Is Ethereum a Shitcoin? – Coinmax
There are some wildly differing opinions out there concerning the value of Ethereum (ETH), which is currently the world’s second most valuable crypto by market capitalization. Some commentators have been brave enough to label ETH a ‘shitcoin’, which seems like a stretch.
It might be a good idea to nail down a definition for ‘shitcoin’. As there is no commonly accepted definition for the diminutive term, let’s lift the following partial definition from Investopedia:
A shitcoin is:
“…a pejorative term used to describe an altcoin that has become worthless. Shitcoin value may disappear because interest failed to materialize because the altcoin itself was not created in good faith, or because the price was based on speculation.”
It would be easy to cut the question this article is answering in half with the above definition, as ETH clearly doesn’t fit it at all. Instead, let’s dive a little deeper into what a digital token means, and why so many people don’t see ETH in the same light as Bitcoin.
Ethereum isn’t a Shitcoin, but..
One of the biggest sticking points about ETH is the fact that unlike BTC, it can be produced forever. BTC, on the other hand, is limited in amount. The simple-simon takeaway is that somehow this will make BTC a store of value in the long run, but ETH will be less desirable because it is higher in supply.
In an economic model that runs for a thousand years, the above argument may hold true. In the real world, however, there is something that is far more important:
Demand.
The demand for currency drives its market value, not its overall supply.
The actual amount of Australian Dollars (AUD) is far, far, lower than the amount of US Dollars (USD) in circulation, and the rate of growth in the amount of USD (sometimes called inflation) is higher than the AUD, especially in gross, not relative terms.
One look at the exchange value of the USDAUD cross over the last decade will easily show how flawed the ‘inflation argument’ is when it comes to determining a currency’s exchange value.
Will the same thing manifest in the world of cryptos?
There is no way to know, but if the demand for ETH outstrips the demand for BTC on a gross basis, ETH could rally against BTC on a medium-term basis. Of course, this all assumes that BTC and ETH take on a role as a major exchange (and thus reserve) asset, which seems a long way off at the moment.
BTC is a Better Platform!
There is no doubt that it is easier for more people to operate a BTC node than an ETH node. Cheaper hardware can keep the BTC network running while keeping ETH’s back-office humming along is a substantially larger investment for node operators.
How this aspect of the crypto market figures into the pricing equation is anyone’s guess. The fact that an ETH node is more expensive to run gives some credibility to the platform, as it is up-and-running at the moment.
The recent floods in the Chinese Provence of Sichuan seem to show that a major hit to the network doesn’t seem to have much of an effect on the price of a token, though these networks aren’t vital global systems in the way that SWIFT or VISA’s networks are.
If there was a higher use rate for cryptos as a means of exchange, it would be easier to asses the impact of an equipment outage on token price. Of course, if that were the case, no commercial interest would care about ponying up more cash for a new ETH node.
ETH is Just Centralized Development Repackaged
BTC was born partly out of the desire to have a decentralized payment system, and partly with the technical prowess of a few very smart people.
These factors aren’t enough to create the mass adoption of a new global clearing system, which is what would drive the price of any token up on a sustainable basis. The fact is that unless a lot of people use cryptos on an increasing basis, any token that is left out in the cold will be a shitcoin.
If we keep an eye on adoption, and thus demand, it will be much easier to figure out what constitutes a shitcoin, and what may become the first digital gold. All that said, there are a few things that are worth keeping in mind when it comes to ETH.
Ethereum Development isn’t Always Easy
Ethereum is being developed widely, but according to some experts, it isn’t always a great platform for devs. Jameson Lopp, who worked on BitGo, detailed the trials and tribulations of EthereumJ development back starting in 2016.
You can read the entire saga here, but sufficed to say, the process of EthereumJ development was long and fraught with setbacks. Whether or not this aspect of ETH will doom it to the shitcoin vault at the bottom of the internet is anyone’s guess, but from this dev’s take, ETH is far from easy to work with.
The DAO Hack Raises Some Serious Questions About ETH’s Centralization
It might be because it happened before the record run that cryptos posted in 2017, but the ETH DAO hack caused a lot of people in the crypto community to question the legitimacy of ETH. The background on the hack is somewhat complicated, but this Medium post offers a cursory glance at the event that created both the current ETH, as well as Ethereum Classic.
How this past weakness in ETH’s architecture could affect pricing in the future is unknowable, but token holders that prefer a more decentralized token have every reason to be suspicious of ETH.
Pricing models for tokens are evolving all the time, and there are numerous voices who all have an opinion on what makes a token valuable. It is also completely possible that there will be a number of popular tokens that are used in the future, but all of this has yet to be determined.
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About the author:
Nicholas Say grew up in Ann Arbor, Michigan with a father that read him the Wall St. Journal, though he always preferred picture books to charts and figures. He has traveled the world extensively, and been lucky enough to see how changes happen in real time. He currently lives in South East Asia, where he writes on a number of topics.
Published at Mon, 07 Oct 2019 05:09:52 +0000
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