Hackernoon logoThe Fundamental Problems with Ethereum by@beautyon_

The Fundamental Problems with Ethereum

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@beautyon_Beautyon

The eerily familiar “improvisation” of Proteus, supercomputer from “Demon Seed”, before and after its destruction.

This was written by Dr. Saifedean Ammous. It was typed in response to a question on twitter… and I agree with it!

This has been done by hundreds of copycats, from litecoin to dogecoin to ethereum. The reason they are doomed, fundamentally, is that they compete with bitcoin for both the supply and demand for security. What secures all these coins is the processing power behind them, and that is scarce.

Anybody with a brain who wants to store wealth in a cryptocurrency will want to store their money in the safest coin, not in one that could be easily hacked. So all the serious money will go to bitcoin. More importantly, anybody looking to profit from selling processing power to secure a network will want to sell it to the network that rewards them with the most secure and in-demand coins. So all the serious money and processing power goes to bitcoin. This is why the processing power behind bitcoin is now around 400,000 times the processing power of its nearest “competitor”, ethereum, which is only a competitor to bitcoin in the same way that a 7-year-old’s piggy bank is a competitor to Fort Knox.

The processing power bitcoin possesses is an indomitable first-mover advantage. If you introduce an exact copy of bitcoin, there is absolutely no reason why anyone would put money on it, or waste processing power on it. It will die. So all these copycats have tried to introduce features to differentiate them from bitcoin, but that is also doomed, because any useful feature will be better implemented on bitcoin, with better security.

Ethereum have launched a very sophisticated propaganda drive to detract from bitcoin, and got plenty of backing of powerful bitcoin enemies, but they could only do all that by having a central planning committee that decides everything, can change the protocol, and runs a demented Keynesian inflationary monetary policy. So not only are you getting far less processing power and security than bitcoin, you’ve also got yourself a central planning board that could change the rules and fuck everything up on short notice. If you are happy to have the value of your money determined by a central planning committee, you are far better off sticking to the US Dollar because at least its central planning committee is made up of people old enough to testify in court.

Once a cryptocurrency is centralized, the entire point is defeated, and you’re better off relying on centralization in the hands of a government than a bunch of nobody teenagers from a basement unaccountable to anybody. Not to mention that a centralized cryptocurrency can be very easily destroyed by hacking, destroying, blackmailing, and threatening the central planners.

Bitcoin, having no single point of failure, reliant on the word and competence of nobody, and with an unfathomably enormous processing power arsenal protecting it will remain in a class of its own. And anybody who doesn’t believe that will pay a heavy price for failing to understand this, like what happened with the suckers who invested in the DAO. I just hope the customer service of Ethereum is every bit as shitty as that of banks so the lesson is learned with searing effectiveness.

Follow Saifedean Ammous on Twitter.

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