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“If you want to know the real secret of Walt’s success, it’s that he never tried to make money.”
— Ward Kimball, Disney animator
Andrew Keys is an Ethereum OG whose credentials include attending the first-ever Ethereum meetup in 2014 and making ETH worth more than a dollar.
“The first time Ethereum crossed $1 was because I put a permissioned version of the Java client of Ethereum on top of Azure,” he said on the Empire podcast, “and we put out a 100-word press release in the Wall Street Journal with Paul Vigna creating a concept of blockchain-as-a-service.”
Reading Vigna’s write-up from 2015 is a reminder of how little has changed in the 10 years since.
The narrative justifying $1 ETH was that Microsoft’s Azure would use Ethereum to “improve operations from accounting to logistics to cross-border payments and settlement.”
It never really happened, but we’re now racing toward $5,000 ETH largely on the same idea that Ethereum will be the corporate blockchain of choice.
This remains speculative.
Ethereum generated $1.4 million of REV yesterday — more than it did in 2015, of course, but not a lot relative to its $4,400 token price and $531 billion market capitalization.
Keys, however, thinks that valuation is low because Ethereum is underpricing its services.
“At the expense of near-term profitability, the Ethereum Foundation decided to make L1 blob space dirt cheap,” he explained. “I think in time, the Ethereum community is going to say, ‘Well, this is too cheap,’ and you can raise that pricing.”
Consider this the Uber theory of Ethereum’s value: “Once Uber became ubiquitous, they tripled prices,” Keys notes.
He expects Ethereum to do the same: “As blockspace becomes more competitive, you can raise prices.”
Uber is an extreme example of a standard playbook for profit-maximizing corporations, so I see why he cites it.
But layer-one blockchains are not corporations — and I’m not sure they’re meant to be profit-maximizing.
Instead, I thought the idea was to make blockspace as cheap as possible (without sacrificing decentralization), so we can get as much stuff onchain as possible.
If token holders make money in the process because the blocks fill up and transactions get expensive, that’s great.
But making transactions expensive just so token holders make a profit seems…not very crypto?
Layer-one crypto tokens do have to have value, mostly to deter spam and provide security.
But, ideally, any additional value would come from higher usage, not higher prices.
And even if profitability were the primary goal, higher prices might not be the way to achieve it.
As a future source of profits, Keys cites “blobspace” — a cheap, dedicated lane on Ethereum for temporarily making large amounts of data available for anyone to validate.
But does blobspace have a moat?
“Making data available” doesn’t sound like the kind of differentiated service that would have pricing power — how hard can it be to store some data?
I’m guessing Keys would argue that Ethereum will have pricing power because of its security guarantees, brand and market capitalization.
But that remains speculative at this point and I’d counter that it’s easier to start a new blockchain than it is a new riding-sharing service.
So I’m not sure Uber’s is the best business model for Ethereum to emulate.
The Walt Disney way
Ward Kimball attributed Walt Disney’s riches to never trying to become rich: “If you want to know the real secret of Walt’s success, it’s that he never tried to make money. He was always trying to make something he could be proud of.”
Disney told his staff never to mention costs to him — if something made a film or his parks better, he wanted it in, whatever the price.
He built a zoo on the studio lot so animators could study animals while making Bambi. He insisted that the gargoyles on Disney World castles, too high up for anyone to see, be sculpted in full detail.
For Disney, animation and theme parks were passion projects that he pursued against all financial advice, often to the brink of bankruptcy.
It worked out in the end, of course — which proves that sometimes, the most profit-maximizing thing is to not maximize profits.
In other cases, the most profit-maximizing thing is to not make profits at all.
Linus Torvalds, for example, made his fortune by offering the Linux operating system for free. Forever.
It’s easy to imagine Torvalds would now be even wealthier if he charged even a few cents for the use of Linux — billions of devices run on the software he invented, from which he collects exactly $0.
But Linux became a global phenomenon precisely because it was free to use and free to build on — a freedom that turned users into contributors.
Torvalds developed Linux with the help of thousands of enthusiasts eager to contribute to the open-source project simply because they believed in it.
With access to the source code, users didn’t just report bugs to Torvalds — they often sent him the fix, too.
In the early days of its development, this allowed Torvalds to release updated Linux kernels as often as every day.
It’s impossible to imagine Microsoft releasing new versions of Windows every day.
It’s equally impossible to imagine that Linux could have been built any other way.
Today, Torvalds is variously estimated to be worth between $50 and $150 million — a big number, for sure. But also a tiny slice of the unmeasurable value Linux has created for the world.
Still, a tiny slice of a giant number is generally better than a giant slice of a small one.
If Torvalds had charged for Linux, his slice might have been 100% of nothing.
Unlike Linux, Ethereum can’t be free — the chain won’t work unless there’s a cost to using it.
But it doesn’t have to maximize profits, either.
