# ETH is permissionless money by mike neuder | Devcon SEA

- Channel: [Devcon](https://streameth.org/devcon)
- Date: 2025-10-09
- Duration: 25:56
- Topics: blockchain, smart contracts, distributed ledger, ethereum, Science & Technology
- Watch: https://streameth.org/watch/yt-9pQKaeYwWjs
- YouTube: https://www.youtube.com/watch?v=9pQKaeYwWjs

## Description

ETH is money! In this talk, we will explore the role of Ethereum's native asset on the base chain, in the L2 ecosystems, and in crypto broadly. We discuss the ETH supply, what it means to be permissionless money, how ETH is being used today, and how it's role can evolve.

Speaker(s): mike neuder
Skill level: Beginner
Track: Cryptoeconomics
Keywords: Censorship Resistance, Decentralization, Ethereum Roadmap

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## Transcript

[Music] hello can you hear me how loud enough cool right no slides yet is everyone having a good [Laughter] day say again been there cool sweet yeah hey everyone my name is Mike I work at the ethereum foundation and the title of my talk is eth is permissionless money but the subtitle is the ticker is eth cool so I'm going to split the talk into two halves the first I'll I'll talk about what it means for E to be permissionless and the second half we'll talk about what it means for eth to be money so to motivate the permissionless I have a few quotes first from hyek in the road to surum what our generation has forgotten is that a system of property private property is the most important guarantee of freedom and the second is very similar for Milton Freedman I think that nothing so important for Freedom as recognizing in the law each individual's natural right for property so both of these kind of are the core thing that brought me into crypto in the first place which is this self- sovereignty self- custody over digital property so let's talk about property rights of eth kind of on L1 first and foremost and I'd like to summarize this with kind of the one sentence description which is anyone can permissionless store send and program eth the native asset right this is kind of table Stakes for for what ethereum was trying to be in the very first place and it's actually pretty wild if you think about it right like you can send money globally for you know a few cents and no one can stop that and importantly like that is this um censorship resistance and private property and settlement insurances that eth provides that gives it the true differentiation from the traditional Financial rails that we have today so I have a a diagram to help kind of map this out and we'll use many of these diagrams as we talk about scaling Etha asset and scaling property rights to to other uh ecosystems too so here we have eth mainnet we have a few accounts we have Unis swap which is a contract so kind of the first primitive that we have is this transfer right this is the ability to send eth from one account to another we also of course have this ability to program eth and the canonical example here is that we can send money from the account number three to Unis swap the pool allows us to swap it for die and this is kind of like the the original promise of eth and the programmability of eth on the layer one itself but as we all know ethereum is not just the L1 at this point right like it has grown to to much broader ecosystems and there's now all of these rollups and part of ethereum scaling plan is actually through the rollup Centric road map so the natural next question is to say okay what are the property rights of eth on rollups themselves and here I'm using rollups in the canonical sense which is these are ethereum smart contract rollups that post their transaction data to ethereum blobs so that's like a very important distinction and we'll talk about how that actually impacts the property rights of eth across um rollups versus other l2s the one sentence summary here is that anyone can permission permissionless bridge eth in and out of rollups and this isn't to say that you will be able to do any defi activity or you'll be able to buy any nft on any rollup permissionless because rollups make some sacrifices in terms of the decentralization in order to actually scale to be able to handle like Global volume but the core property rights of eth come from the ability to bridge in and out permissionless no matter what the sequencer does to you so to kind of represent this we have a second diagram and this diagram has kind of expanded a little bit we now have ethereum main net on the left we have included the da layer here and the blobs are represented as those uh kind of pink circle things and then we also have an ethereum roll up on the right and the first kind of operation is we send eth from an account into the bridge the bridge is just a smart contract that lives on ethereum Main net and that bridging in is reflected in the ethereum rollup state so now we're credited account one with some amount of eth and the underlying eth is actually locked in this bridge on the etherum L1 of course you can transfer eth on the rollup you can do defi on the rollup you can buy your favorite nft but the thing I'm going to focus on is the ability to withdraw your eth from that rollup permissionless so let's say that the rollup sequencer went offline or started censoring you for whatever reason you still have this ability to force withdraw and the force withdraw to me is the the most important part of interacting with a rollup which is you still retain the strong property rights of eth no one's able to censor or block that transaction um and that's that's kind of like why ethereum rollups are are scaling not only ether's block space and the ability to consume and and interact and do cool stuff on chain but they're also scaling the property rights of eth asset itself the force withdraw is able to process because it can check the of that withdraw against ethereum's da itself so this is kind of the important precondition that says hey this etherium block also has a commitment to some set of transactions that took place on the L2 and that allows us to process the withdraw fully so again this is kind of part of the rup Centric road map and it it's what makes uh rollups in particular such a special construction for scaling ether the asset cool so the the Third and kind of final permissionless um use of eth that I'm going to talk about is how the property rights of eth on non ethereum da l2s look and this is a bit of a mouthful but the one sentence summary here I put the kind of important part up front and italicized it which is if the external da layer is live anyone can permissionless bridge eth in and out so now suddenly like the the property rights of our assets have changed right it's it's no longer just ethereum it's no longer the decentralization of the whole ethereum validator set but actually now you have an external dependency and that fundamentally changes the sovereignty of the assets that you're holding in that rollup now that's not to say that no one should ever use a non- ethereum DA rollup I think there's there's places for that you know social fi uh gaming and these types of things but I still feel like anything any um activity that needs the strong settlement insurances and strong property rights of e of the asset needs to take place on ethereum rollup itself right third diagram so we've kind of added something different which is this other blockchain now it doesn't necessarily have to be another blockchain it could be just uh you know a Amazon web services cluster that's running in Us East one but the PO important thing is that there's an external source of Da and this is where the transaction data is being posted um for the for the L2 so the bridging in looks very much the same as before you send eth from an account into the bridge the bridge is a smart contract on ethereum L1 which gets reflected into the account on the ethereum optimium I'm using optimium as Shand um this is the word we use to describe optimistic l1s that post their da to an external data source again you can do all of the kind of money verbs that we described before as long as the L2 that is sequencing those transactions is online and is not censoring you but we're not too interested in that we're curious still about the property rights of eth as it pertains to when you hold it and Bridge it over to the optimium and there's still a force withdraw mechanism this is kind of the same pattern that we saw before of you need to get your eth out and kind of withdraw it to the to the base chain let's just say the the sequencer is offline but suddenly you have this dependency which is you need to check the validity of that Force withdraw against some external data source now this could be totally fine and in the happy path hopefully that withdrawal will be processed normally but again this is kind of the security trade-off that you make by interacting with this system that doesn't fully depend only on ethereum itself cool and before we go into the the money stuff I also wanted to kind of point out the fact that usdc and usdc have no property rights right I think a common misconception is that like people think oh programmable money like usdc is great I can it's an erc20 token I can send it into all these smart contracts it has all these nice interfaces that that are exposed but but fundamentally this is Neo bank money right so these two um these two Dune dashboards show the number of um blocked or blacklisted addresses for tether on the left or sorry usdc on the left and usdt on the right and effectively if if Jeremy oair decides that you don't have you know access to your property he can shut off the um the access to your usdc so this is very similar to the traditional Financial world where the government has control over your own property and you should be aware of that when you're using these tokens so in in one sentence this right so to summarize the permissionless of ether the asset eth is programm permissionless and programmable on the L1 rollups scale the property rights of eth property rights on non- ethereum da l2s depend on another chain and usdc and usdt have no property rights cool so now jumping into the second half we're going to talk about eth's money and to motivate this section I have two quotes the first is another macroeconomist John mayard KES by continuing process or by the continuing process of inflation governments can confiscate secretly and unobserved an important part of the wealth of their citizens so this kind of motivates why so much attention is paid to the monetary properties and the supply of e the asset in particular particularly the inflation rate and how that redistributes wealth between the people who are being kind of inflated against and those who are protected against that inflation and the second is a quote from David Graber money has no Essence it's not really anything therefore its Nature has always been and presumably always will be a matter of political contention so the point here is to say that this is just my view of what eth money means and hopefully you know this helps inform and kind of give you a framing for thinking about it for your own context but this is certainly not like the end all be all of the discussion of what eth's money actually means cool so to start I thought it would be useful to do a brief history of The Ether Supply so on the far left we have 2016 this is like right post Genesis and on the far right we have um today and we see that the the supply has gone through kind of a few big regime changes and I'll highlight five different uh time stamps so first on October uh in October 2017 we had the Byzantium hard Fork which changed the ethereum block reward from 5 eth per block to 3 eth per block this is important because it changes the slope of the inflation or of the supply growth over time very similarly in 2019 we had the Constantinople hard fork and EIP 1234 reduced that three eth block reward to a two e block reward in August 2021 the London hard Fork introduced e155 9 and this is when the burn was activated and we'll talk about the burn in a little bit but the the kind of key feature in the total Supply is that we see that instead of being like a straight monotone increasing line we now have some variability in the growth of the supply and that variability comes from the amount of eth being burned through transaction fees and that's variable it depends on demand but now we're kind of into this regime of of burning eth along with the inflationary pressure from the issuance the kind of most important point I would say in this plot is September 2022 this was the merge no more proof of work rewards and you can see that at that point we've basically stopped the growth of the supply of ether and the last point is in March 2024 earlier this year the Denon hard Fork introduced 444 in which blobs arrived and yeah effectively some of the activity that was taking place on the L1 some of the activity that was burning eth on the L1 migrated to l2s but the overall impact on the total Supply is is almost negligible right like you barely see that inflection point um and that's kind of a key takeway too of of the overall Supply mechanics of of eth currently cool so briefly I'll I'll do some back of napkin math for what the current eth inflation rate is I think it's interesting and um kind of going through the numbers so there's 120 million ether Supply and about 28% of it or 34 million is staked at that uh stake rate that corresponds to about a three and a quarter percent yield meaning that over the course of a year we have 1.1 million new eth created Which is less than 1% annual inflation right so like compared to Fiat money this is already way better um all things considered salana inflation looks a little different they have a supply of 588 million tokens and 40 mli 400 million of them are staked which is about 68% and out a 7% yield so this corresponds to 28 million Supply uh increase in Supply each year or uh 4.7% annual inflation rate so five times higher than ether inflation it's also interesting to look at Bitcoin inflation now it's it's kind of confusing because people don't think of Bitcoin as inflationary but of course there still are block rewards and the current amount of circulating Supply is only 1978 of the total 21 million Bitcoin and for the next four years there'll be 3.125 Bitcoin per block corresponding based on the 52,000 blocks per year to 164,000 bitcoin per year so the takeaway here is that the 8% inflation annually is about the same as The Ether inflation which is kind of kind of interesting to think about now of course billion does have this 21 million promise and that is the inflation rate of Bitcoin gets cut in half every four years in perpetuity and this is from the Satoshi white paper it says once a predetermined number of coins have entered circulation the incentive can transition entirely to transaction fees and be completely inflation free now this sounds great in theory right like you know you know there was uh the the Maynard kan's quote about uh inflation being the way that the government taxes us um however there's still kind of this fundamental question which is how does the instability of proof of work with only transaction fees get resolved right and in particular this this plot shows transaction fees of Bitcoin over the past six years and you can see that there's about a two-year period from mid 2022 to Mid 2023 oh sorry mid 2021 to Mid 2023 rather where the average uh fees generated during each Bitcoin block was like far less than a single Bitcoin itself so the the kind of question that naturally arises is how can you sustain the economic security of a chain based on such low amount of transaction fees over like a two-year time Horizon and that's why ethereum's kind of long-term issuance policy is not to actually go to zero but to have both inflation and burn and during periods of high volatility the burn will absorb a lot of that inflation maybe we'll go net deflationary maybe we'll kind of just offset inflation altogether but during periods of lower activity lower volatility kind of the natural um recessionary kind of downturn then there's still incentive to behave honestly in the system and the kind of overall micro um decisions that stakers need to make should still be um aligned with behaving honestly and following the protocol rules one kind of really interesting example is when Babylon chain launched this was just a few weeks ago 12 weeks ago the Bitcoin block reward went from 0.3 bit bit coin per block to 15.5 over the course of four blocks right so this is actually a 500x increase in the value of a block over the course of of 40 minutes so clearly this is um a a situation which would call into question the stability of the fork Choice rule when someone mining on this chain sees that they have a 500x opportunity if they try and um remove the latest block on the chain and and create one of their own so again this is this is a question that's still unanswered um in terms of how the long-term security model of Bitcoin will resolve itself so the takeaway here eth has low and sustainable inflation and we haven't even talked about the burn right we're 17 minutes into the talk and about money and we haven't even talked about the burn how crazy is that so first I'll I'll kind of cruise through this because the the burn stuff is is well covered by many people including um Justin and the ultrasound money meme so we're currently burning about uh 476,000 ether per year which is after like this is the 30-day level and this is after a lot of activity has already migrated to the L2 so when people um talk about the burn going to zero it's like clearly not true we're still burning almost half of the total issuance per year just from L1 transaction fees and obviously this depends highly on market conditions so during High periods of volatility like the past few days when eth is pumping when everything's going crazy then we might end up burning a lot more than during uh quieter times so this is kind of what I mean when the burn absorbs large amounts of this inflation and and kind of serves as this business cycle um adjustment to the total Supply and yeah just reminder that the current inflation is only 1 million eth per year now we also have burn from The Blob fees right so one cool thing about L2 usage and the kind of rollup Centric road map that we defined earlier is that the l2s that that post blobs to ethereum Da actually pay for that service um currently the they don't pay much because the blobs are cheap but in the future there's a world where the average L2 transaction can remain very cheap but the blob fees actually do meaningfully offset the current e inflation and so just one last U napkin math calculation so if we have a DA layer with 128 blobs per slot and two Giga gas that's uh two billion gas per second that could correspond to either 95,000 transactions per second or 6,000 swaps that's just the total raw amount of gas that could be exposed through a da layer of that size now to to fully offset that issuance each of those 95k transfers would only cost one1 of of a cent right 01 and each of the swaps would be about a Cent and a half the blobs themselves all 300 million of them that are posted over a year would only cost $10 so the real tldr here is that transaction fees can stay insanely low and still burn a lot of eth and this is kind of part of the the beauty of actually like growing the block space and allowing more people to come on chain and grow the user adoption while still kind of seeing some of the the benefit of burning that comes from the blob fees right eth is money summary eth Supply is relatively stable inflation is low and sustainable the burn from L1 activity offsets half of the current inflation and L L2 activity Burns blob fees so I have 38 seconds left to do the full pict and it's basically just summarizing everything I said in a single diagram I love diagrams I love drawing these things so yeah we have kind of three concentric circles and I like to think of this as kind of the range of onchain growing uh in terms of security but also like hopefully opening up to more and more users so at the core we have the L1 then we have the rollups as we defined them earlier and optimums at the at the farthest Circle so first talking about permissionless at the L1 eth can be transmitted and programmed on the rollups you have this Force withdrawal mechanism that imbus the same property rights to eth on the l2s then on on rollups that it has on the L1 and on optimums you have the force withdraw mechanism that depends on the external da so all of these kind of come together and form this permissionless story for ether the asset across the ecosystem going the other direction we have the money properties of eth asset so we have the burn on the L1 we have blob burn from roll-ups that consume ethereum da and on optimums we spread ether as a medium of exchange and unit of account these two terms are kind of what macroeconomics people usually use to describe money and we didn't get to talk about it too much today but basically spreading ether as as an asset that people care about can transact with and can use even in optimium and kind of side chains and all sorts of other constructions I think is super valuable and that's why I think eth is money too so together this is the whole picture of why I think eth is permissionless money and thank you very much for your [Applause] time thank you so much Mike great meeting you in person by the way we have tons of questions here from the audience we'll try to fit in on the five minutes we have the first question is when you talk about when you were talking about rollups you mean the stage two rollups specifically yeah so just a little context stage two defines kind of some of the security properties of rollups that um vitalic defined in an early post and stage two is kind of when the training wheels are removed from the rollup and there there's questions about is the Smart contract Bridge upgradable um yeah and so I think in the in the truest definition of rollup I do think about them as stage two no training wheels and they still post blobs to ethereum Da so yes all right can a dominant LST be permissionless money it's a good question I think not mainly because I don't see a construction where a dominant LST is not controlled by a DA and in the world where a DA has control over over the asset itself I don't see that as like a stable equilibrium and a long-term um valuable kind of antifragile way to hold your your value on chain so I say no oh for the next one I can answer the ticker is e um second one how does eth win and stay relevant for the next 100 years yeah um I guess I still believe in kind of the the core values that that valal talked about in his opening talk which is you know focusing on credible neutrality focusing on censorship resistance and kind of this World War III grade security I think that's kind of the only way to be antifragile in the way that we need to to last 100 years Mike do you believe in a named game for insurance can we figure it out a final IDE Insurance curve is it important for money as to avoid touching the score yeah so I I do think it's um it's a tough trade-off to make because money I think does depend on having strong assurances about the asset itself right like the first thing we talked about was the total Supply it has changed over time the issuance rate we went from 5 e to 3 e to two um I'm not sure sure if it's possible to find an ideal curve I think it it's an important question that hopefully more macroeconomics people will help help us think through um but I do think there um the risks of not touching the curve potentially outweigh the benefits of having um kind of not touched it if we don't in in that case so it's kind of a non-answer but I think we should at least kind of walk through the analysis of what's the risk of touching it like how does that impact the credible neutrality of the total asset itself versus the kind of risks of not changing it which is are um you have a very high stake rate you potentially have a single dominant LST um there's like there's many trade-offs and I think it it's hard to say um without a longer Forum yeah if e is pericial as money why do we need Bitcoin I think Bitcoin serves a role as kind of pet rock right you you sit and you hold it under your bed and it doesn't do anything but you know that like it's it's very stable but I think eth kind of represents something more Dynamic and I do think scaling the L1 in some capacity to make sure that we kind of have the have the strong um the strong settlement assurances and property rights for eth and it's still valuable to to interact with it on the L1 but also scaling it out to to rollups and validium make it a much more kind of useful uh interactive asset than than Bitcoin itself myself when M burn um I I don't know I'll defer that one to Barn maybe well for the last question to wrap up I think the audience wasn't happy with my answer so for Mike what is a ticker the ticker is eth Mike thank you so much thank everyone for joining this session