Since Bitcoin’s upgrading to ultra-sound money 4 months ago, cryptocurrency expert Joe Burnett has tweeted that numerous Ethereum talking heads have suddenly begun challenging BTC’s long term security paradigm. In addition, he said that Ethereum (ETH) is the only cryptocurrency with an issue with both long-term security and long-term value accumulation.
The potential of the Ethereum Foundation to continue making consensus-altering adjustments has created confusion about the future supply schedule and even the nature of the second-largest cryptocurrency in 5 years. Ethereum is more akin to stock in a decentralized company.
However, as Burnett pointed out, this does not render the token useless. When the merger is complete, some of the transaction costs are destroyed by fire. For instance, buying back one’s own shares. Additionally, ETH may be staked by users to increase their payout. Such as with dividends.
All of ETH’s worth comes from the anticipated present value of future free cash flows, just like any other stock. Its projected future free cash flows are dependent on network use.
Still, this raises an intriguing difficulty. When transaction costs are prohibitive, other chains like Bitcoin’s sidechains are used to create DeFi. Burnett claims that if transaction fees are kept low, ETH will never generate any income in the future.
Because of this, scaling ETH enough to make it a valuable currency is impossible. If Ethereum can solve the problem of scalability, transaction costs will go down, and the token’s current value will drop. If ETH can’t handle increased transaction volumes, transaction costs will rise and new deployments of DeFi will be made elsewhere.
It’s a vicious cycle that will continue to drive down the price of ETH until it’s worthless. This value accrual problem eventually leads to a security vulnerability, and it affects all non-money layer one’s. You can’t trust it to settle $100 billion or more in stablecoins if ETH is valued less than $10 billion.