The Problem with Ethereum
My reading and discussion of this article on the “Smart People Shit” Podcast with Dennis Porter can be watched here or listened to here.
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People ask me, “Can you explain why you dislike Ethereum and recommend against buying or holding it?”
Here is my explanation.
Creating a New Community: Its Constitution and the Roles Needed
Imagine starting a new community. The community will be called “Ethereum”. A number of promises will be made to encourage people to join this community:
There will be a number of different roles in this community.
There will be a working class — a group that does the work the community needs to operate it. They will get paid for their work, but they will also have to pay their own expenses. Let’s call this group the miners.
There will be a wealthy class — the group that participates in the founding. Let’s call this group the initial coin offering participants.
There will be a ruling class — a group that makes the rules. This will be a small group. Let’s call this group the core developers, and/or the Foundation, and/or Vitalik. This is a subset of the wealthy class.
And there will also be a class that are subjects of the rules and the results of the work. This last will be the most numerous. We’ll call this group the Etherians.
Now, when this new community is constituted, certain promises are made. One of the promises made is that the need for the working class, the miners, will go away at some point in the near future. This promise is even enforced by a rule that makes work impossible after a time. This is Ethereum’s promise of a switch from Proof-of-Work to Proof-of-Stake, enforced by a rule called the “difficulty bomb” which would bring about an “ice age”. This code, to eventually make mining impossible, is put into the constitution, or code, of the community.
Another promise made is that the computer code in this community is its law. “Code is law.”
A Mistake Occurs
Now it so happens that early on, a mistake is made and a lot of the wealthy class’ money risks being lost in that mistake. This is the infamous case of “the DAO”, a smart contract that raised $150 million worth of Eth from its early investors and which was hacked to have most of its money drained by the hacker. Excuses are made and explanations are given as to why in this particular case an exception needs to be made to the “Code is Law” promise, but that this exception will be a one-off. The change is made to reverse the mistake: The ruling class proposes changes to the rules so that the wealthy class will benefit at the expense of the person who took advantage of the mistake. It seems mostly reasonable at the time.
A few people, mostly from the class of subjects, the Ethereans, complain that the “code is law” promise should not be broken. However, they are told to leave the community and create a new one called “Ethereum Classic”, which they do.
Meanwhile, in the Ethereum community, the ruling class enacts new rules (a hard fork) to undo the mistake. The wealthy class get all their money back and are granted an exemption from the enforcement of the law of “Code is Law” for this one instance, with the promise of never doing it again.
The Ruling Class Has an Idea
A little while later it is determined that some rules need to be changed for maintenance and optimization purposes. Another hard fork. This was not unexpected.
But at the same time something previously unexpected does happen:
One of the promises made when the community was constituted was that the working class would be paid five units of currency for each unit of work they completed. That is 5 Eth per block. But the ruling class now feels that’s too much because it amounts to a lot of value for the work. So the ruling class changes the rule of 5 Eth per block to 4 Eth per block. This reduces the working class’ compensation by 20%.
Some people, particularly those in the working class, complain. They are told they can take this pay cut or leave and go work someplace else. The work is still profitable, however and many remain.
Now, it is not just the ruling class alone that issues this ultimatum of ‘take the pay cut or leave’. Most everyone else in both the wealthy class and class of subjects likes the change too. Why? This change reduces the creation of new currency units that they weren’t themselves earning (because they weren’t doing any work). Thus, it gives them a larger share of the total monetary pie after the change than they would have had if the change didn’t take place.
No moral questions are seriously considered about whether changing this rule is a breach of the promise made at the time of the constitution of the community.
The change is made.
Another Mistake: The Ruling Class Misses the Delivery Date for Their Promise of Eliminating Work
Time passes. In fact, the time of detonation for the “difficulty bomb” which would lead to an “ice age” is drawing near. If the bomb activated the work would become impossible and the entire community would halt. Everyone agrees this would be bad.
The ruling class, however, has failed to engineer the rules that would deliver on their promise to activate the switch to Proof-of-Stake. They cannot keep their original promise.
The ruling class proposes a solution. The solution does not include them sacrificing their wealth as punishment for failing to have delivered on their promise. The solution also does not remove the difficulty bomb from the code base. The solution only delays the difficulty bomb.
The ruling class claims something to the effect of “by delaying the difficulty bomb we reaffirm our promise to deliver Proof-of-Stake by creating another deadline for ourselves through the postponement of the ice age.”
Some people accept this statement at face value. Others have doubts. “What if the deadline is missed again?” they ask. “Won’t you just delay the difficulty bomb again?”
They are given the now-becoming-usual ultimatum, “If you don’t like it, leave.”
A hard fork to delay the difficulty bomb is enacted.
Another Pay Cut for the Working Class and Another Delay of Proof of Stake
Time passes. More hard forks are proposed and enacted for the very same reasons as before.
This time the working class has their pay reduced from 4 Eth to 3 Eth per block, a 25% pay cut. Miners now earn 40% less per block than at the time of the community’s constitution, which promised that code was law, and which the ruling class later said they would break only once, for what was an especially good reason. But the code is law promise has now been broken so many times people expect it to occur at regular intervals and even worry that “progress” is slowing down if there aren’t frequent enough hard forks (to break that promise yet again).
Predictably, the deadline is missed again for proof of stake and no penalty is paid by the ruling class for missing it again. In fact, that reduction of the working class’ earnings is what pays for pacifying the class of subjects who are starting to make demands of the ruling class to deliver on their promise. The ruling class is happy to make a sacrifice of the working class’ money. After all, it’s not their money being sacrificed.
The wealthy class and class of subjects accepts this sacrifice without asking the moral question of “Is it right for the workers in our community to pay the price for the failings of the rulers in our community?”
Now, I want to pause here before continuing this story, because at this point, any reader should be able to reflect and say, “Something here seems awfully similar to the system that crypto-currency was meant to fix. It was meant to eliminate rulers. It was meant to make everyone accountable for their actions. It was meant to reward the intelligent, the hard working and the capable, and not reward the incompetent, or the makers-yet-breakers of promises. However, this repeat of the broken old system seems to be playing out again.” Of course, that kind of reflection doesn’t take place if you’re only in this for the gains and not for repairing anything about our financial system.
Pretending to Make Progress While Instead Paying the Wealthy Through More Pay Cuts to the Working Class
More time passes. Progress towards Proof-of-Stake, the promise that the system will work with no work, is much slower than originally expected. The ruling class assures the other classes that progress is happening. They launch a partial solution to pacify the other classes. This pacification solution pays people to stake their coins, but does not do away with the dependency on proof-of-work. Paying for stake is welcomed by the wealthy class. It is, after all, getting paid for being wealthy, so why would they object?
Under this new arrangement, work is still needed. However, it’s just that the rich now get issued new units for the cost-less act of being rich while the workers only get paid for the costly act of doing work.
With everyone getting paid now in newly issued units (everyone except the poorer people in the class of subjects) concerns about inflation arise.
There are no actual delivery dates for the end of Proof-of-Work, and if there were, nobody would believe them by now anyways.
There is no concern about a difficulty bomb, which nobody cares about any more because they already know that it would just get delayed again if it kicked in.
Everybody knows that the ruling class will not be held to account.
However, there is this concern about inflation.
So the ruling class proposes a solution. It’s one that has worked before: Cut the pay of the working class again. It turns out the working class not only earned rewards of newly issued Eth, but they also earned fees that users would pay for getting their transactions into blocks. The ruling class proposes that a portion of the working class’ fees be burned. The fees will still be paid by users, but the miners will not receive the fee. It will instead be sacrificed. By burning the working class’ money, the ruling class and wealthy class end up with a larger piece of the overall pie. It’s ingenious. Evil, but ingenious.
Now, by this point it is quite clear that the ruling class turns out to be better at delivering narratives with cool names like “ice age” and “world computer” than they are at delivering actual code that corresponds with their promises. They do not disappoint in that regard. They call the burning of the working class’ earnings “Ultra-sound Money” as a great sounding term combining “sound money” — being good money that made a distinctive sound you could hear when that money was bounced on a table— and the word “ultra-sound” — being sounds you can’t hear. Well, it sounds better when you don’t analyze it this way. Like everything in Ethereum, it sounds better when you don’t analyze it at all.
Here We Are, but How in the Hell Did We Get Here?
And that brings us to the present.
We have a community where the ruling class has failed to deliver on their promises time and time again. Sound familiar?
We have a community where those who do the work have been made to pay, time and time again, for those who do no work. Sound familiar?
We have a ruling class whose solutions to every problem, even if it is them that caused the problem, never involve them owning up or paying any price for the solution. Sound familiar?
We have complicity in the classes that benefit from the decisions of the ruling class at the expense of the working class. Sound familiar?
It sounds just like the corrupt fiat money system we’re trying to escape.
How did we get here — right back to the very system we were trying to escape from? I think it was these factors.
First, the initial coin offering, or pre-sale or pre-mine, created a class with the vast majority of wealth.
Then, the DAO hard fork was intended to fix a naive mistake made by that rich class. However, the controversy it created appears to have set a precedent that the rulemakers can issue ultimatums to the rule-takers: “Take it or leave”.
Next, the rule-makers were never held to account financially for failing to deliver on their promises.
Instead, the ruling class repeatedly offered up the working class’ money as a sacrifice to appease people in the other classes who felt they were due some reparations for the ruling class’ broken promises.
Those people in the other classes accepted those offers of sacrifice.
This is why I dislike Ethereum. I condemn it for repeatedly breaking its promises, thus making it entirely unreliable. I condemn it for making victims out of the only group in their community who actually delivered on their responsibilities.
As a Bitcoiner I find these actions intolerable and unacceptable. I know none of them would ever be accepted in Bitcoin. We wouldn’t dare permit the installation of a bomb that could destroy the system, let alone leave one small group in charge of it. We would never break the code-is-law promise for the purpose of enriching one class at the expense of another. We would never make promises based on what sounds clever. We would simply never break the promises that constituted our community, because the whole attraction of it is that is doesn’t have a ruling class to take advantage of other classes.
I’m also curious about what all those people who repeatedly backed the ruling class think will eventually happen to them. How would they answer the questions “What do you think is going to happen to you if the working class is actually eliminated? Do you think the ruling class will suddenly stop seeking victims’ to enrich themselves?” After all, the ruling class has the power to do anything. They can accelerate the issuance of Eth to themselves. They can make the money even more ultra-sound — ultra-supersonic — by burning existing coins (Ethereans’ coins, not theirs of course) for whatever reasons they claim are good for the community. The sky is the limit for how they can control the currency. Any abuses that a central bank digital currency is vulnerable to, so too is Ethereum, especially based on the history of its ruling class intervening to change the rules to always make things better for themselves and keep them in power.
Why Not Leave it at That?
The truth that everyone should now see is that Ethereum is not a decentralized peer-to-peer system. It is a system with an unaccountable ruling class exploiting the working class, making promises they can’t keep, while spinning a wonderful narrative about how they are solving all the problems — a combination of problems they created, problems that don’t exist, and problems they don’t actually know how to solve.
It would be fine to leave it at that, even setting aside the countless fraudulent scams that have been perpetrated on Ethereum, but for just one thing.
That one thing is that this truth about Ethereum is swept under the rug while an entirely different tale is told to newcomers. As such, newcomers to Ethereum have repeatedly been hit with a broad variety of scams.These include a range of ICOs that have been subsequently found to be illegal to ones that were outright frauds. “Smart” contracts that lack smarts and are exploited and drained or “rug-pulled” are so common that many don’t even make the news anymore. Garbage is sold as art. Art that can’t be owned is positioned as that which can be. Lies are told about what is on the blockchain and ownable and what isn’t.
Ethereum’s promises change frequently as new marketing campaigns come up, like the “Ultrasound Money” one, for example. But the tale never involves this clear history of the ruling class helping the wealthy class at the expense of the working class with everyone else standing by and enjoying the spoils.
If none of this concerns you, I suppose you can take it. I would encourage you to seek some kind of moral counselling, but you don’t have to, and you can accept trying to be a winner in this regime. So you can take it, or, if it does bother you, you can leave it. This at least is a promise Ethereum makes and keeps.
PostNote: This article pairs well with my piece on Bitcoiners having integrity. What it boils down to is that there is no integrity in Ethereum and nothing but integrity in Bitcoin:
Bitcoiners Are Not Toxic, They Have Integrity
I have many other articles about the moral philosophy of Bitcoin, both what it does for one personally:
This one is about how Bitcoin supports the Enforcement of Human Morality