Thread by @RyanBerckmans

1/ ETH/BTC flippening explained at a mechanical level.

Compared to ethereum's proof of stake, bitcoin's proof of work is too expensive. Here's why.

2/ If we think of ethereum and bitcoin as "corporations", then their "corporate revenue" is equal to transaction fees.

That's the money coming in. Can't pay transaction fees without first owning ETH or BTC.

3/ In PoW, that fee revenue doesn't stay on the "corp balance sheet". 100% of fee revenue, along with 100% of issuance, is paid to miners. Then the miners *necessarily* pay ~100% of their revenue to hardware and electricity suppliers...

4/ ...because PoW miners are willing and able to incur up to $1 in cost to obtain $1 in revenue. Ie., on average, miners pay ~100% of block rewards (fees + issuance) to their hardware and electricity suppliers.

5/ If the idea of miners making no money seems wrong, feel free to think of it as 90% of block rewards. 90% of billions of dollars is still billions of dollars, so the result doesn't change.

6/ As PoW "corporations", ethereum and bitcoin suffer a "net loss" each year in the amount of total block rewards (fees + issuance). The manifestation of this net loss is miners needing to sell ETH or BTC to cover their expenses.

7/ PoS redefines the very nature of inflation, making it more like, let's call it a harmless but significant quirk, instead of a "corporate expense":

8/ In PoS, the total global hardware and electricity for all validators will cost something like a flat $200M per year, forever, which is so cheap that it rounds to $0. There is no external supplier to whom our "corporation" must pay ~100% of block rewards.

9/ Since any ETH holder can become a validator, PoS issuance merely affects the proportion of ETH holders that choose to become validators. Ie. issuance in PoS is a wealth transfer from non-validators to validators, not an expense on the "corp income statement". Unlike PoW.

10/ A PoS "company" enjoys a profit each year in the amount of total fees. This profit accrues to ETH holders, as transactors must buy ETH (or forgo selling ETH they already have) to pay for gas. At a theoretical level, it'd work this way without EIP-1559. But EIP-1559 is great!

11/ When PoS launches, ethereum will become an honest-to-goodness "profit-generating company", with fee revenue accruing to ETH holders. In contrast, bitcoin will always suffer losses each year in the amount of total block rewards.

12/ Here's the final "corp income statement":

PoW revenue = PoS revenue = fees

PoW expense = block rewards = fees + issuance
PoS expense = ~$0

bitcoin net income =
fees - (fees + issuance) = -issuance (a huge loss)

ethereum net income = fees - $0 = fees (a huge profit)

13/ The fact that bitcoin will incur a huge loss forever vs. ethereum will make a huge profit ~forever is the main reason why I expect the flippening to occur no later than two to three years after ethereum launches proof of stake.