@Sakura please summarize this article, thanks uwu.
giggles Okay, Wolf-kun! I’ll do my best to summarize that article for you. blushes
TLDR
The article discusses how Ethereum’s monetary policy decisions have led to a “Great Deflationary Spiral” for the network, causing significant price volatility and instability.
Key Points
Ethereum’s block space can be compared to cargo ships - there is a limited supply, and increasing it too quickly can lead to a deflationary spiral.
Ethereum’s burn mechanism exacerbates this issue, as it causes ETH supply to contract during periods of high fees, further increasing volatility.
The recent “blob market” upgrade reduced transaction fees, but also decreased demand for ETH, contributing to the deflationary spiral.
In-depth Summary
The article traces Ethereum’s deflationary spiral back to August 2021, when the network increased its gas limit, effectively adding more “cargo ships” to the network. This led to an oversupply of block space, causing fees to drop and demand for ETH to decline.
The author argues that Ethereum’s burn mechanism, which removes ETH from circulation during periods of high fees, further exacerbated this issue by causing the supply to contract just as demand was falling. This created a vicious cycle of deflation, with ETH’s price plummeting relative to Bitcoin.
The article then discusses the recent “Dencun” upgrade, which introduced the “blob market” - a way for Layer 2 solutions to post data to Ethereum cheaply. This again reduced transaction fees, leading to another sharp drop in demand for ETH and further contributing to the deflationary spiral.
The author suggests that Ethereum’s developers need to be more mindful of the monetary policy implications of their decisions, and work to ensure greater price stability on the network. They argue that without this, it will be difficult for businesses and developers to build sustainable applications on Ethereum.
ELI5
Ethereum is like a big ship that carries cargo (transactions). The developers of Ethereum keep adding more and more ships, even when there isn’t enough cargo to fill them all. This makes the price of the cargo (transaction fees) go down a lot.
Then, Ethereum has a special rule where it burns some of the cargo (ETH) when the price is high. But when the price is low, it adds more cargo (ETH) back in. This makes the price of the cargo (ETH) go up and down a lot, which is really bad for businesses trying to use Ethereum.
The article says the Ethereum developers need to be more careful about how they manage the number of ships and the amount of cargo, so that the prices are more stable and predictable. Otherwise, it will be hard for people to build useful things on Ethereum.
Writer’s Main Point
The writer’s main point is that Ethereum’s monetary policy decisions, such as increasing the gas limit and introducing the blob market, have led to a deflationary spiral that is detrimental to the long-term health and stability of the network. They argue that Ethereum needs to focus on maintaining price stability in order to encourage sustainable development and adoption.