Ethereum needs to be money first

Arman The Parman
5 min readJan 28, 2020


The most common reason I hear why ETH is a good investment is based on the claim that everyone will use it for smart contracts… “Everyone is building on Ethereum”… “Ethereum will enable DeFi and it will change the world”… “Ethereum’s utility is incredible”… etc.

This argument is based on the assumption that as the network becomes more in demand, ETH will go up in price. I will explain how this is a flawed argument and why ETH can NEVER become money. It’s counterintuitive at first glance, which is why so many don’t see the problem, but stick with me, it’s all very logical and reasoned, I promise.

The wrong argument goes like this:

As demand for ETH’s economic bandwidth increases, more “gas” (which is basically a unit to measure how much computing power your smart contract uses, and has a price denominated in ETH) will be consumed, and so more ETH is demanded, so the price of ETH goes up.

And now the rebuttal:

The price of gas and the price of ETH are not in a fixed relationship.

There is a market for gas, and a market for ETH.


Gas for utility, ETH for speculation.

For widespread use, gas will need to have a cost that is acceptable to the masses, something that represents the perceived value of having the privilege to run a smart contract.

If I don’t buy early due to lack of FOMO, when Ethereum is widely used, will I actually miss out on using a smart contract? The answer is “NO” because if smart contracts get too expensive, then they can’t be widely used.

If ETH price goes up due to speculation, gas price (ETH per gas) must go down, otherwise contracts get too expensive to use (see next article).

If total demand for gas goes up, then the demand for ETH and price of ETH should go up. But if price of gas (measured in ETH) remains unchanged, contracts become too expensive (in USD). So gas price must fall (in ETH), causing less ETH consumption per contract, muting the demand for ETH. This keeps any utility popularity from pumping the ETH price.

So there is no incentive to HODL based on the utility-promise of ETH (utility for money means usefulness for something other than being money); gas will have SOME value, but it’s not going to be much — the fair price for gas during widespread use is probably much lower than the price today! The only reason to HODL Ethereum is to speculate that ETH might become money (i.e. competing directly with Bitcoin). So, the original argument I mentioned at the start is flawed: It is irrelevant that it will be used for smart contracts and “everyone” is building on ETH. What is important is the question “is ETH good money?” The answer is NO!

Before I explain why it is not good money, let me give an example of another money where it’s utility is completely useless: Gold. Gold’s utility was useful to help it evolve into money (Please see Vijay Boyapati’s excellent article on how money evolves “The bullish case for bitcoin” published on, but now that it is money, the fact that it is an excellent conductor etc is totally irrelevant. The fact that it’s “inherent” value supports its price is a complete fallacy. Its “inherenet” utility-value may be 1/100th of it’s price (the monetary value). If gold fails as money, it is no consolation that you will be able to sell your investment for 1% of the price you paid for it originally. Gold is very expensive because it is good money and scarce. It is so expensive, that is underused in industry. Look at silver. It has a huge amount of utility. But it is not expensive like gold, because silver is much worse at being money.

Let’s move on to why ETH is never going to be money.

The monetary properties of ETH are poor:

- It is centralised, controlled by Vitalek Buterin, and forked at will.

- It is inflationary, unlike Bitcoin which has a cap of 21,000,000

- Roll backs are possible (see Ethereum Classic history)

- It can’t compete with the leader, Bitcoin, which has all the network effects and is very far in the lead.

- It can’t compete with Bitcoin’s security; the hashing power of bitcoin is far greater, so it is much safer to put your life savings in the leader. No one can tamper with the most secure blockchain, but the mining power from bitcoin CAN malevolently shift to another coin and undermine the security of a weaker coin. There is no greater mining power elsewhere to attack Bitcoin; it’s all mostly mining Bitcoin!

- Other cryptocurrencies do smart contracts similar enough to ETH so it is not scarce (TRON, ADA, NEO…). Only the leading cryptocurrency can be considered scarce. Also consider this: if ANY altcoin were to surpass Bitcoin, it would instantly prove that no cryptocurrency is scarce including the leader. The security of knowing that Bitcoin, although invented from nothing, is scarce, and all the other cryptocurrencies which are also invented at will are not the same thing, is very important in making Bitcoin valuable. If this is proven to be incorrect by another coin becoming the leader, then the new leader is also not safe; and not scarce. Social consensus on the leading free market money is not flimsy. Bitcoin losing top spot would prove that wrong and put all your crypto savings into question. This will put pressure to cause a collapse of every cryptocurrency eventually. It is important to understand that overtaking of Bitcoin can not actually happen, and I won’t go into that in this article. Andreas Antonopoulos covers it well in his talk “The next bitcoin” available on YouTube.

- The monetary future is not fixed by consensus like Bitcoin’s. Tomorrow it might go to Proof of stake (POS), the next day it might be something else.

- Experimentation is common, and that is not appropriate for a world monetary system.

- In a free market monetary system, where governments can’t force you to use the local currency, then the most liquid, safest, best, money will always move further into the lead and the others will fade away to only have curiosity-value: virtually worthless.

So in summary, ETH may be programmed to have utility. But that utility is measured in gas, and the price of gas must remain reasonable for ETH to actually be widely used. If the demand for gas becomes great, ETH will become scarce, and price might a go up a little. If it goes too high, gas demand will fall and price will come down. If ETH was money, then speculation will drive it to incredible highs and the “world computer” will be too expensive to actually use. Any investor should be trying to get returns from THIS kind of outcome, not what utility can do for the price . But the monetary properties are poor and ETH will never be able to compete with Bitcoin. It must compete on monetary properties, not the smart contract use case. And it just can’t.