Together with Bitcoin, Ethereum is one of the most critical blockchains ever developed. Ethereum shifted the world’s attention from cryptocurrencies to their underlying technology, the blockchain. Nonetheless, the blockchain has nevertheless faced many challenges, but enthusiasts believe Ethereum (ETH) qualifies as sound money.
Throughout history, there have been different models of sound money. The latest one has been the gold standard. If anything, sound money has been elusive due to fractional reserve policies from central banks. These policies have led to endemic global inflation. Eminent economist and philosopher FA Hayek, in 1984, said the only sound money is an accepted currency that is free from government control.
Ethereum (ETH) Is Far From Dead
Sound money, as per Nick Szabo’s Shelling Out: The Origins of Money, has to be a store of value. Additionally, it has to function as a medium of exchange and retains its value over time. This form of money is hard, scalable, and divisible. Easy money’s supply can be expanded easily, making it an ineffective store of value. Gold is hard money due to its rarity. It, however, is not easily divisible missing out on a characteristic of this ideal form of cash.
Ethereum started as a revolution, with its values rising from $9.50 to $1,500 in the ICO era. The next year saw its values crash to below the $80 mark. This monumental slide came by as startups that had used ETH for their ICOs, sold it off for fiat or stablecoin, and exacerbated by regulator crackdown on scam projects. As the ETH prices dipped, startups increasingly sold off ETH.
In 2018, the supply of ETH was at an all-time high and increasing government regulations, and scrutiny on ICOs further shrunk the token’s demand. Soon news article began to declare that Ethereum was dead. Nevertheless, the premier dApp blockchain has since matured.
Ethereum (ETH) Is a Triple Point Asset
It has more regulation-compliant ICOS producing viable market projects as opposed to those of great ICO-mania of 2017. Ethereum will also transit to Ethereum 2.0, operating on a proof of stake system that is energy efficient and scalable. This revitalized Ethereum will not only cut down energy use, but it will be faster, cheaper, and more efficient.
Ether (ETH) value is therefore expected to increase as developers embark towards this mission. ETH’s value will not only be from it acting as the reserve currency of a significant economic network but also as triple point asset. Ryan Sean Adams explains this concept saying
“When deposited into a staking contract Ether acts as a capital asset, like USD in a T-Bill—staked Ether generates a return denominated in Ether which secures the Ethereum economy.”
Secondly, ETH pays for gas in the Ethereum economy and the utility in it will be attractive, drawing demand which then drives prices higher. Consequently, as the Ethereum economy matures, ETH’s demand will sharply increase. Thirdly, Adams adds:
“When locked in a collateralized loan or lent out for interest or stored in a savings account, Ether acts as money like USD—as the Ethereum economy increases in size & influence and as Ether is increasingly used as money, Ether’s monetary premium increases.”
A lot of ETH is being locked up in DAOs, DeFi apps, and Maker CDPs collateral. The ETH inflation is, consequently decreasing. The Constantinople‘s EIP-1234 upgrade will also cut the block reward from three to two, further lessening ETH inflation. ETH supply is therefore bound to reduce over time, limit its supply, taking on the characteristics of sound money.