This is going to be a post about cryptoeconomics. I hope the moderators will allow this to be posted to r/ethereum because cryptoeconomics is at the core of the success or failure of any decentralized crypto project, including Ethereum. I will discuss price but only in reference to the cryptoeconomic factors contributing to the success of Ethereum.

The motivation for writing this post came about because I have been hearing and reading a lot of people involved with Ethereum who seem to feel that price isn't important or needed for Ethereum to succeed. I even heard this sentiment stated by one of the main speakers at ETHDenver last month! I aim to show in this post that this viewpoint is very much incorrect, and that a high and increasing price of Ether over time is a critical component to achieving success for the Ethereum platform.

First of all, the very fact that ETHDenver exists is a function of the fact that there are thousands of people being paid to write code targeting Ethereum (wallets, clients, exchanges, smart contracts, vertically-integrated Dapps etc.) In some cases, the funding for those salaries comes directly from the millions of dollars investors made in the last price cycle, while in others it comes from VC and other investors building on Ethereum who are looking forward to future large-scale growth in Ethereum, mostly driven by growth of the value of Ether and other tokens running on Ethereum. This is the virtuous cryptonomic cycle, an increasing ether price brings more projects and developers which leads to more network effects and value to the entire ecosystem.

Secondly, Ethereum needs to do very well in the crypto marketplace to continue to attract future talent, investment, and network effects. If Ethereum slips to the #10 crypto asset, it will have far fewer people choosing to build on Ethereum, those projects and developers instead looking to build on platforms with better future prospects for becoming the global financial backbone for decentralized applications.

Finally, a high price of Ether provides security for the Ethereum chain. It funds mining hardware and electricity in the PoW phase of Ethereum. And directly secures the chain in the proof-of-stake phase. Ethereum has the potential one day of securing a significant fraction of all digital financial assets on a single platform of sharded ledgers and smart contracts. If those assets are worth trillions of dollars, then Ethereum needs to be worth enough so that it is not viable to attack those assets by attacking the underlying Ethereum cryptoeconomic system.

To summarize, when some people in the Ethereum community denigrate Ether investors, say that Ethereum can work fine with the price of Ether at $10, and that a strong and growing price of Ether isn't important, they are way off base! The price of Ether is critical to the success of Ethereum.

This virtuous cycle also explains why the value of the Ether token is important to the entire Ethereum community, and why some people react quite negatively to attempts to siphon value from ETH and accrue it to competitors instead. Those attempts, if successful, will damage the future success of the entire community.

Original post:

Ethereum - reddit