Ethereum update: Bitmain has monopolized Ethereum’s means of production.
Bitmain has the Ethereum ecosystem in a stranglehold. It has seized control of the means of production as a result of vast economies of scale and virtually unlimited access to cheap power. This allows it to play the markets like a fiddle and become richer in the process, the aftershock of which is currently affecting Ethereum holders large and small.
Set aside the notion that the recent slump in prices is mainly a result of ICOs cashing out the Ether they have raised. Some have estimated this amount to be around [100k Ether over the past weeks](https://www.reddit.com/r/ethtrader/comments/96iq0l/icos_have_sold_nearly_100000_eth_in_the_past_30/). To Bitmain, that is pocket change. Operating on the conservative assumption that Bitmain owns 25% of the network hashrate, it single-handedly produces that much Ether in **as little as 20 days**. The total dollar market value of its mined Ether probably runs in the billions.
There is no doubt in my mind that Bitmain has recently been dumping their mined Ether on the market at a massive rate, crashing the price and vacuuming up the wealth created by the network. I don’t have tangible proof to back up this statement but it suffices to assume they are rational economic agents seeking to maximize their profits. Consider the following:
Selling Ether affords Bitmain the continued expansion of their operation. At the same time, the reduced Ether price is squeezing miners out of the market at an increasing rate. This allows Bitmain to collect a considerably higher proportion of all mined Ether for as long as they depress the price in this manner. They will allow the price of Ether to recover once they have mined enough to be able to continue the cycle at a later stage. The feedback loop where Bitmain sells crypto to fiat, which in turn raises their crypto production rate, is creating vast wealth for them at the expense of everyone else. Bitmain has become the vampire squid of this new economy.
This is a call to arms for the entire Ethereum community. The developers, the early adopters, the miners; all of them have a stake in the success of this project. In the end, their ambitions are the same: for Ethereum to prosper and to see it become the decentralized web 3.0 it is meant to be. There is no role to be played by a toxic agent like Bitmain in this vision of the future. The next protocol update should represent a clear statement from the community that cornering this market will not be tolerated. It is against everything Ethereum stands for. In order to achieve this, we should support:
1) A block reward reduction from 3 to 2 ETH;
While not to an extreme extent, this move would reduce inflation which is expected to put immediate upward pressure on the price of Ether. Like it or not, robust price action attracts more people to the ecosphere which leads to all kinds of positive secondary effects.
2) A hard cap on total supply;
Hard capping the supply kills two birds in one stone. First of all, it sends a clear signal to the market that Ethereum fully intends to realize the transition to Proof of Stake. Once the hard cap is reached, mining will no longer make sense and as such, the safety of the network will have to depend on a new consensus paradigm. In that sense, it is the ultimate Ice Age. We should agree on a sensible date in the medium term future (e.g., five years) to implement this cap.
Second, it provides Ethereum with another use case: that of a store of value. If Ether were deflationary, it would be a huge boon to investors. Furthermore, assuming that role could finally lead to a definitive decoupling from Bitcoin. This could pave the way for the flippening and create critical mass in an industry where network effects are crucial.
3) A non-negotiable and sustained engagement to fork away from asics.
I will leave the details on how to achieve this to the brilliant and more technically inclined people of this community, but the economics are very clear to me. Ethereum was never meant to be controlled by a single party owning the majority of the hashrate; Bitmain is rapidly approaching this status if it hasn’t already. Perhaps taking a page out of the Monero playbook, it should be possible to keep small-time miners in the game to ensure maximum decentralization. Periodically incapacitating Bitmain’s asics will keep them guessing and should prevent them from making more massive investments in Ether mining infrastructure.
It is absolutely vital to the health of the network to include this third solution. Without it, the other two will only serve to consolidate Bitmain’s position as the bully-in-chief.
Please share your thoughts below.
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.
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