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Vitalik Buterin: Ethereum’s price is important for the security

  • Vitalik Buterin considers Ethereum’s price as an important factor in maintaining the networks security.
  • The inventor of Ethereum has questioned the sustainability of “yield farming” and called it a short-lived phenomenon.

Ethereum inventor Vitalik Buterin gave an interview for the Unchained podcast on the occasion of the 5th anniversary of the launch of the Ethereum mainnet. During the podcast, Buterin talked about the ETH price, the DeFi sector and its sustainability, Ethereum 2.0 and other relevant topics. In addition, Buterin also addressed changes that the introduction of staking for Ethereum will bring it in terms of the monetary policy and the possibility that the platform will make a u-turn and focus more on the ETH price.

Regarding Ethereum’s monetary policy, Buterin responded that there are aspects that “cannot be manufactured”. Furthermore, he highlighted the importance of the EIP-1559 to solve the fee problem and to improve economic efficiency. However, he said that this could lead to a “negative emission” of ETH:

If you look at the transaction fees for Ethereum in the last few weeks, you will see that they have been between 2000 and 5000 ETH per day. If you expand it to a year, then you see that it goes between 700,000 to 1,700,000 ETH a year which is higher than issuance with proof of stake. So, negative emission is not far from the range of possibility for Ethereum (ETH).

The co-inventor of Ethereum did not hesitate to say that the ETH price is and always has been important for the security of the network. This is because, Buterin explained, Ethereum is a global, decentralized network. In this sense, security stability is much more important than other aspects of Ethereum, such as supply. Buterin also pointed out that Ethereum’s monetary policy will vary in terms of the trade-off between the stability of the ETH supply and the stability of security.

Buterin about Ethereum’s DeFi and it risks

On the other hand, the growth in the Ethereum DeFi sector is an issue that Buterin treats with greater caution. The inventor of Ethereum said that users may underestimate risk of smart contracts. Comparing products in the DeFi sector to traditional banking, Buterin said the former offer higher returns, but with a significantly higher risk that they may fail and “break”.

Moreover, Buterin did not show full confidence in the DeFi sector protocols that have “greater safeguards”, for example, audits and reviews by a third party. These measures do not make DeFi sector protocols foolproof, as Buterin explained, as the stability of a protocol depends largely on the profit margin it offers. However, time is a factor that plays against any protocol:

The DeFi is still fine, but don’t act like it’s a place where you should be advocating for many normal people to put their life savings.

Along with growth, the number of attacks on Ethereum’s DeFi sector has been the subject of attention. Malicious attackers have taken advantage of flaws and loopholes in some protocols to make millions in profits. The inventor of Ethereum maintained a similar sentiment when talking about yield farming. Buterin said yield farming is unsustainable in the long term, and he expects profits to drop soon:

It’s a short term thing. And once the enticements disappear, you could easily see the yield rates would drop back down very close to zero percent.

The co-creator of the Ethereum also offered his view on the growth of the network for the next 5 years. Buterin highlighted the teams of developers working on Ethereum around the world. However, Buterin noted that he would like to reach out to other communities in Africa and other parts of the world, communities that have different visions. Besides that, Buterin said that launching Ethereum 2.0 is the first priority:

(…) that Ethereum is a part of people’s regular lives in many contexts and that it is not just about something that people buy. Yes, bringing technology to that point and getting to that point where you really have many people from around the world giving value to Ethereum. I think that would be a great place to be.

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Reynaldo Marquez has closely followed the growth of Bitcoin and blockchain technology since 2016. He has since worked as a columnist on crypto coins covering advances, falls and rises in the market, bifurcations and developments. He believes that crypto coins and blockchain technology will have a great positive impact on people's lives.

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