Is Ethereum Rekt?
Back in the carefree days of July 2017, I bought a little bit of the Ethereum cryptocurrency on Coinbase (full disclosure: 0.45613781 ETH @ £329.75 per ETH, so £150), played around with it, looked at the smart-contract language, converted some ETH to the more on-trend Bitcoin to give as a leaving present to someone at work, and kind of forgot about it.
I was interested in Ethereum because the “smart contract” feature seemed to lift it above the mere pizza-payment utility of Bitcoin (which I’d considered mining back in 2013, but dismissed because of the energy cost, got that Elon? 2013?) I remember thinking “this sounds like it might actually be useful”. I would buy a sandwich with Bitcoin, but I’d be much more likely to trust buying a house to Ethereum.
Well, I didn't buy more, and I didn’t get into mining, or develop the first crypto Estate Agent, instead, I went on with my tech-worker life without a second thought.
During the glorious third UK lockdown that followed Christmas 2021, I remembered that I’d dabbled in crypto-currencies, and, in February, opened Metamask, to find I now had more like £500 of ETH. Not bad for doing absolutely nothing for four years! ETH was now over £1,245 a coin, or nearly four times the value I’d paid for it.
So, my lockdown-atophied brain thought: “let’s play around with this a bit!”
I transferred the ~0.4 ETH to Coinbase. It cost me 0.003171 ETH, or about £4. Actually, I did it in two transactions, to make sure I had the right address, so it was nearer £8 to transfer my £500.
Whatevs: I hadn’t done anything for that £350 gain!
I played around with a few more Ethereum-based tokens (and ‘earned’ some ‘alt’ coins thanks to Coinbase), and traded between them and USDC, gaining a few £s, and taking safe harbour in USDC and DAI whenever things wobbled. I added little more fiat (AKA the “real money” you can spend on things like quality booze in Waitrose). But each transaction that involved an Ethereum token was costing me ETH, in the form of Gas, and ETH was getting pricey. Well pricey.
By the start of May 2021 ETH was over £2000 per coin, and simple 0.0031 ETH transfers were now costing £6; a fortnight later, ETH was over £3000 and if you sent £10 in ETH to a friend, you’d also be giving £10 to a miner somewhere (and he’s unlikely to remember your kindness and buy you a pint).
If you are messing with millions, £10 is “dust”, but it doesn’t escape the fact that a simple transaction that cost you £1 in 2017, now costs you ten times more.
Heard of PoolTogether? This is a neat idea for no-loss prize games (another idea I had back in 2017, and… didn’t do anything about.)
You “pay” in to a pool of ERC20 tokens, and, proportional to your stake, have a chance of winning a portion of the total “yield” of that pool, often worth tens of thousands of dollars, at significantly better odds than Premium Bonds, and, like Premium Bonds, without losing your stake, which gets submitted to the next draw, and you can withdraw your stake at any time. One guy staked $73, and won $43,760. Wow! I’m in!
The catch? Setting up the “smart contract” so you can tranfer your coins consists of a couple of 0 ETH transactions on the Ethereum block-chain, which cost Gas. First you have to “approve” your spend limit for trade in your chosen token in PoolTogether, then you have the “smart contract interaction” to stake your coins.
The total cost to transfer my 626 DAI to the DAI pool in April 2021? Over $118. Yes, I reduced the Gas price (to a level where I ended up having to cancel and try again). Yes, I waited until the Gas price was lower (but I was also simultaneously conscious). Yes I’m aware that I didn’t have to do this. But a Gas price of 100 Gwei on a 603137 Gas Limit (443358 used) smart contract transaction, when ETH is over $2350 is still over $100.
Who won the May 21st DAI prize I hear you ask? Someone with ‘just’ 34 million DAI staked, and to add insult to injury, they won both the 1st and 2nd prizes. This is unlike last week, when the the top prize went to… the same player. The only consolation is that they are obviously too unimaginative to do something more useful, or even profitable, with all that money.
Alas, Ethereum, which started with such promise, is no longer a clever payment and trust system for everyone; thanks to speculation, it’s become a rich-man’s toy, just like Bitcoin before it (and housing, and land, and a stable global ecosystem).
Whether the speculators are miners, or the whales, or financial institutions, or CEOs with too much power and too little filter, when they pile in (or out), they wreak the system, and make it practically useless for what it was intended for. How can I sell a house with an Ethereum smart contract if it might be worth half the (fiat) price by the time the contract executes? Would I want to pay small amounts of ETH (or DAI or other Ethereum stable-coin) to my local sandwich shop if it’s going to cost me an extra £10 in Gas? That’s a bit steep, even for London.
Ethereum 2.0 may fix the eco-burn, but unless the price of the base coin can be stabilised, and transaction fees can be reduced to something sensible, it’s never going to reach its full potential, and that’s a huge shame.
My opinion, not financial advice, I am obviously an idiot so you don’t need to tell me so. Thanks for reading.
