Wednesday, July 8, 2020

Why Pompliano's criticism of Ethereum's issuance policy and financial system is absurd.

I have just watched an interview with Anthony Pompliano where he argues that Ethereum's issuance policy is strictly bad and that it will be abused. He also advocates for centralized automated financial systems as opposed to Ethereum's, but he does not really explain why... so I decided to share a little reflection on both subjects.

  1. The claim that Ether is not a good store of value because of its dynamic inflationary rate is completely disregarding the trend and roadmap of Ethereum. First of all, lets establish the fact that a dynamic inflationary rate is NOT necessarily bad since it allows for a faster reduction than what was originally planned. This has been demonstrated since the current total Ether issued is LESS than what was initially estimated at this point. Ethereum roadmap is preparing for an even greater reduction in issuance that is targeting an inflationary rate LOWER than Bitcoin's - this should happen in the next couple of years as PoW phases out. A sustainable ZERO inflationary rate will be achieved through the elimination of PoS, EIP 1559 and layer zero scalability via sharding. This is something (long term sustainability) that Bitcoin does not have since it is expected that the price of Bitcoin must double in between every halvening event in order to maintain hash rates. The operational cost of securing Bitcoin is unsustainable... for now there is only wishful thinking that somehow layer scaling will be able to sustain the network exclusively via fees, but there is no tangible plan to achieve it. This dynamic is a ticking time bomb and Bitcoin has a serious long term risk of self imploding due to the periodic reduction of incentive for miners to secure the network. Not to mention that the understanding of what and how Bitcoin should function is adopting the OLD paradigm of money and financial systems.
  2. Is it really necessary to make the argument that a financial system that is decentralized, censorship resistant and permission-less is more desirable and valuable than centralized/externalized systems? The new paradigm of money calls for built-in integration with a financial system that provides the same awesome properties that made Bitcoin so powerful: censorship resistant, decentralized, permission-less, trust-less. The ability to transparently issue and transact digital assets is integral to the new global economic paradigm. Externalizing a monetary token such as Bitcoin exponentially increases risk as it introduces an additional network and potential third parties - this dramatically reduces the golden qualities of a self-contained cryptographic network.

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