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Sound Vs. UltraSound Money: What Will Prevail Over Time?

Since its introduction, ETH has been a hot topic among crypto investors and supporters. While many support the investment aspect of the token, the crypto geeks mainly push ETH for its diversified approach to the crypto ecosystem. 

Besides, if you’re an old investor as well, we bet you must’ve noticed a bat signal following the tweets of some on Twitter. 

But have you ever wondered what the signal is? Or, what does it mean?

Let’s decrypt the Sound Vs. The ultraSound Money aspect of the ETH token is in the following sections. 

Sound Of Money: A Raging Concept?

When Ethereum supporters tweet their support for the merger, they include the speaker and bat emojis since bats use ultrasound to help them fly in the dark. Why does that matter? 

We must first comprehend the simple sound of money to respond to this question adequately. Therefore, sound money is sometimes regarded as hard, making unsound money soft.

Soft money has no clear definition in the official sense. Hard money is generally understood as a form of cash that acts as a dependable and steady store of value. 

This is the antithesis of unsound and soft money, i.e., a currency that is not a stable and trustworthy store of value. Soft currency fluctuates in value and declines when measured against currencies from other nations.

The Short Version Of The Dollar Milkshake Theory

The dollar milkshake theory states that all debt-based fiat money will depreciate over time. Still, because the US dollar is the world’s reserve currency and the source of most global debt, it will depreciate more slowly than all the others and gain value over time. About the “milkshake” allusion, the dollar acts as the straw in another country’s currency milkshake, trying to suck up capital investment.

That hypothesis appears to have come true during the past year, with the dollar outperforming the Canadian, Australian, Euro, Pound, and Japanese Yen. We could claim that the USD is sound money under the existing definition. After all, it has gained value compared to all other significant currencies.

However, the dollar’s value has remained relatively steady over time. So let’s stick with the milkshakes and think back to the iconic scene from “Pulp Fiction,” a 1994 cult film, where a character is horrified that a milkshake costs $5 (even though it’s delicious). The film takes place in Los Angeles. In Los Angeles in 2022, it wouldn’t be too tough to find a $5 milkshake.

Bitcoin And Ether Aren’t Hyper-Secure Forms Of Payment

The two sources support the idea that ether is exceptionally sound money.

First, it derives from the claim that bitcoin is reliable money due to its supply limit and predictable issuance frequency. And second, it results from the Merge introducing a mechanism to an Ethereum network that can cause the supply of Ethereum to decrease rather than increase gradually.

Only one rational conclusion can be drawn: If bitcoin has been sound money, after which post-Merge nothingness is ultra sound money. The supply of ether is “capped” (it’s technically not capped, and yet issuance should be “net zero”), and the system might start to burn enough ether of that kind that its supply decreases. 

However, none of those facts implies that ether or bitcoin are trustworthy forms of payment. A sound currency should consistently gain value over time. Sure, ether and bitcoin have increased by about 340% over the past five years, making them excellent value stores. But in the previous year, it was down to ~53%.

If a currency retains value throughout time, it is considered sound. Period. The absence of a fixed supply or even a deflationary issuance plan is what sound money does not imply. It does not matter that Bitcoin seems to have a set supply of nearly 21 million coins or that we are aware of its issuance schedule; if it cannot consistently hold its value over time, this is not a sound form of currency.

The Ultrasound Argument

Ethereum needs to be more sound than that Bitcoin. So here’s how it might take place:

Firstly, EIP-1559’s implementation. This improvement to Ethereum modifies the incentives for miners and introduces the possibility (but not a guarantee) that Ethereum may experience deflation. 

This is accomplished by altering the economics of Ethereum transactions so that the base price is no longer paid to miners but instead is destroyed. However, this only sometimes exerts enough downward pressure, mostly on Ethereum supply, to balance out the quantity of new Ethereum issued as an incentive for miners. About EIP-1559, I’ve written more here.

Secondly, it was switched to Proof of Stake. This alters the Ethereum network’s security measures and may hasten its deflation. About Ethereum 2.0, as well as the switch to Proof of Stake, I have a lengthy post as well.

Since more ETH will be held in staking contracts, this change should decrease the quantity of ETH placed into circulation.

The point at which Ethereum starts becoming deflationary also declines dramatically, with the total amount of Ethereum perhaps leveling at roughly 120,000,000. 

If all of the above occurs and ETH maintains a fixed supply of approximately 120 million, it should meet the criteria of sound money just like Bitcoin does. The “ultra” sound money theory might also be validated if the larger goal materializes and the Ethereum supply declines.

The Issue With Ultrasound

Ethereum’s potential for deflation cannot be assumed. For instance, when more transactions migrate to Layer 2 solutions, demand for payments on the Ethereum base layer will decline, and Ethereum won’t become deflationary.

It’s also conceivable that stakers lock up less Ethereum in staking agreements than anticipated and instead wind up selling the majority of their gained Ethereum upon that market to make money.

Although they are not the most plausible options, we must acknowledge that they are nonetheless plausible. Bitcoin’s strength lies in the fact that it is essentially the same commodity it was ten years ago, despite criticism from the Ethereum community to the contrary. 

Currently, Bitcoin is reliable. Its source code includes it. So it’s unnecessary to make any changes or hope for a specific outcome. The time has come. On the other side, Ethereum must navigate these two significant protocol modifications while also realizing a specific future vision. And even if all of that occurs, we still face a serious issue.

What Impact Do Sounds Have On The Future?

This does not imply that Ethereum’s price won’t increase, its market cap won’t change, or it won’t become the Internet’s financial infrastructure. Instead, it is believed that they are all accurate. 

However, the Ethereum community is becoming overly ambitious because it can serve as something other than the sound money layer. In addition, Ethereum’s propensity for programmability and improvement makes it less trustworthy as a store of value.

With the ability to handle everything from peer-to-peer payments to options and mortgages, Ethereum can serve as the financialization layer. Although the de-financialization ideas are flattering, we will not be able to close the case once we have learned how to play all these different games with our riches.

There is no reason Bitcoin and Ethereum can’t both have significant roles in the next financial system, just as Gold and derivatives do in the one we currently have.

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