Vitalik Buterin Responds to Rubin’s Attack on Ether Valuation
Jeremy Rubin, an advisor to Stellar and a Bitcoin Core contributor, penned a brutal takedown of Ethereum’s native token, arguing that ETH will trend towards zero due to how gas fees are paid. Surprisingly, Ethereum co-founder Vitalik Buterin mostly agreed with the argument, but said that proposals to the Ethereum network currently under consideration would save ETH.
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ETH Not Required for Paying Gas Fees
In The collapse of ETH is inevitable, published in TechCrunch on September 2nd, Rubin doesn’t argue that the Ethereum network itself will go extinct, and even admits it could one day be a great success. But he doesn’t think that the success of the network will necessarily lead to a price rise for ETH.
As he notes, there’s no requirement that the fees required by Ethereum smart contracts must be paid for in ETH. It is true that users pay for their smart contract fees using gas, which is by default converted from ETH. This is an arrangement which creates a steady demand of ETH, and thus supports the price.
But, Rubin says, there’s nothing stopping smart contracts from requiring another ERC20 token to be converted into gas instead of ETH. He postulates an Ethereum-based decentralized application (DApp) called “BuzzwordCoin,” which has its own ERC20 token (we’ll call it BWC). The designers of BuzzwordCoin could eliminate the need for ETH in their DApp by forcing users to “deposit a small amount of [BWC] directly to the block’s miner’s address to pay for the contract’s execution”.
In this model, BWC would be used to pay for gas and become the de facto currency of those who wanted to use the smart contracts that ran BuzzwordCoin. If all Ethereum DApps were to take the same approach and require users to pay with the DApp’s native ERC20 token, then demand for ETH would decline, along with its price, per Rubin.
Vitalik Buterin Agrees, But Says There Is a Way to Save ETH
Buterin responded to the article on Reddit within a few hours of it being published. He wrote that he agreed there is nothing currently stopping ETH from being replaced with ERC20 tokens as a way to pay gas fees. However, he said that there were two proposals under consideration that would save ETH by making its use a requirement on the network. These proposals are a modified fee market and data storage maintenance fees.
According to Buterin, the modified fee market would mean that miners (also known as block producers) would have to pay some ETH when they add a block to the Ethereum blockchain. The data storage fee would operate similarly, in that DApps would have to pay a fee in ETH in order to retrieve data stored on the network.
In both cases, the ETH used to pay the fees would be burned (or possibly distributed to other consensus participants in the case of the modified fee market), thereby reducing the amount in circulation. This would have the effect of increasing the value of ETH, and supporting Vitalik Buterin’s claims.
But What Are the Chances of These Proposals Happening?
For ETH hodlers and traders, Buterin’s quick response comes as a relief. But what are the chances these proposals will actually become adopted? It’s unclear at this point, though their backing by Buterin clearly demonstrates they have support from with the Ethereum community.
Getting Ethereum Improvement Proposals (EIPs) approved is certainly possible in Ethereum, if not always easy. EIP-1234, a proposal to reduce Ethereum’s block reward to two ether from its current three and to delay the so-called “difficulty bomb”, was recently accepted.
Sometimes, however, the adoption of EIPs can be more difficult. Back in April, the Ethereum community voted on the controversial EIP-999, which would have restored the funds lost in the Parity wallet hack. That incident saw over 500,000 ETH (worth around $147 USD million at current prices) stored in the hacked (or buggy) wallet rendered unusable. In the end, the community voted against the proposal, meaning the funds were lost forever. There was quite a bit of controversy leading up the vote, as Vitalik Buterin would recall.
Ether Under Pressure
Since Rubin’s article was published, the price of ETH has dipped slightly, falling from $295 to around $291, a drop of a little more than one percent. Those looking for a price recovery may have longer to wait however, as ETH has fallen 30 percent since August 1st and 79 percent since the highs reached back in January.
Have your say. Can Vitalik Buterin get enough support to implement the changes that can save ether?
Images via Pixabay