Concerns ethereum Regarding the Prognosis for Bitcoin
Vitalik Buterin is anxious about what the future holds for bitcoin.
The creator of Ethereum stated that he is “worried” about Bitcoin for two different reasons in an interview that took place on September 2 with the economics journalist Noah Smith. He went on to explain why, in his opinion, the way Bitcoin handles transaction fees could pose challenges for the cryptocurrency in the far future. At this time, Bitcoin pays miners in the form of coins for their work in securing the network. However, because the Bitcoin protocol has a hard supply cap of 21 million, at some point in the future, the Bitcoin network will only rely on the fees associated with individual transactions for its security. Buterin told Smith that this is a concern due to the fact that Bitcoin is “not succeeding at generating the level of fee revenue required to safeguard what could be a multi-trillion-dollar system.” The amount of fees that Bitcoin generates to other protocols has been a matter of heated debate in the cryptocurrency community for a significant amount of time. According to the data provided by Crypto Fees, Bitcoin trailed behind DeFi mainstays such as Aave and Uniswap in terms of the average amount of fees collected during the preceding week. The transaction protocol that Buterin developed brought in approximately $2.7 million within the same time period and is by far the most profitable fee generator.
Buterin has stated that he is concerned about the future of Bitcoin due to the fact that “Proof-of-Work provides much less security per dollar spent on transaction fees than Proof-of-Stake.” He argues that it would be problematic to have a network worth $5 trillion that costs only $5 billion to attack. Buterin also mentioned that Bitcoin moving away from Proof-of-Work would be “politically infeasible.” He said this non his presentation.
The remarks made by Buterin are sure to cause outrage in certain subsets of the cryptocurrency community. The most devoted believers in Bitcoin have maintained for a long time that Proof-of-Work is an essential component of the overall architecture of the Bitcoin network. Others have expressed comments parallel to Buterin’s criticizing the fee model of the leading cryptocurrency, but given that Bitcoin is not expected to begin emitting coins until somewhere around the year 2140, this concern is largely ignored by those who advocate for Bitcoin.
Buterin Makes the Case for Proof-of-Stake Before the MergeEthereum
The question of whether or not blockchains should reach agreement through Proof-of-Work or Proof-of-Stake has been hotly contested for several years, not the least of which in recent months as Ethereum gets ready to “Merge” to Proof-of-Stake. This debate has been going on for several years. After the release of The Merge, which is expected to take place around September 15th, validators will be responsible for Ethereum’s security rather than miners. They will do this by staking their ETH tokens.
Buterin told Smith that he believed such arguments to be “simply false,” despite the fact that some of Ethereum’s most outspoken adversaries have argued that Proof-of-Stake inhibits decentralization and allows for larger stakeholders to dominate the network. He stated that skeptics have “a misperception that Proof-of-Work and Proof-of-Stake are governance systems, whereas in reality they are consensus mechanisms.” He claimed this fallacy stems from the fact that people confuse governance techniques with consensus mechanisms. Stakeholders have the ability to validate transactions, but they do not have any say in how the network will develop in the future.
The month before last, after the Treasury Department sanctioned Tornado Cash, criticism of Proof-of-Stake increased, leading to worries that governments could one day attempt to censor Ethereum. The Chief Executive Officer of Coinbase, Brian Armstrong, issued a statement regarding the matter, stating that his company would discontinue staking rather than censor transactions. Buterin also joined in on the conversation, stating that he would consider compliance with regulatory fines to be an attack on the network.
Buterin also provided some uncommon insights on the cryptocurrency market over the past couple of years, including commentary on the latest bull run that caused the global market capitalization of cryptocurrencies to surpass $3 trillion in November 2021. He freely confessed that he was “surprised that the crash did not happen earlier” due to the fact that manic phases typically last for a period of a few months before being followed by a sharp decline. In spite of the fact that he was aware that prices were falling across the board in 2022, he stated that cryptocurrency “now feels truly useful.”
Disclosure: At the time that this article was written, the author of this paper owned various cryptocurrencies, including ETH, AAVE, and others. Additionally, they have UNI exposure via participation in a cryptocurrency index.