ETH Researcher Sparks Debate Over Bitcoin and Ether’s Future as 'Sound Money'

ETH Researcher Sparks Debate Over Bitcoin and Ether’s Future as 'Sound Money'

A recent post by Ethereum researcher Justin Drake has ignited a heated debate between the Bitcoin and Ethereum communities over which cryptocurrency represents "sound money" in the long term. In his February 5 post, Drake suggested that Bitcoin is "cooked" as it nears its 21 million supply cap, while Ethereum (ETH) is set to become “ultra sound” money due to its decreasing issuance.


Drake’s post touches on the evolving dynamics of both cryptocurrencies, particularly focusing on their supply models and security risks.


Ethereum’s Path to Becoming 'Ultra Sound' Money

Drake emphasized that for Ethereum to become "ultra sound," two key factors would need to happen: a reduction in issuance or an increase in the amount of ETH burned. He believes that both conditions will be met soon, given recent developments in Ethereum's protocol.


Since the Merge in 2022, Ethereum's issuance has turned deflationary, but this trend reversed slightly in April 2024 following the Dencun upgrade, which lowered fees for layer-2 networks and reduced the amount of ETH burned. However, Drake compared the two networks' supply models and found Bitcoin's growth to be significantly higher than Ethereum’s in recent months.


According to Drake’s calculations, since the Dencun upgrade, Bitcoin’s supply has increased by 657,000 BTC, worth roughly $63.4 billion at current prices, compared to just 469,000 ETH, which is valued at $1.23 billion. Drake pointed out that Bitcoin’s supply is growing at an annual rate of 0.83%, which is 66% faster than Ethereum’s rate.


Security Risks for Bitcoin: A Supply Cap Dilemma

Drake also raised concerns about Bitcoin’s long-term security, particularly due to its fixed supply cap of 21 million BTC. He argued that Bitcoin’s reliance on miner rewards, which account for roughly 99% of miner revenue, could create vulnerabilities as the block reward gradually decreases with each halving event. This reliance on rewards, coupled with a capped supply, could result in insufficient incentives for miners, making Bitcoin more susceptible to security risks.


He suggested that, in the future, nation-states could easily afford to carry out a 51% attack on the Bitcoin network, as the cost of such an attack—around $10 billion and access to 10 gigawatts of power—would be relatively low in the context of global geopolitics.


"The Bitcoin blockchain is cooked," Drake said. "It takes roughly $10 billion and access to 10 gigawatts to permanently 51% attack Bitcoin. The cost is peanuts for nation-states."


Ethereum educator Anthony Sassano echoed this sentiment, expressing disbelief that Bitcoin proponents still fail to acknowledge the security risks associated with the network’s fixed supply.


Bitcoin Supporters Respond

Not surprisingly, Bitcoin advocates were quick to counter Drake’s assertions, with analyst James Check offering a more nuanced view on Bitcoin’s sustainability. Check argued that critics of Bitcoin’s long-term viability often fail to account for factors such as energy efficiency, technological advancements in mining, and economic incentives.


He explained that if Bitcoin were to reach reserve status, high fees would be inevitable, similar to how institutions pay to securely store gold. Check also pointed out that the cost of ASIC mining rigs, which are central to Bitcoin’s mining process, would decrease over time as bankrupt miners sell their equipment, allowing new entrants to maintain network security.


Check further suggested that advancements in energy sources, particularly nuclear power and the utilization of wasted energy, would drive down Bitcoin mining costs in the future. He also argued that Bitcoin mining could help stabilize energy grids through demand response, reducing maintenance costs for grid operators.


"This topic is very complex," Check said. "But I am of the view that arguments against Bitcoin’s sustainability have not considered the deeper picture. It is a multivariate problem, and one I am quite constructive on long term."


Ethereum's Own Challenges

Despite his strong critique of Bitcoin, Drake acknowledged that Ethereum is not without its own set of challenges. He pointed to the over-incentivization of staking, which he believes could undermine Ethereum's status as "pristine" collateral. Additionally, Drake flagged potential systemic risks posed by liquid staking platforms like Lido, which could centralize staking and create vulnerabilities in Ethereum’s ecosystem.


To address these concerns, Drake proposed a "Croissant Issuance" model. This model would introduce a declining supply issuance, capping it at a maximum of 1% per year once 50% of the supply has been staked. The goal of this approach would be to allow market-driven equilibrium while gradually reducing the total supply of ETH over time.


A Growing Debate

Drake’s remarks have sparked widespread discussion within the crypto community, particularly around the future of Bitcoin and Ethereum as stores of value. While some view Ethereum’s decreasing issuance as a promising path to "ultra sound" money, others remain firmly committed to the belief that Bitcoin’s capped supply and established dominance as a store of value will ensure its long-term success.


The debate is far from over, but it highlights the evolving landscape of cryptocurrency and the complex challenges both networks face in their quest to become truly "sound money."

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