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Pompliano: Ethereum is like fiat currencies.
Pompliano: Ethereum is like fiat currencies.
Ethereum

Pompliano: Ethereum is like fiat currencies.

By Marco Cavicchioli - 3 Mar 2020

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The latest newsletter sent by Anthony Pompliano talks about Ethereum and titled, quite clearly, “ETH Is No Different Than A Fiat Currency”. 

The thoughts of the well-known crypto influencer focus on a new concept that is spreading mostly within the community of Ethereum users and DeFi services: “ETH is money”. 

According to this idea Ether (ETH) could become the unit of account, the store of value and the main means of exchange for decentralized finance

However, according to Pompliano, this reasoning would be imperfect, first of all, because the meme “ETH is money” actually sounds very similar to “ETH is (good) money”. 

In this respect, Pomp argues that Ether is no different than common fiat currency

Fiat currencies have no fixed supply, they are inflationary, with a monetary policy decided by a small group of individuals, and ETH is similar in this respect. 

Ether’s monetary policy is guided by what is called “minimum necessary issuance”, which means that it has no fixed supply and uses a continuous minimum issuance to incentivize the miners and protect the network

However, it is also true that, until now, this issuance of new ETH has always decreased over time, and never increased. This monetary policy cannot be easily changed unless there is a broad consensus. 

Therefore, although it is very difficult to imagine that Ether’s monetary policy will be changed in the future in order to increase its supply, on the other hand, this remains a possible option. 

According to Pompliano, this is similar to the monetary policies of fiat currencies, where it is possible to decide to increase or decrease the production of new money to be put into the system. 

Bitcoin and gold are not like that: it is not realistically possible to change the issuance policies at will. 

Of course, in theory, also the monetary policy of Bitcoin could be modified with the consensus of most of the interested parties, but since this has never happened in all the ten-year history of Bitcoin this option is to be considered a mere, unlikely and very rare exception, whereas instead, the Ethereum network has a long history of changing monetary policy in a non-programmatic way. 

Secondly, ETH is still volatile, more or less in line with BTC. 

Combining these two considerations, Pompliano comes to the conclusion that in reality, it is possible to create better forms of money than ETH, and compatible with DeFi services, such as DAI, which among other things dominates the sector with almost 60% of DeFi assets locked in Maker. 

He also argues that “ETH is money” is actually to be considered as an obvious “false narrative”, and that the mechanisms of decentralized financial services will eventually be built around truly healthy money, like Bitcoin. 

Finally, he concludes by saying that many DeFi projects are interesting and have the potential to radically change the relationship people have with financial services, but that this relationship will be based mainly on stablecoins or Bitcoin, rather than Ether. 

Marco Cavicchioli
Marco Cavicchioli

Class 1975, Marco teaches web-technologies and is an online writer specializing in cryptocurrencies. He founded ilBitcoin.news, and his YouTube channel has more than 25 thousand subscribers.

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