Today we will explore layer 2 scaling solutions. With the high cost of Ethereum gas fees at the moment, we decided it was an appropriate topic to delve into. But Why Do We Need Layer 2's In The First Place? All blockchains have their limitations. They make tradeoffs to provide a specific service to their end-users. Vitalik Buterin, the creator of Ethereum, has dubbed it the blockchain trilemma
Trust is essential to a societies prosperity. It is fundamental to economic coordination and underpins the way a society operates. If there is a lack of trust in society, transaction costs are high. There are many types of transaction costs that we incur when we enter into a transaction, and generally, one party always stands to gain more than the other if trust is violated. Therefore, the party that stands the most to lose will often expend resources to ensure that the other party does not violate the conditions of their agreement.
“Bitcoin has no fundamental value” has long been the war cry for many traditional financial participants. This week we thought we could shed some light on this short-sighted mantra.
One of the most common questions we get when talking to people about digital assets usually concerns the difference between Bitcoin and Ethereum. We believe this confusion stems from the idea that both of these assets compete with each other as money.
Money has always been technology. It allows society to store time, effort and sacrifice today and redeem it for time, effort, and sacrifice in the future. Similar to how a title deed gives the holder a claim on a property, money is a claim on human time. When we exchange our time for money we hope that it can hold value for long enough to enable us to trade it for something we want.
The society we live in today is obsessed with the idea that monies only role is operating as a medium of exchange. After all, this property of money is essential, if nobody wants to transact using it then it’s not exactly useful as money. However, there is always an opportunity cost when using money. This cost has a lot to do with a market participants time preference. Time preference refers to the ratio at which individuals value the present compared to the future.
Our banking and financial networks of today are simply communication networks for settling financial transactions, they guarantee that transactions will be processed, executed, and settled. Banks are responsible for interfacing with these networks on behalf of their clients — sending the right messages and responding appropriately to messages received. The internet brought us, as users of banks, that much closer to their messaging network, allowing for online banking and fast mobile payments all whilst hundreds of bank branches closed across the globe.
In order to understand why scarce money has value we need to address time. Time, after all, is the most valuable thing we have. Some people are blessed with many years, whilst others are not so lucky. It is the one resource we all have in limited supply.