Divide and Conquer
And Free Magic Internet Money (If You Hold ETH)
I came across this tweet this morning and it prompted me to write today. Let me warn you now that I’m a bit all over the place in this edition of the newsletter (though, you should still be able to pull some useful info from it).
The last clause of the last sentence of the tweet above got me thinking about some of the White House’s messaging around Proof of Work (PoW) and Proof of Stake (PoS) protocols.
I always find it funny when the powers that be and major media outlets discuss the “environmental damage” that Bitcoin does.
Bitcoin is governed by a Proof of Work (PoW) consensus mechanism, which is energy intensive, as computers all over the world compete to mine bitcoin (BTC) and secure its network.
Ethereum is also a PoW network - that is until Tuesday. On Tuesday, Ethereum is supposed to transition from a PoW to a Proof of Stake (PoS) consensus mechanism.
This shift from PoW to PoS for Ethereum has been termed the Merge. When it happens, Ether (ETH) - the native asset of the Ethereum blockchain - will become a more deflationary asset, which should positively impact its price in the short-to-medium term.
I think the Merge might be a “buy the rumor, sell the news”-type event, which means that while the price of ETH is pumping right now because of the hype around the event, it may fall after the event.
If it does fall dramatically, it might be a good buying opportunity, as the price will probably rise in the medium-term (the next few years at least) if the Merge goes off without a hitch.
But with hype comes noise, and when things get noisy, people tend to ignore fundamentals. Once Ethereum transitions to PoS, it will be much easier for governments and Wall St. to control it. (This is one reason why Wall St. tends to prefer ETH to BTC). A PoS Ethereum network can more easily be controlled by regulators.
Let me explain.
You will need 32 ETH to be a validator on the Ethereum network. Quite a hefty number for most plebs. This in turn centralizes the network and gives more power to people who have more ETH. It’s kind of like stock holders who hold the most stock in a company sitting on its board.
Analyst Samson Mow shared in a recent article that validators can’t unstake their ETH according to OFAC rules, which makes it easier to sway their interest through regulation. Or governments can become validators on the network, which, in some peoples’ views defeats the whole ethos of crypto (or maybe just Bitcoin).
So, the US Government claims that its now more okay with Ethereum now because the network will consume 99% less energy once it transitions to PoS. The reality is, though, that Ethereum is now much easier for regulators to control.
The US Government can’t have this type of control over Bitcoin because of the PoW consensus mechanism that governs it.
PoW networks are governed by computers that solve complex algorithms to earn bitcoin (BTC) and to secure the network.
PoS networks are governed by validators - people or groups - that vote on protocol changes.
Sure, the government can attack the Bitcoin miners, but that would likely just make them move offshore or to another state - to whatever jurisdiction is most friendly to them - just like the Chinese miners who left China about a year ago.
So, in the wake of the Merge, the White House and other major institutions around the world will begin to push a narrative that “PoS is good for ESG mandates.”
Quick interlude:
I want to preserve the environment, and I believe that human’s are contributing to climate change. However, I also believe that ESG mandates are predominantly a form of control - sometimes exercised by non-elected bureaucrats - and I don’t like that.
Bitcoin uses less than 1% of the world’s energy, and has the potential to actually help reduce waste energy and improve energy grids.
What I’d offer here is if you have an issue with Bitcoin’s energy use and its environmental impact, then ask yourself the following questions:
Do you eat meat?
Do you take flights to go on vacation?
Do you buy cheap clothing?
Do you use Christmas lights?
If you answered “yes” to any of these questions, then you too are guilty in partaking in activities that cause great environmental damage.
BUT these things provide value - just as Bitcoin provides a certain type of value. Part of the reason Bitcoin is valuable is because of the energy required to mine it. This is what keeps the network secure.
I always find it funny that so few of the narratives around the questions I asked above are discussed ESG-related news, as compared to how much as I see narratives around Bitcoin and its energy consumption.
So, before you latch onto points made in really silly articles by really silly publications, think twice about judging others who see value in Bitcoin and try to contextualize your argument a bit.
And I’m back…
While this may technically be true for now (approximately 74% of BTC is mined with renewable power and that number will likely continue to increase), this isn’t the reason that the powers that be will want Bitcoin to shift to PoS.
They will want it to do so so that they can control it. And you are going to see them start getting more hostile with Bitcoin now that Ethereum has been convinced to switch to a PoS network.
But if Bitcoin ever becomes a PoS network, it isn’t Bitcoin anymore because it will no longer truly be decentralized, which means it is no longer secure or free from government tampering.
Bitcoin was created to exist in the wild, not under the thumb of governments.
IMHO, Ethereum is no longer secure. And all of the other blockchains out there pale in decentralization/security compared to Bitcoin.
This is why there is Bitcoin and then there is everything else in the world of crypto. Though Bitcoin and other digital assets all fall under the “crypto” umbrella as they are all cryptographically-encoded assets, there is only one Bitcoin and there will ever only be one Bitcoin.
BUT this doesn’t mean I am cheering for all crypto assets aside from Bitcoin to fail. Hell, I own some other ones because I see some potential in them.
So, I hope things work out for Ethereum. I still hold a bag of it because I’m curious and not averse to speculation.
I also think that the stablecoins built on Ethereum are a life raft to people around the world who live in countries where currencies are hyperinflating, and who can’t stand the volatility of BTC.
And so my thoughts on BTC and ETH are somewhat similar to Ryan Selkis’.
I remain open-minded. I hope others in the space do, too. If “Ethereans” want to invest in Ethereum, so be it. If “Bitcoiners” want to invest in Bitcoin, so be it. We live in a free country. People are allowed to invest where they see value.
I do hope, though, that, like Cobie said the tweet at the top of this piece, Ethereans don’t turn their back on Bitcoin and join forces with the power-hungry ESG powers that be. If they do so, they’ll be turning their back on the invention that started this whole party, one of the most important innovations in modern human history.
Magic Internet Money Appearing Magically - ETHW
If you keep the private keys to your ETH on certain exchanges or on a hardware wallet, you might wake up one day this week and see that you’ve magically be airdropped some ETHW.
ETHW is the token for the Ethereum PoW chain that will continue on once the main Ethereum chain shifts to PoS.
So, below are two articles that outline which exchanges will be supporting the Ethereum PoW chain (the one with ETHW as the native asset) as well as other important info about the PoW chain:
Which exchanges are supporting the Ethereum fork? Full list (Finder)
Playing the Merge: How to Get Free Money from Ethereum’s PoS Upgrade (Crypto Briefing)
Here’s my list of exchanges and wallets that will support ETHW:
Binance
FTX
Poloniex
Gate.io
MEXC
Phemex
DigiFinex
CoinW
MetaMask
Coinbase Wallet
There may be more, but this is all I found for now. Feel free to let me know if I am missing any in the comments.
And so fingers crossed as we approach this week ahead. I hope for the sake of all ETH holders that the Merge goes off without a hitch. I’d just advise you to stay mindful of how Ethereum evolves as a PoS chain.
Best,
Frank
Twitter: @frankcorva
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