Hint: It’s not only about the NGU tech.
In traditional finance circles, Bitcoin is often thought of as a novel and risky technology — one that is either going to revolutionize the world, or be a passing fad that only mocks real financial tools.
Within crypto circles, it's the reverse. The community beyond Bitcoin regularly derides the premiere cryptocurrency as “boomer tech” — destined to be displaced by its more agile and technologically advanced competitors.
One version of this is often put forward by Ethereum’s biggest boosters through the “ultrasound money” meme: a play on Bitcoin’s “sound money” thesis, but with a claim to superiority.
Bitcoin’s primary appeal for years has been its fixed supply cap of 21 million coins, making it a truly scarce form of money bound to appreciate in value over time.
However, Ethereum’s Merge upgrade has made ETH a “deflationary” currency — meaning its supply actually decreases over time. Theoretically, this would be even more bullish for the price than a fixed supply model.
So does that make Ethereum better money than Bitcoin?
Here are 3 reasons that Bitcoin still beats Ethereum as a sound form of money.
Ethereum’s Deflation May Not Be Sustainable
According to ultrasound.money, Ethereum’s supply has decreased by over 2000 ETH since the Merge in September.
The Merge featured two primary protocol changes:
- It gave Ethereum a proof of stake consensus mechanism, replacing the previous proof of work mechanism.
- It reduced Ethereum’s supply issuance rate from ~4.61% to about ~0.52%
This new inflation rate for Ethereum can rise depending on what proportion of the network is taking their ETH, but in general, it's a much lower inflation rate than before.
So low, in fact, that it's more than compensated for through Ethereum’stransaction fee burn. As with Bitcoin, users must pay fees on their Ethereum transactions to compete for block space from other users, and ensure that their transfers are processed quickly.
However, whereas Bitcoin fees go directly to miners, Ethereum fees go to a burn address, removed from the total ETH supply forever.
At present, ETH is being burned through fees at a rate of ~808k ETH per year, compared to just ~645k ETH entering circulation annually. Thus, ETH is deflationary — like magic, right?
Except for one problem:
The fees, of course! If Ethereum requires a consistent fee burn to keep ETH deflationary, then that imposes a burden on users trying to transact on the network. This hurts ETH’s use case as a medium of exchange — one of the core use cases of money.
How bad are these fees, you ask? Try paying $50 on a $100 transaction:
Ultimately, fees are determined purely by free-market demand, meaning fees only rise if people are willing to pay them. However, as faster, cheaper blockchains supporting stablecoins and tokenized securities popularize with time, it's likely that users will be incentivized to gravitate to those chains.
Thus, fees on Ethereum will naturally decrease with time — only to make it an inflationary currency once again.
Ethereum Isn’t “Stable”
What makes Bitcoin’s supply cap special isn’t only that it's enforced by code.
It’s also a religious tenant among node runners to enforce this supply cap. There is no centralized group with the sway to convince users to change this core element of Bitcoin, while still calling it “Bitcoin.”
Bitcoin’s max supply is 21 million. Period.
This isn’t the case with Ethereum. There is no fixed, holy number that Ethereans rally around representing its total supply in the same way that Bitcoiners rally around 21,000,000.
Ethereum has more of a loose, vague excitement about “ultrasound money” and theoretically outdoing Bitcoin — unless that mission becomes slightly inconvenient, or interferes with its other goals.
What goals? Goals like being a world computer that’s affordable for everyone to use, or goals of providing stakers enough yield that they’re incentivized to stay and secure the network.
For one reason or another, Ethereum has already altered its monetary policy — seven times after only seven years of existence. Does that sound like a store of value that you’d feel comfortable sleeping on for the next century?
A sound form of money doesn't only promise not to inflate, but to remain stable across time without any unforeseen changes. This inspires trust, and Bitcoiners appreciate that. Ethereans, who are more focused on development breakthroughs and innovation, do not — and even Ethereum’s top developer can see it.
Proof of Work Makes Superior Money
The proof of work vs proof of stake debate is complex and nuanced, but this particular point is, in my opinion, a no-brainer.
When Ethereum transitioned to proof of stake, it made itself infinitely less likely to become a neutral, censorship-resistant form of money, compared to its odds under the proof of work model.
Upon upgrade, a significant majority of Ethereum’s stake was already concentrated with just four centralized staking providers: Lido, Coinbase, Kraken, and Binance.
These institutions are not only in total control of their users’ staked coins, but are also legally bound to bend the knee to the U.S. Treasury Department at any request. For example, just look at how fast Coinbase and Circle obeyed when asked to comply with OFAC’s sanctions against the Ethereum-based privacy protocol Tornado Cash.
If collectively ordered, the US government could technically use these entities’ collective stake to exert censorship control of the Ethereum network. All it would take is one blog post.
By contrast, proof of work is much harder to monopolize. If the government attempts to target mining pools, participants in the pool may easily withdraw their hash power from the pool at their own discretion.
Furthermore, whereas stake can be absolutely seized and hoarded, hashrate cannot. Anyone in the world with a power source and internet connection can contribute to Bitcoin’s security and defend against malicious actors. You can’t monopolize energy.
Here’s a clip of hydro plants in Kenya being utilized for Bitcoin mining, as just one example:
Proof of work may consume a lot of power— but that sacrifice is worth it if guarantees Bitcoin’s security and decentralization. Such is a requirement for an apolitical, open monetary network.
Don’t be fooled by claims that Ethereum is better money than Bitcoin because of a simple supply issuance change. Money also requires affordable transactions, credible/stable internal properties, and an incorruptible ledger — qualities that Ethereum does not currently possess.