🦇 Ethereum: Ultrasound Money?

Hey friend 👋,

For the last couple of years, I’ve been seeing a lot of the crypto community refer to Ethereum as “Ultrasound Money” - at the risk of looking like the uncool kid on campus, I never really asked what that meant.

I decided to actually research this and figure out what it actually means.

Let’s dive in!

What is ‘money’?

Money is part of every society - it’s the bedrock of economic generation and can even be a necessary evil.

A society needs three things in order to be high-functioning:

1. A coordinating body (i.e. leadership, government or ‘party in power’)

2. The economic power (the productive output of the economy)

3. The protective force (the army, militia or defence force of a nation)

‘Money’ is created to allow for the circulation of resources around the economy and also enables the coordinating body to use these means to fund security.

Money is also an asset with various properties such as:

• Durability - it doesn’t wither away instantly

• Fungibility - it can be exchanged for an identical store of value (e.g. one $5 dollar bill is the same as another)

• Portable - it can be moved around easily (e.g. a pot of gold is a lot harder to move than you’d imagine)

• Easily divisible - It has the capability of being divided into whole parts

• Verifiability - it’s easy to check against fraudulent activity

• Widely accepted - there are universal standards and agreement on a unit of value

Do we have sound money?

Before we get into Ultrasound money, we need to ask the question: what is just plain ol’ sound money?

‘Sound money’ is a currency that serves as a reliable and stable store of value.

This means the purchasing power should stay the same - so, a $1 today gets me two packets of chewing gum, so it should get me the same tomorrow.

Sound money can also be stuff like gold or silver. These are assets that people normally turn to when inflation gets rough because they hold their value.

We can see from the above graph, all fiat currencies will fall in value over time, but the U.S. dollar - as the world’s reserve currency - will fall slower than others, so the dollar is the ultimate reserve.

This means: the dollar is sound money. Following so far?

But….

Would you say the dollar has maintained its purchasing power over time?

Is a pack of chewing gum the same price today as it was 30 years ago? That’s going to be a HARD NO.

Bitcoin is also considered sound money since the supply is always capped - there will only ever be 21m BTC ever).

Sooo, this is where Ethereum comes into play.

Ultra Sound Money:

The thesis is that ultra sound money comes from: a decreasing supply cap (it’s burning more tokens than it’s issuing every day).

In order for ETH to become ultrasound money - it has to do two things:

• Amount of ETH staked: More staked ETH = more rewards for stakers = more new ETH being staked

• Gas fees: More usage = higher gas fees = more ETH gets burned. This is because a portion of the gas (aka ‘transaction’) fees are burned (aka a part of ETH is burned every time a transaction happens).

This is just a fancy way of saying that the more users there are, the more the Ethereum blockchain is used and the more likely it is that the ether token will achieve a higher value.

So do we believe in Ultra Sound Money?

So, if we go back to the earlier definition of ‘money’ (durable, portable, stable, widely accepted, verifiable and easily divisible), I can’t say cryptocurrency falls into the stable category right now.

From a recent Coindesk article:

So, what have we learned:

• Ultra Sound money refers to the decrease in ether supply over time.

• Ethereum has validators that stake their Ethereum and get rewards for validating the network (this is what staking means).

• The more the Ethereum blockchain is used, the more ether that’s burned for every transaction.

• Cryptocurrencies are inherently unstable (for now), so Ultra Sound Money may not apply.

My take: I like the idea and I appreciate that the burning mechanism is outpacing the new issuance of ETH (which means our existing ETH will go up in value as it becomes more valuable), but it’s still a complex topic! It’s not going to be smooth sailing.

But hey, that’s why I like crypto!

🔗 Links Of The Week

🕹 Mark Zuckerberg: “VR / AR strategy”

A 2015 internal email sent by the Zuck to his team - you can tell from his articulation and thesis that he was (and still is) incredibly bullish on what he believes is ‘the next major wave of computing’.

🐣 How to be 18 years Old Again for Only $2 Million a Year

Bryan Johnson is a huge inspiration - this is pretty extreme though. He’s trying to reverse the aging process in every one of his organs and spends A LOT to make it happen.

20 Best Lessons from Interviewing Today’s Top Performers

Ryan Holiday summarises his podcast lessons - some include:

• Matthew McConaughey shut down his production company because he was “making B’s in five things, and wanted to make A’s in three things”.

• From Dr Edith Eger: “Guilt is in the past, and the one thing you cannot change is the past”.

• From Tim Ferriss: Strip these three words out of your vocab: “it’s not fair”.

So many other great lessons I’d recommend skimming through.

Until next time 👋

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Fahim