Ecoinometrics - Should you consider compounding on Ethereum?
Staking, yield and playing the long game.
You’ve probably heard before that compounding is the most powerful force in the universe. That’s simply because earning interest on some asset and reinvesting the proceeds is an exponential process. After a few iterations the interest produced can quickly get astronomical. And now you have a native way of doing that on Ethereum.
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Should you consider compounding on Ethereum?
Bitcoin vs Ethereum
If you consider the crypto space there are a lot of seemingly different assets you can bet on. You can bet on NFTs which are on the side of digital art, collectible and illiquid assets. You can play DeFi games which in many occasion amounts to chasing high yield available for short durations. You can also bet on the Cumrockets Coin of the world if you have the guts for it.
But for long term, high probability bets your options are more narrow. You basically have Bitcoin or Ethereum. And even there, while those two rely on different investment thesis, the price action of these two is so correlated that you might be pardoned to think at first sight that they are the same bet.
Unless something dramatic happens in the near future Bitcoin and Ethereum are more likely than not to stay strongly correlated.
So if you have to choose between investing in one or the other you need to dig a bit deeper into what the two have to offer.
At a high level, Bitcoin is:
Older than Ethereum. Which is good if you believe in the Lindy effect.
Simple in its design and goals.
Equipped with a fixed and straightforward monetary policy.
Slow and cautious about changes in its source code.
Dominated by the digital store of value narrative.
At a high level, Ethereum is:
Smaller than Bitcoin. Which provides greater upside opportunities.
Still evolving as a network. Which means you are investing on a work in progress.
A complex and very ambitious software project. Which leaves room for potential major technical issues.
Equipped with a monetary policy that is not set in stone but is instead controlled by consensus.
Built as a platform for decentralized applications and derive its ultimate value from that.
Allows network participants to generate yield directly by fulfilling functions on the network.
Now we have discussed all these points before at the exception of yield generating part which is only now “fully” released.
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