Ethereum has limited storage value? Ethereum can be used as a national security reserve

In recent days, the voice of bearish Ethereum is very loud. In addition to the current scalability problem that Ethereum is facing, there is another

The widely accepted view is that even if Ethereum retains its position as the most important smart contract platform in the future, if the Ethereum token ETH is only used as the "gas" for transactions, it is difficult for it to have the characteristic of "store value". , So the intrinsic value is limited.

Cuy Sheffield, a cryptocurrency believer in charge of cooperation affairs at Visa, puts forward a new perspective: Even if ETH lacks the function of "store value", from the perspective of protecting national security, perhaps the value of ETH is underestimated, because ETH Bay Area It can accumulate long-term value without being used as a store of value currency.

Recently, the debate on whether Bitcoin and Ether are expected to become a global non-sovereign currency reserve that may be worth as much as trillions of dollars has been heating up. It is quite interesting to watch from the sidelines.

There are very smart and enthusiastic people on both sides, but there seems to be a real change, which is that the beliefs of the supporters of Ethereum in Bitcoin are changing. They believe that Bitcoin is more likely to become a stable currency. .

(Chain Wen's note: In fact, one of the important phenomena is that in the current critical period of Ethereum development, many investors and institutions are more or less skeptical about the future development of Ethereum, and even hedge funds have issued In-depth research report, bearish on Ethereum, bearish on Bitcoin.)

This raises important questions about the viability and security of smart contract platforms, because a hypothetical scenario in the future is likely to be that the native assets or tokens of these smart contract platforms may not become a kind of value storage agent. Currency, and therefore will not be held by investors.

At the same time, we continue to see significant growth in the Ethereum ecosystem, which is quite active #BUIDLING, and its emerging financial primitives and infrastructure are expected to create huge economic value. The key question is whether part of the value of economic activity on Ethereum will be reflected in the price of Ether?

Brendan Bernstein, the founding partner of Tetras Capital, recently wrote a very good article comparing this with the open source Linux community, which creates huge economic value but cannot be used effectively it. He believes that developers and applications will not create value for native cryptocurrencies, and the only way to add value to native cryptocurrencies is for investors to be willing to hold them as a stable currency.

(Chain note: This view of Brendan Bernstein and his institution’s view of being short on Ethereum is actually consistent. Tetras Capital, founded by Bernstein, is a hedge fund that recently wrote a report on short on Ethereum, which has caused great repercussions. For details, please refer to the previous article "Tetras Capital In-Depth Report: These five reasons let us short ETH")

What is the demand for smart contract platforms?

The growth of the Ethereum ecosystem shows that the demand for smart contract platforms may power new local digital financial assets and agreements. If the demand for smart contract platforms continues to grow, the Ethereum network may support billions or trillions of dollars in economic activity. However, if Ether is not used as a means of value storage, but only as a commodity to pay for Gas, then its value may not increase accordingly. If it transfers to proof-of-stake PoS, it may cause Ethereum to be easily attacked and therefore no longer secure, which limits its feasibility in many potential applications.

Most Bitcoin proponents argue that smart contracts are either infeasible or should be placed in the second layer above Bitcoin. However, the smart contract function on Bitcoin may not be able to compete with a Turing-complete smart contract platform such as Ethereum, and even if it is really possible to compete, it will not be immediate.

Are developers willing to wait and implement the second layer of functionality on top of a robust currency, or ignore the long-term issue of native asset value and continue to advance and build on existing platforms like Ethereum?

Although the feasibility of DApp as a consumer-oriented application is unclear, there is no doubt that more and more people are beginning to adopt financial infrastructure, including tokenized securities, decentralized transactions, lending, prediction markets, and stability currency.

So the core question is whether in the future Ethereum will become a key public infrastructure supporting trillions of dollars in economic activities, while its native token, Ether, will not become a currency with a global value store function, and will be held by investors. Is there?

The impact of tokenized securities is huge

As an experiment, let us take tokenized securities as an example. Anthony Pompliano and Stephen McKeon provided strong arguments on the value of issuing shares as blockchain-based tokens, believing that this could improve efficiency and update infrastructure, saving tens of thousands of dollars. Traditional assets worth billions of dollars are brought into the digital age. I have also written an article that review resistance and immutability are not necessary for this use case, and a global database that does not belong to a company in the industry can provide huge benefits.

(Chain note: Morgan Creek Capital Partner Anthony Pompriano and University of Oregon Finance Professor Stephen McKean are the most cutting-edge practitioners and researchers in the field of security tokens. About security tokens To bring traditional assets into the digital age, you can refer to Professor McKean’s article compiled by the chain: "Security tokens will completely reshape the global asset market, you have to know it")

If Ethereum becomes the leading open standard for unlicensed blockchains and tokenized securities, it will give birth to the demand for Ethereum as Gas to transfer these assets. However, as the scalable solutions of the second layer have gained more attention, on-chain transactions may be more limited. A common reason for the bearishness is that large financial institutions and companies that use this technology for traditional cash flow businesses may use Ether as "working capital", resulting in a high-speed turnover rate, which will greatly limit them. The value generated.

This view will cause a fierce conflict, because it may weaken the security of the infrastructure that powers the product, thereby hurting its core business.

Ethereum has the huge potential to create economic value for traditional cash flow companies. Is it possible to raise a new topic: Can it become a key public infrastructure? Will this make it "big but not down" and serve as a "national safety reserve" to protect a large part of the new digital economy?

Governments of various countries have invested hundreds of billions of dollars in defense budgets to protect economic interests that directly affect national security. As cyber warfare becomes the main method of future conflicts, governments will devote more resources to cyber security, including defense and offense, to protect their most valuable companies and economic systems from private and national attacks. The North Korean cyber attack on Sony is the latest example of this continuing threat.

As public chains can ensure more economic value, attacks on them will increase, which may have devastating effects on the economies of the countries that rely on them most.

If there is a significant tokenized security value on the Ethereum blockchain, it is in the government's interest to protect that value from attacks by hostile actors. When Ethereum turns to proof of stake, the best way to improve its security may be to buy and hold a large amount of Ether to increase the cost of attack.

If governments, large financial institutions, and companies that generate cash flow rely on public infrastructure such as Ethereum to maintain their economic stability and profitability, then they will have sufficient incentive to buy and hold Ethereum assets, which is not a currency. A store of value, but as an investment in its digital security.

This increase in value may need to be proportional to the growth of economic activity outside of Ether, because the damage caused by the attack will increase, thereby providing greater motivation for the adversary. Governments, companies, and investors can also speculate on the growth of economic activities on these platforms, betting on buying more Ether from these large entities to ensure the safety of such activities, thereby providing additional profit incentives and incentives for the network Greater security.

Another interesting aspect is to explore whether Ethereum can be directly used by government or NGO platforms to provide key digital services. Organizations like the United Nations are already experimenting with Ethereum-based solutions to provide assistance to families in Pakistan, and a Swiss city is considering using Ethereum-based Uport for digital identity authentication and voting.

More importantly, those small countries suffering from excessively inflated fiat currencies may be expected to switch to decentralized stable currencies, such as Dai, which is based on Ethereum. If any of the use cases supported by these countries are feasible, the security of Ethereum as its infrastructure will be critical to the security of these countries, and foreign hostile forces may try to undermine this security. In this case, the collapse could lead to a global economic disaster.

How will central banks respond to future financial crises? Can major financial institutions relying on this kind of infrastructure convince central banks that Ethereum has reached a size that can't fail?

Is it possible for governments to hold Ether? This is of great significance to the value pillar of Ethereum's "censorship resistance". Although governments of various countries want to prevent attacks by hostile forces that disrupt economic activities, "attacks" on the Internet are highly subjective. Will the government try to censor transactions that they consider illegal and willingly risk losing trust in the features of Ethereum and eventually lead to a hard fork? These issues need to be discussed further.

(Chain note: This is Cuy Sheffield's more mind-blowing idea. He proposed a new use case for the Ethereum token ETH: the government holds ETH to ensure the security of economic activities on the blockchain, thereby realizing the state Security. Of course, the premise is that Ethereum must be "big but not falling." In this way, even if ETH cannot become a value store currency, its value will not be limited to "Gas".)

Use a rough model to estimate the ``national security value'' of Ethereum

I did some rough calculations to compare traditional defense expenditures with new types of cyber attacks, so that everyone can understand one thing or two.

US GDP in 2016: US$18.6 trillion US Department of Defense spending in 2016: US$600 billion in 2016 defense spending as a percentage of GDP: 3% Total US annual spending on cybersecurity: US$28 billion Annual growth rate of cybersecurity spending: 30 % Market value of the global stock market in 2016: USD 70 trillion Potential market value for public infrastructure defense Percentage: 3% Potential value preserved in Ether: USD 2.1 trillion

This comparison uses several big assumptions. First, assume that in the long-term future 10 years or more, tens of trillions of dollars of global value will become tokenized securities, which may include global debt, real estate, stocks, and other new local encrypted cash flows.

It also assumes that the mainstream expenditures of the defense budget will be rapidly transferred to cyber security defenses from being used to manufacture physical weapons and aircraft carriers. Is this digital defense expenditure similar to the share of global "digital GDP"? If so, will it involve the purchase and holding of local blockchain assets, such as ether?

If companies and governments want to use public infrastructure, but do not want to hold value in order to protect it, how will this "free rider" problem be solved? By the way, it is also interesting to wonder how much defense budget will be used to develop or purchase anti-Asic technology to ensure Bitcoin security.

Currently, the market tends to have the same view, which will have a significant impact on the potential of Ether to generate value in the future. This kind of thinking about using Ether as a "national security reserve" actually comes from the theory of bullishness on Bitcoin, and it is essentially similar-this bullishness on Bitcoin theory believes that Bitcoin will become a kind of Value reserve means.

Think of Ether as a "national security reserve". The foundation is that the longer the possibility of Ether to accumulate value in the long term, the more economic activities that depend on the underlying infrastructure, and this will give rise to the maintenance of the security of the Ethereum blockchain. Demand.

Of course, if the market unanimously believes that Ethereum will never gain value in the near future, it may prevent developers and companies from creating products that can bring economic value on Ethereum, so it is impossible to provide it with a Opportunities to create demand and protect.

It is worth noting that the potential value of Ether as a national security reserve in trillions of dollars is still far below the potential market value of global non-sovereign currency reserves of 5-15 trillion US dollars estimated by John Pfeffer.

There is no doubt that the crude model mentioned above has obvious flaws.

There are still some major debates regarding the scalability of Ethereum and whether its network can effectively scale to meet demand and maintain sufficient decentralization. However, without becoming a store of monetary value, it still makes sense to consider the best use case scenarios and other market opportunities that can be referenced.

I hope that this will give rise to some interesting questions and provide a different perspective for this debate. For example, in the overall economic activities on the public blockchain, what proportion of native assets need to be reached to ensure their safety? These problems are related to Bitcoin and other assets or stablecoins that may be issued on the Bitcoin blockchain.

Rather than optimizing the amount of calculations on Ethereum in the future to promote the use of Ether to collect fees to a greater extent, developers should perhaps optimize the use cases with the highest economic value stored in the form of assets on Ethereum, even if they generate The cost is less. Although not as exciting as new decentralized applications, tokenized securities on Ethereum have greater potential to create "skins in the game" for traditional financial institutions and the national economy.

In the end, since the value store use case is usually seen as a winner takes all, or at least a “winner takes the bulk”, Ethereum supporters need to consider other ways to increase value, rather than expecting Ether to become a “better currency” than Bitcoin. , This is very important.