This, to me, seems definitely like "inflation", caused by an increase in the money supply by a shared governance structure. It certainly isn't "deflation". Bitcoin does describe it not as printing money but as unlocking money that was already set aside, but what matters today (as opposed to whenever the rewards stop in the future... I don't remember off-hand when that will be) is the circulating money supply, not the theoretically existing / allocated supply (which is why if you lose money forever it is the same as destroying it; and which can also be seen because, if the US Fed merely had pre-printed giant fat stacks of cash that they've been dipping into for all these years, you wouldn't know the difference between that and it printing bills).

It's a money-supply increase. Depending on whether one Bitcoin buys more or fewer goods, it's inflating or deflating. (Currently, deflating, since Bitcoin is going up relative to the dollar and goods are priced in dollars.)

Which term? Inflation?

It's meaningless for a commodity but meaningful for a currency.

Then at the exact moment "fiat money" has a spike of inflation at 8% to 10%, the value of the "sound money" inflation hedge plummets 70%.

Now, at the exact instant it appears "fiat money" inflation is moderating, suddenly the "sound money" jumps up 35% from its lows.

Why on Earth would an inflation hedge decline dramatically when inflation shows up, and then increase when the inflation rate declines?

It might be the ultimate risk asset. Seriously. There are entire classes of financial models we discarded for involving magic variables which quantified the state of the market's animal spirits. Crypto my let us estimate those.

Because a devaluation of the dollar is not what's actually causing the price of BTC to appreciate as much as speculation about the future monetary policy that could come as a result of lower inflation numbers (i.e less hawkish Fed). Which is funny because the way the CPI is calculated has been very controversial and subject to change. One common narrative is that the Fed will be forced to pivot to avoid a major recession.

It's not just BTC but the stock market in general behaving this way.

You're not wrong, but this also is a reminder that BLS inflation statistics are not exactly 'inflation'. They actually are more reliable as a harbinger of Federal Reserve policy in coming months, and so have the opposite impact on current asset prices one might expect.

If not the statistic, what is 'inflation'? Well, it's way simpler than the BLS would have you think. When 1BTC goes from $500 to $50,000, that's inflation. Maybe the BLS didn't notice, but you did, it was pretty obvious. This lesson teaches that the issue actually is inflation rolling from one class of goods to another and in this case it's obvious-- where BTC inflated first, a leak of that value out to general goods will result in or reflect a decline in BTC prices, especially where this catches the BLS' attention and signals that the Federal Reserve will do something about it.

That said, ETH is one of the few tokens that is both deflationary AND pays a staking yield [0].

[0] https://ultrasound.money/

Ethereum has demonstrated that its monetary policy wasn't "sound" and that it could be changed way too easily with EIP-1559, and will change again.

This meme went so far that people now think it's more than just a stupid meme.

All of them have made Ethereum more secure, easier to use, and deflationary.

Sure. But if you want a money system whose policy is based on, well, politics, we already have plenty of very good implementations of those.

> All of them have made Ethereum more secure, easier to use, and deflationary.

It's too young to say if it's actually deflationary or not. I'm betting on not, because once there is more value leaving the crypto ecosystem than entering it, no force on Earth can stop that from lowering crypto values.

It's not politics, it's discussing technical and economic tradeoffs to make the most secure credible neutral decentralized ledger possible.

There are some Bitcoin maximalists that think Satoshi was a god who figured everything out perfectly from inception. To me their insistance on never changing seems more religious than technical.

Arguing that an inflationary money is actually a better store of value than a deflationary one is not possible from an economic standpoint so they have to switch to other arguments like "well yea the devs continually made the economics better... But what if they make them worse!" Which isn't based in reality, it's all FUD.

There are no further plans to change the economics beyond this point and attempting to change them requires convincing thousands of people that it's a good idea, and it's not a 50% quorum, it's 90%+ because there are many clients written by many different teams that would all have to implement the change.

It's not about getting it perfect. It's about getting it good enough and stable.

Bitcoin had its forks that introduced change. People voted with their legs and chose the stability. What matters is that some developers attempted a change and ultimately people decided they prefer original set of rules.

Not sure what happened with ETH but I feel like it might work a bit differently there.

I just think it ossified way too early and then to justify that they come up with religious arguments that "actually 21m coins on a diminishing curve is the perfect economic policy and any meddling is bad"

Only during the current predictable and necessary bootstrapping phase where there still exists a block reward (until ~2140) is the total circulating supply gradually increasing.

After this point it is neither inflationary or deflationary for supply reasons (although as people lose coins it may be very slightly deflationary).

Good thing ETH is not money. It might potentially be a good asset to store value in, sure

See Krugman’s legendary article about the problem with deflationary currencies, such as the one used by the Capitol Hill Babysitting Co-op.

Long story short, he claims that people will hoard their deflationary currency because they expect it to go up in value over time. But if a large percentage of economic actors are hoarding their currency, there will be less economic activity and less output, and paradoxically, the value of the currency will go down rather than up.

Who decided which tradeoffs are best? How did they get other people on board? This certainly sounds like politics.

It happened once with ETH vs ETC. BTC has been subjected to numerous shit-forks. Real valuable chain has persisted in all the cases.

If society ran on deflationary money, that would act as a massive brake on the economy, and financial institutions would become risk-averse to the point where loaning money would be nigh on impossible.

Deflationary money is only better from a hoarding perspective, and I'd argue that perspective is counter productive for society as a whole.

If you are rich, you can get loans easily, and it's better to invest your liquid cash and get cheap money on loan, while everybody else has a constantly deflating account. So you get even wealthier.

A loan can be seen as a short on the currency. When you take out a loan, you bet that the currency tomorrow will be worth less than today. Which is what happens in an inflationary world. It would not be a problem if everybody could get a loan, but usually loans are directly proportional to wealth.

tl;dr: inflationary = good for wealthy people, accumulates money in the hands of the few. Spending is encouraged.

Deflationary = good for regular people, companies are loath to invest. Saving is encouraged.

There is no free lunch.

Pray tell, how do you mean the internet would make deflation favour the poor? I fail to see any mechanic or theory that would support the notion.

I can only share my opinions with you. If you need more, I’d recommend taking a walk through the poorest neighborhoods of your nearest big city and report back on how well an inflationary economy is working for those people. In an age of lightspeed comms, automated industry, a machine economy, etc., it is an embarrassment and gross negligence that any poverty exists anywhere on Earth, let alone at the mass scale it currently exists. At this technology level it is very difficult to have the level of poverty we have, but our inflationary economy somehow manages to make it happen.

If you can’t see it with how obvious it is, not much I can say to you. I’d recommend psychedelics to get started on the path towards having basic eyesight.

The current inflationary economy only works for the wealthy. I’d extend this to say it works for the upper middle class and anyone who owns a house, which is an increasingly shrinking class of people.

Inflation entrenches and widens the wealth gap. A deflationary currency works for everyone. People still need things like food, housing, and so on — so they will spend the currency to get those things. When a good investment opportunity arises, one that outpaces the deflation, it will still be worth investing. You just have to be wiser about investments.

Age implicitly has more buying power in a deflationary economy. This is fine, and true anyway because age tends to have more deflationary assets now anyway (houses, investments, etc.). The difference is with a deflationary currency, they have access to a liquid deflationary asset — they don’t need to have a house or investments in order to maintain buying power. This is a good thing. That means people who NEED a house can have one; if the deflationary currency makes more money than holding on to a house, houses as investments make no sense anymore. This means houses become houses again, for people. This makes a more vibrant community of people when people can actually afford to live in places.

I can go on, but the benefits of an inflationary economy seem to me to be illusionary. Big number go up, wealthy people wealthier, poor people poorer, human condition significantly worse. Deflationary economy seems to me to remedy most of this.

> if the deflationary currency makes more money than holding on to a house, houses as investments make no sense anymore.

These can't both hold at the same time. Either the currency deflates faster than investments, in which case investment funding dries up, or it deflates slower than housing, in which case it doesn't help the cost-of-housing problem.

(As bad as the housing market is, concluding that it would be a good idea to make access to money work the same way is pretty backwards IMO; rather the right conclusion is that we need to legalise building homes).

You know who has lots of money in their savings accounts? Rich people!

If you want the rich to share their wealth, a deflationary currency won't help you: you need socialism, or at least some policies that leans towards it. But that's an entirely different discussion, and completely unrelated to the effects of inflation Vs deflation.

You've explained why inflationary is bad but not why deflationary is good.

The starting point has to be history, where deflation has been accompanied by a lack of economic growth and high unemployment.

During the Great Depression, the dollar became a deflationary currency and the slowdown in spending certainly didn't make the economy serve regular people any better.

That's the canonical example of deflation you have to explain away.

If you have the exact same fungible asset, and you have a choice to inflate or deflate the supply, deflating is always going to be better for its value because there is less of it.

This isn't what the word deflation actually means though. Deflation is when the purchasing power of a currency increases, and inflation is the opposite.

The purchasing power of ETH hasn't been very stable over time at all. It certainly hasn't been consistently deflationary.

And this is quite the opposite of other maincoins, which don't change while grinding its gears

But hey isn't it fun to have a system that gets slower the more people are using it?

Bitcoin has a simple policy: no one, not even Satoshi, can change the rules.

> The book also made huge theoretical advances. Rothbard was the first to prove that the government, and only the government, can destroy money on a mass scale, and he showed exactly how they go about this dirty deed. But just as importantly, it is beautifully written. He tells a thrilling story because he loves the subject so much.

> The passion that Murray feels for the topic comes through in the prose and transfers to the reader. Readers become excited about the subject, and tell others. Students tell professors. Some, like the great Ron Paul of Texas, have even run for political office after having read it.

It seems obvious to me that only the government can destroy (and indeed create) money, but I'm not sure how someone could claim to be the first to have proven that. From that last line I can infer that the general thrust is libertarian?

We could imagine an alternative system that Satoshi programmed that, once per year, chose 5% of wallets at random and marked those coins as invalid, permanently destroying them. That would be an unchangeable system but it would also be idiotic. Just because there isn't a bureaucrat does not mean that there is no policy.

Bitcoin would need massive changes to even have a potential to become money. Currently it's the antithesis of money - not backed by anything, in fact the opposite - requires billions per just to function.

It's true for other reasons, but this ain't it.

Lol you are aware of EIP-1559 and still claim that it happened "too easily".

For all practical purposes, you could exchange the currency for something else. But that's outside the scope of the staking system as defined.

I'm not making any negative or positive judgement on the system, Ponzi scheme is just a description of how it operates. Similarly, any stocks that does not pay out dividend is also a Ponzi scheme.

> any stocks that does not pay out dividend is [sic] also a Ponzi scheme

Neither of these things are "Ponzi schemes." Read about Charles Ponzi's role in his investment scheme to understand why.

This is very different from a stock that doesn’t pay a dividend. While you’d never get money out of it if no one was willing to buy it, what stocks generally promise is some amount of ownership and voting rights in a company (which theoretically could result in dividends, if enough stock holders agreed). That said ownership ended up not being valued by other people does not make it fraud. You can certainly feel free to believe that stocks that don’t give dividends are worthless though, that’s a separate question really.

I generally come down on the side that the major cryptocurrencies aren’t ponzi schemes, or fraud in general. (Plenty of fraud in the shitcoins, of course). Ultimately you decided to buy a data point on a ledger in a distributed system, and that’s what you get. But…well, mining sometimes confuses that. Without enough people coming into the system to buy new coins, the miners would start shutting down until none were left. Much like a ponzi scheme, crypto currencies seem reliant on new blood to keep functioning to me. Don’t know if that makes them a scheme necessarily, but they’re more adjacent to it.

The cost of running the validators is irrelevant to Ethereum (though it is tiny), it'd be like saying you have to calculate employees lifestyle costs to figure out the "real" cost to a company. The cost is the wages you pay the employees (the rewards given to validators) not how much the validators spend.

“Employees” are part of a company, they run the company, don’t they? Yet the cost of having employees is not “therefore revenue” from the standpoint of the company.

“Drivers” are a part of Uber, they deliver the service, don’t they? Yet the money paid to drivers reduce Uber’s profits.

I think where your argument runs into trouble is “from the standpoint of the network”. If you want to equate the network and its validators, to say they are the same thing, then your sentence becomes, “The money [the validators] get paid [by the validators] is therefore revenue, from the standpoint of [the validators]”. That’s non-sensical. You can’t give yourself money and say it’s revenue. Either these two things are in fact not the same thing and we can analyse the cashflow of “Ethereum the network” separately from “the validation service providers”, in which case Ethereum is paying out less than it’s taking in, so it is profitable. Or they are the same thing, in which case the “profit”, to the extent you can say a virtual entity like a network can have such a thing, is even higher.

This is because whatever costs the validators have to validate, it is less than the ETH they receive is worth. This is true if we assume validators are rational actors— they wouldn’t validate if they were losing money doing so. And even if we remove the assumption that they are profit motivated (maybe they’re all doing it as charity work for some higher purpose), the cost of running an Ethereum validator is tiny, so we end up in the same place: outgoings are smaller than receipts.

So wether we treat validators as a separate cost center with cost “X”, being the total paid to validators in the first case, or we treat them as “the network” in the second case with total costs less than “X”, the “profit” is the same or greater.

You seem to think that is the end all be all to measure the profitability of the network. And you aren't entirely wrong. If it requires too much hardware, too much internet bandwidth, too much in the way of skilled node operators relative to the value the folks running the nodes would gain, the number of particpants would dwindle and the physical network would suffer.

So there are boundaries that real world costs impose on the operation of the network. But at what level do those boundaries kick in? Well, that is why it's been an important value to the developers that a node can be run on 'commodity hardware and internet'. You can run a full node on a standard Pc from the last 5 years with 16gb of ram (less in some configurations), a 2 tb ssd (or 1tb if you don't mind some downtime every few months), a modest internet connection and can be done so by anyone with some basic command line skills.

Because of those modest demands, I can and do run a non-validating node on old hardware I already owned on an internet connection I would be paying for anyway. I make $0 from doing so, but it interests me as a hobby because I want non-intermediated access to the the network. In contrast some large node service providers have immense costs because they host on a cloud services and they hire expensive SRE's to keep it running at a high reliability level. But they woudn't be spending that money if they didn't seem some kind of profit or value in it. Because of that variability and the low baseline to get started, whether it is real-world profitable to any particular participant is irrelevant to "ethereum" as a whole.

So, from my view, it becomes reasonable to look at it as "how much ether is created vs how much is burned" to see if "ethereum" as a whole is profitable.

How could validators possibly be revenue? Maybe it helps if you visualize them as contractors who do a job for the Ethereum network, and get paid for that. How the contractor manages their own budget is irrelevant to Ethereum.

The fees are larger than the amount staked?

The fees, when realized into gains, are worth more than the cost to run the validation? Are the validators converting back to pay for their costs? Or paying for them some other way?

Does it stay profitable if ethereum drops to 1% of its current trading value?

Blocks have a fixed amount of rewards given to the validator that created them and the validators that attest it is valid.

When more fees are being burnt than Ethereum issued in blocks it is deflationary. It is deflationary at ~16 Gwei and fees have been higher than this for a while now.

Validators cost very little to run, they're usually NUCs that use 20w, the main cost is the Ethereum you have to stake.

Once new investors dry out and price collapses stakers will be rewarded with same amount of coins now worth nothing (just like IOU in Ponzi) and will be left with staked coins of 0 value, just like in Ponzi.

One could design a "staking" system that is directly reliant on other people's money coming in for your payout to happen. This is not what is happening here.

Staking as done by this protocols itself never promised you anything but a yield in the crypto currency itself.

Maybe you think crypto in general is a ponzi scheme because people only want to sell to new entrants for a profit, but that's a different issue (not not necessarily true - it also works with a fixed set of people you keep wanting to gamble).

That's a fixed percentage promise. There's relly no difference if it's expressed in crypto coins or in entries in the database of a software system of ponzi schemer.

If you have a fledgeling crypto on its ride up, it's not only fueled by new investors but sustained by new investors. If the coins are minted at will the supply will eventually exceed the demand and the coin will start loosing its value. And then the inevitable crash to the bottom happens. It's crypto equivalent of hyperinflation of normal currencies that happens when money supply exceeds demand for money associated with economic development.

> Maybe you think crypto in general is a ponzi scheme

I don't. I just feel like promising fixed, large percentage gains makes something Ponzi scheme. Something like Bitcoin or Ethereum that have tight control on coin supply are not ponzi schemes. Those are just new type of commodity. Mildly useful, but scarce, unique and easily transferrable and divisible.

Where does a bank account's interest come from? It's fiat currency, it generates zero revenue just sitting in an account. But the bank invests it, by e.g. giving people loans for which they pay interest. Likewise so with cryptocurrencies and so.

In theory anyway, I'm an amateur but IIRC staking is a way to enforce stability in the crypto market, lock currencies into place to have some guarantees for the future and for certain projects that require currencies / things being locked in.

There's just not much actual purchase of real goods with crypto, no one buying in the store. So the crypto itself serves no purpose other than as a financially lucrative asset.

Since the merge Ethereum has had net negative issuance. Ethereum's yield is not coming from dilution. The network is profitable, the profit is distributed to token holders and validators, plain and simple.

- new issuance

- transaction fees

- MEV

The average yield over the last month (annualized) is over 5%. Source: https://beaconcha.in/pools

Ethereum´s current issuance is 0.55% (654K ETH per year on a circulating supply of 120M, source: https://ultrasound.money/). This is split between the validators which are now around 13.7% of the network (source: https://beaconcha.in/). Resulting in a yield from newly minted ETH of 4%.

The other 25% of the yield comes transaction fees and MEV.

On top of that the ETH consumption through the burn more than compensates the newly minted ETH. As the network is net deflationary (source: https://ultrasound.money/). You can think of a company that pays employees partly with stock options but has also a buyback program. If the buyback program that comes from its ability to generate profit more than compensates the newly issued stock, the employees pay in stock is not self-dilutive.

What I'm basically getting at is that, if the network is not seeing net issuance (i.e. roughly flat or even negative), then the newly minted ETH is real yield. By the simple fact that nominal yield - monetary inflation is positive.

(See https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu... for why we prefer third-party reporting where possible)

Let's say you buy 100 digital widgets from me. I promise you a 20% rate of return if you stake those widgets back. A ponzi scheme would require me to lure in new "investors" and take in new funds in order to pay you the 20% return you are promised. However, I can sustain this process forever without ever having a single new investor. I'm paying your APR in digital widgets, not any sort of actual currency. With the stroke of a key, I can create as many digital widgets as I need, and give you your 120 widgets after the year is up. However, there is no guarantee what your digital widgets will be worth - that's the rub. It might be characterized as a scam, but it isn't a ponzi scheme.