Will Ethereum and Bitcoin lead to a superior financial system?
Editor's Note: This article comes fromEthereum enthusiasts (ID: ethfans)Editor's Note: This article comes from
Ethereum enthusiasts (ID: ethfans)
Ethereum enthusiasts (ID: ethfans)
, author: Chris Burniske, translation & proofreading: Min Min & A Jian, reprinted with authorization by Odaily.
In the process of capitalization, the thriving cryptocurrency capital gave birth to a native financial system to achieve self-direction. While there are other revolutionary technologies that will revolutionize the current financial system, these technologies will not create an entirely new financial system from scratch. Instead, these technologies rely on the existing financial system, putting power in the hands of systems we are familiar with. We can regard the blockchain as a "people-owned" 21st century bookkeeping and production system, creating a new financial system to replace the old financial system.
The new financial system targets a global audience, is macro- and micro-attack resistant, cost-effective, and provides services designed for the 21st century and the future. While the new system will eventually be functionally equivalent to existing financial infrastructure, it won't stop there. A superior product will of course be built on a superior basis.
In order to expressly distinguish the old and new financial systems, I intend to use "meatspace + digital" to refer to the current system, and "crypto- (cryptography)" or "cypher- (network)" to refer to the new system . The latter are decentralized and open source, while the former are usually centralized and private.
global audience
Unlike companies that only target users in a single country, Cryptonetwork is geared towards a global audience from the start. Also unlike companies that need to buy or lease servers to provide services, cryptographic networks rely on a group of independent servers spread around the world to perform network tasks under economic incentives. Although the supply side of the cryptocurrency network mainly relies on machines at present, the demand for manpower will also surge in the future. Therefore, more people in this field will be able to receive human element compensation.
Don’t be surprised to find that the unit capacity of blockchain services is expanding faster than ever. This has already happened. For example, Bitcoin's infrastructure is expanding at an exponential rate, or Bitcoin has only taken 10 years to match gold, which has a history of thousands of years. These are good examples. Take MakerDAO again as an example. In its first year, MakerDAO's lending volume ($200 million) has surpassed LendingClub's lending volume in its first 5 years ($250 million). It is globality and accessibility that allow cryptocurrencies to achieve virality.
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Macro and micro attack resistance
Whether it is a macro or micro perspective, attack resistance is very important, because the contest between the cryptographic system and the "meatspace + digital" system has begun and will continue. The so-called anti-attack requires that the cryptographic system is completely independent and able to resist the stifling of the "meatspace+digital" system.
After talking about software security, let’s look at hardware security. People have been working hard to ensure that the security tools of the underlying hardware are sufficient to maintain large-scale ledgers and keep adding records. Most importantly, we must prevent "double spending" attacks, so as not to destroy the credibility of the entire accounting system. I remember that ARK Invest once calculated that even if Google invested all its computing power in Bitcoin, it only accounted for less than 0.25% of all computing power used to maintain the security of the Bitcoin ledger. And this is still in 2015.
On a micro level, the attack resistance of an asset—no matter what it is—is undoubtedly important to the owner. In the capitalist world we live in, the security of the assets that are created is of paramount importance. Only when people are confident that the assets they create are protected (or can be shared with others if they choose) will they have a strong incentive. The key is that creators must be able to control the value in their own hands. This is why low-cost public-key cryptography is widely used to secure assets and create digital assets. It is nearly impossible for someone else to remotely seize your assets. The cryptocurrency ecosystem is writing asset protection techniques and microscopic attack resistance into the culture of the network.
With macro- and micro-attack resistance, cryptographic systems do not need to rely on military force for protection. Thanks to its economic mechanism and nature, cryptographic systems are designed to be resistant to all attacks. Similar to the point made in The Sovereign Individual, cryptographic networks that do not require military force to defend against attacks and keep them running are key to ensuring that these economies can operate at low cost. Cryptographic networks have fewer things to maintain because they are less expensive to run and secure. The ultimate test of the attack resistance of cryptographic networks comes when the "meatspace + digital" system attempts to block all access to the cryptocurrency economy (for example, taxing bitcoin transactions). At this time, the cryptographic network is likely to remain unchanged and maintain endogenous development.
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Cost advantage
Want to know where the superiority of the unit economics of cryptocurrency is reflected? We can dig deeper with an example. We can now run an investment company, business, or democratic governance organization on Ethereum for as little as $16 a month. Ethereum itself does not provide this function. A team needs to build specialized software and store it on the Ethereum ledger. This software can be called and perform operations through transactions submitted to Ethereum.
Aragon built just such a software. Once the software logic is sent to the Ethereum ledger via a transaction, it lies dormant and waits to be invoked. While the software does require occasional maintenance and incurs maintenance costs, "active software in a dormant state" on Ethereum incurs no operational costs other than being invoked. When calling the software, users need to bear the operational costs themselves, depending on the computational complexity of the transactions submitted to Ethereum. In other words, what consumers are charged is the commodity cost (commodity cost), and there is almost no extra service fee.
Let's talk about Bitcoin again. Although some people complain that Bitcoin has high operating costs (as does Ethereum) and is not environmentally friendly, most people's understanding is one-sided. Bitcoin provides services that are not only functionally equivalent to or better than gold, but also at a much lower cost. Mining for gold destroys the natural beauty of the planet, not to mention the costs of shipping, hosting, and accounting practices. Bitcoin is much simpler, and can run entirely on renewable energy with barely visible impact on the atmosphere.
Similar to Ethereum, Bitcoin users are paying for access to Bitcoin's ledger system. In Bitcoin's fee market, there is a global group of bookkeepers under competitive pressure to keep profits and fees low. I predict that once Bitcoin is no longer issued, no longer has social risks, and becomes a widely used transaction network, the profit of miners may be similar to that of electric companies. In other words, the Bitcoin network is a global facility, and its profits are determined by global competition. At the same time, Bitcoin users bear virtually no custody costs and other "holding costs." The same is true for other public chain networks.
Low-cost services have always found broad markets over and over again. If you are a low-cost supremacist, then you should also believe in the prospects of cryptocurrency networks.
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functional equivalence
The emergence and iteration speed of permissionless financial services on Ethereum is astonishing. There is no doubt that the DeFi community is like a North Star. Over the past six years, I have seen talent pour into the cryptocurrency industry from Wall Street, Silicon Valley, and around the world. In terms of its breadth and depth, this industry will not stop at DeFi.
As we all know, Bitcoin can realize large-scale value storage and transfer, and there is no time and geographical restrictions. With Bitcoin, billions of dollars can be transacted for less than $1. Companies have built a variety of services to bring bitcoin into the "meatspace+digital" economy. Due to Bitcoin's longest history and largest scale, Bitcoin has the deepest integration with the real world compared to other cryptographic networks, thus becoming the main source of liquidity and capital guidance mechanism. Ethereum is not far behind.
By combining capital pipelines and a sound bookkeeping system, coupled with rapid iterative development of financial services, cryptocurrency is realizing the same function as the "meatspace+digital" system. Some people will say that the cryptocurrency system is still backward in function, but it is just a game and cannot be put on the table. It would be a big mistake to think this way, and we should not confuse instances at a certain stage with long-term trends. There have been precedents to prove that a game may not fail to succeed.
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21st century service
One of Bitcoin's key value propositions is an absolute fixed supply, and this is a major innovation because the Bitcoin network enables this proposition. We've always thought this was hard to do because a centralized institution would change the supply (of stocks, fiat, etc.) flow and stock.
Since assets on Ethereum are all developed in the same language, some have called Ethereum the global settlement layer of the future. In order to achieve global liquidation, in the meatspace+digital economy, the financial systems of various countries will be pieced together over time, just like the Frankenstein pieced together by Frankenstein; Ethereum is successful with only one blockchain done.
in conclusion
Perhaps the innovation of Ethereum is more noticeable, and the Ethereum community launches new services every month. It is this composability that accelerates the innovation process. Flash loans, constant function market makers, and asset management platforms that provide deposit rates are all emerging services on Ethereum, and there is no such service in the "meatspace+digital" system.
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in conclusion
Although both Bitcoin and Ethereum are decentralized and open source, and both are blockchain technologies, they provide different financial services for everyone. Bitcoin offers fewer but all-important services, such as storage of value, accounting, and real-world value transfer. Currently, Bitcoin is the longest running and most high-profile funding interface between the cryptocurrency industry and "meastpace+digital". At the same time, Ethereum is also powering on-chain economies within the cryptocurrency space. Although Bitcoin and Ethereum are the leaders in the field of cryptocurrency, as time goes by, more projects will be born, and even catch up.
