum blockchain network by compensating miners directly with its own token instead of gas.
If an ERC20 token on Ethereum decides to follow the scenario laid out by Ruben and makes a small amount of transaction deposit with a token rather than ETH directly to the block’s miner address to pay for the contract’s execution, then it would be possible to question the value and necessity of ETH in running smart contracts.
But, the entire claim is premised on an assumption that the Ethereum network will not implement a hard requirement for gas in an Ethereum smart contract in the future. After all, Ethereum is the most active open-source developer community that is capable of implementing solutions to fix various issues.
Koppelmann said while the claims of Ruben are accurate, once Ethereum starts to require the inclusion of ETH as gas in smart contracts, then the argument falls apart. He added:
I actually agree with 90% in here. However – the whole argument falls apart as soon as ETH is required in some form to create blocks (e.g. for staking in POS).
— Martin Köppelmann (@koeppelmann) September 3, 2018
On Reddit, Buterin explained, as Koppelmann said, two proposals that are currently in development that would increase the importance of ETH at a protocol level so that every smart contract is required to pay gas in ETH to be on the Ethereum mainchain.
“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 argument (except the part about proof of stake, which would not even apply to Ethereum as it is today) would be correct. However, the community is strongly considering two proposals, both of which have the property that they enshrine the need to pay ETH at protocol level, and furthermore the ETH gets burned, so there’s no way to de-facto take it out of the loop by making the medium-of-exchange loop go faster.”
One Solution in Progress
A draft proposal entitled “Position paper on resource pricing” referenced by Buterin to support his argument makes the block proposer, who technically could charge fees in tokens like EOS and Tron, responsible to pay the min. fee with ETH.
As such, the activation of the proposal would eliminate the necessity of block producers to accept tokens rather than ETH, if they are required by the protocol to cover the minfee with ETH.
Proposals like the improvement on resource pricing will create a highly inefficient environment for miners if they decide not to accept ETH for gas but an ERC20 token, which would incentivize the vast majority of miners to accept ETH as the primary gas-covering currency.
Cover Photo by Alexander Milo on Unsplash