Ethereum is probably one of the biggest crowdfunding initiatives that happened, all of that without VC firms, according to a famous former GP of a16z. So anyone could have been part of that crowdsale, even you. In case you did, you are now probably a millionaire.
“Now anyone could be an investor in one of the most cutting-edge technology companies out there. All they needed was an internet connection and at least 0.01 bitcoin.”Russo
In fact, to this day, Ethereum has probably performed better than Bitcoin in some regards. Even websites have popped up, showing that Michael Saylor and his company Micro Strategy would have been better off buying Ethereum instead of Bitcoin.
Nevertheless, we are not here to advise you on buying or not buying Ethereum. This article is here for educational purposes only. We will try our best to give you a nice overview of Ethereum. We will show the past developments, its current standings and a future outlook.
Also, this article does not serve as financial advice. All investments are subject to risks, and past performance is not indicative of future results. Perhaps by the end, we’ll all be a little wiser, or at the very least, you’ll have another topic to debate about at your next dinner party.
Remember, when it comes to investments, certainty is a luxury. But understanding? That’s a goal worth chasing. So, without further ado, let us start with an overview of Ethereum.
Launched in 2015, Ethereum was founded by a team of developers led by Vitalik Buterin, a prominent figure in the blockchain community.
Ethereum’s main goal is to provide a decentralized platform for building apps, organizations, and conducting transactions without relying on a central authority. This means users can maintain control over their personal data and assets without handing them over to a third party.
While Bitcoin introduced the concept of digital currencies, Ethereum takes it a step further by allowing users to build and deploy decentralized applications on its network. This means that businesses and individuals can create their own custom blockchain-based applications to meet their specific needs.
One of the key components of the Ethereum network is its native cryptocurrency, ether (ETH). Ether serves as the fuel for the Ethereum network and is used to pay for computational power required for every action on the platform. This fee is paid in ETH, and as a result, users need to hold at least a small amount of ETH to use the network.
One of the major advantages of Ethereum is its decentralized nature. Unlike traditional financial institutions, which are controlled by centralized entities, Ethereum is governed solely by the decentralized participation and cooperation of its community. This means that anyone can participate in the network by running a node on a computer with a copy of the Ethereum blockchain data.
Ethereum, second to Bitcoin in market cap, has seen an eventful few years. Let’s paint a comprehensive analysis of the last 5 years, from 2008 to 2023.
Volatility: Ethereum, much like other cryptocurrencies, is known for its volatility. This is apparent from its price fluctuations: its lowest dip was at $82.83 in December 2018, whereas it reached a zenith of $4,780.73 in December 2021, showcasing an astounding growth of over 5674%.
The Ascend from 2018 to 2021: Starting from a mere $113.40 in December 2018, Ethereum witnessed a roller-coaster ride, reaching its all-time high by December 2021. In fact, 2021 was a stellar year for Ethereum, with its price nearly tripling from January ($737.71) to December ($4,623.68).
Stumbles in 2022: 2022 proved to be a more challenging year for Ethereum. It began the year robustly at $3,683.05 in January but faced a massive decline by June, dropping to $1,067.30 – a decrease of over 70%.
Recovery and Stabilization in 2023: The year 2023 has so far been about stabilization. Ethereum’s price recovered from the dip in 2022, beginning at $1,196.71 in January 2023 and seeing a steadier trajectory till September, where it stands at $1,671.16.
Metrics to Note:
Volume & Market Cap: A noticeable observation is the enormous surge in trading volume, from just $2,358,360,234 in December 2018 to a gargantuan $206,194,132,396 in June 2023, indicative of Ethereum’s growing popularity and adoption. The market cap, correspondingly, has seen substantial growth, highlighting Ethereum’s increasing market share and relevance.
From a trading perspective, it’s worth noting that Ethereum and Bitcoin share a strong correlation of around 90%, implying that their price movements are closely aligned.
Ethereum, over the last five years, has showcased both its resilience and vulnerability. Its journey encapsulates the broader crypto narrative – incredible potential but not without challenges. For investors, the ride has been nothing short of thrilling. As for the future?
Ethereum’s fundamentals, combined with its adaptability, make it a coin to watch. Moreover, it is not only a currency but also a technology, so let us look at the technological advancements surrounding Ethereum.
From a technological perspective, Ethereum is empowering the crypto sphere in the context that it allows people to create “DApps”. DApps are decentralized applications that are the pillar of the crypto sphere. These decentralized apps have almost an infinite amount of use cases. Every tech app you use today can probably be built as a crypto-native app on Ethereum. In this section, we will briefly discuss what became possible with Ethereum and what comes next for Ethereum.
Firstly, A big thing in the last few years was that Ethereum went from a Proof-Of-Work Implementation to a Proof-Of-Stake implementation. The Ethereum Merge was highly anticipated and went through flawlessly in 2022. With that change, Ethereum managed to use 99% less energy.
Compared to other services like YouTube or Data Centers, Ethereum now consumes a tiny amount of energy. This smaller energy footprint can make Ethereum a more environmentally friendly choice in the realm of digital services and platforms.
The next improvement that is affected by this change is that Ethereum stakers were finally allowed to withdraw their staked ETH. What must be stated is that 70% of staked ETH is on centralized exchanges currently, which is not really in favour of decentralization. However, with time and improvements, the plan is to become more decentralized, as the future roadmap will show.
Also, with the implementation of Ethereum 2.0, the digital ecosystem has significantly improved its transaction speed and scalability. Using the Proof-of-Stake (PoS) consensus algorithm and sharding, Ethereum 2.0 can process anywhere from 20,000 to 100,000 transactions per second, which is a massive improvement from its previous rate of 15-30 transactions per second on the Proof-of-Work network. This exponential increase in speed has helped clear up network congestion and kept gas fees low. This is also reflected in the roadmap of Ethereum, which is all about becoming more scalable and efficient. So, hopefully, all future implementations will go down as smoothly as the last one, but what about the present day? How is Ethereum performing according to general metrics?
Daily Active Users (DAUs), representing the number of unique users engaging with the network on a daily basis, witnessed a decrease. Ethereum’s DAUs fell by 3% YoY. Although this marks a downtrend, the reduction is notably smaller compared to previous YoY declines, which hovered around 10%. This deceleration in DAU loss can be a positive sign of stability in user engagement.
Average Daily Transactions offer a perspective on the volume of daily operations. The network saw a decrease of 4% YoY in this metric. However, sequentially, the decline was marginal at 1% from the previous quarter. Such stabilization indicates the consistency of transactional activity, even if there’s a slight downturn. However, it must be noted that Polygon’s PoS chain averages 2.4 million transactions per day. If those transactions migrated to Polygon zkEVM chain or another Ethereum L2, it would nearly double the number of daily transactions in the Ethereum Ecosystem.
Total Value Locked (TVL) serves as an index of the overall assets tied up in a network. The Ethereum platform witnessed a significant 41% YoY drop in its TVL (when denominated in ETH), which points towards reduced capital commitment or possible migration to other platforms or Layer 2 solutions.
Speaking of Layer 2 solutions (L2s), the Ethereum Ecosystem has been bolstered by the growth of L2s like Arbitrum, Optimism, and others. These solutions, designed to provide faster and cheaper transactions, have compensated for Ethereum’s static DAU growth. Astonishingly, while Ethereum’s DAUs have been stagnant since 2021, the broader Ethereum Ecosystem saw a doubling of its DAUs, soaring from 400,000 to 800,000 in just a year. Furthermore, the combined average daily transactions from these L2s added about 2 million to Ethereum’s native 1 million, tripling the entire transaction count annually.
Total Fees, the charges users pay for executing transactions, experienced a YoY decline of 17%. However, in stark contrast, there was a 56% sequential growth, driving Ethereum’s net income up by a whopping 187%. This fee dynamic, in tandem with Ethereum’s token burn mechanism, resulted in 0.8% of the token supply being incinerated, a substantial increase from the previous 0.3% burn rate.
Key takeaways from this data reiterate the pivotal role of L2s in sustaining and expanding the Ethereum ecosystem. Additionally, while Ethereum’s own metrics are slowing down, the consequent rise in fees and the token burn mechanism present interesting dynamics for the future valuation of individual tokens. The intricate balance between Ethereum’s native operations and its broader ecosystem, inclusive of L2s, will likely shape the platform’s trajectory.
In the midst of a challenging climate for cryptocurrencies in the US, Ethereum, like other digital assets, finds itself navigating turbulent waters. Allegations of an “Operation Chokepoint 2.0” have arisen, suggesting that banks might be limiting services to certain sectors, including the crypto industry. This, coupled with the legal ambiguities surrounding the classification of various crypto assets, is fueling uncertainties. While efforts intensify to delineate clear securities from commodities in the crypto sphere, with Bitcoin often cited as a commodity example, the path ahead remains fraught with risks.
Contrasting regulatory landscapes worldwide further complicates the matter. Countries like the UAE stand out as crypto havens, endorsing innovation and drawing substantial investments. Conversely, certain nations have taken a stringent approach, imposing outright bans on cryptocurrencies or penalizing their use. Speculation even hints at the possibility of the US really wanting to start a war on all cryptocurrencies.
What is more, it’s essential to recognize that Ethereum’s trajectory is closely tied to the broader acceptance of cryptocurrencies.
Source: Google Trends for ‘Crypto’ and ‘Bitcoin’
Currently, the overall industry grapples with a declining trend in terms of social adoption, however, investors might view the current scenario as a potential opportunity as they can buy at lower prices. Also, with cryptocurrency, we know that the public interest can spike within weeks and give us all another bull run like in the past.
Besides the ongoing regulatory and adoption factors that might or might not persist and are somehow out of the hands of developers, there are several other challenges that can be addressed. Probably the main challenges that Vitalik himself also confirms are scalability, fees and UX.
“Along with the all-important issue of high transaction fees due to scaling not yet being fully solved, user experience is a key reason why many Ethereum users, especially in the Global South, often opt for centralized solutions instead of on-chain decentralized alternatives that keep power in the hands of the user and their friends and family or local community.”Vitalik Buterin
However, there is already progress on that. Similarly to how the internet was built out, technology adapted and improved against all odds of what experts said. Hence, Ethereum is still a work in progress, but in the end, it will hopefully get to completion.
“User experience has made great strides over the years – in particular, going from an average transaction taking minutes to get included before EIP-1559 to an average transaction taking seconds to get included after EIP-1559 and the merge, has been a night-and-day change to how pleasant it is to use Ethereum. But more still needs to be done.”Vitalik Buterin
Other things besides scalability and technological feasibility is also the search for a use-case. For example, during the all-in summit, there was a conversation between Brian Armstrong, the CEO of Coinbase and David Sachs, a famous VC. In this conversion, Mr. Sachs doubted the ambitious future of a “world computer” aka. Ethereum will have real use cases:
“There was a lot of talk for a while, especially during the very frothy, bubbly period that there’d be all these use cases, like running social networks on the world computer. However, there’s been a correction from that. People now realize that for many applications, a centralized database would be more efficient than blockchains. The question now is, where do we stand in terms of proven use cases beyond Bitcoin’s store of value?”
Finally, another challenge that always comes up is security. Applications on Ethereum are no stranger to being hacked. The most notable hack was probably the DAO hack in 2016 where $60 million were almost stolen.
While it’s true that Ethereum has faced significant security challenges, such as the DAO hack in 2016, it’s crucial to differentiate between the inherent security of the Ethereum protocol itself and vulnerabilities within third-party applications built on top of it. The Ethereum blockchain and protocol have proven to be highly resilient and secure over the years. Most of the widely publicized “hacks” have resulted from vulnerabilities in smart contract code or mistakes in third-party applications rather than flaws within Ethereum’s core architecture.
Moreover, the Ethereum community’s response to security challenges has often been commendable. Following the DAO incident, the community came together to implement a hard fork, creating what we now refer to as Ethereum, ensuring the stolen funds did not benefit the attacker. Since then, the ecosystem has significantly matured.
Compared to other projects that try to achieve similar things like Ethereum, Vitalik said this:
“They (Cardano) really emphasize these big academic proofs for everything, whereas Ethereum tends to more okay with heuristic arguments, in part because its just trying to do more, faster”Vitalik Buterin
That is also really showing in the real world, as still, Ethereum is definitely the leader when it comes to development and adoption. Ethereum ranks second after Bitcoin by market cap. According to a survey, Ethereum awareness stood at 19.49% globally as of 2021, with ownership levels at 2.38% among respondents (owners and non-owners of crypto). However, adoption rates increased when the question was posed to crypto owners, with around 25% of crypto owners holding ETH tokens. Interestingly, for the first five years of its existence, Ethereum had a faster adoption and growth rate than Bitcoin, with ETH addresses being four times more than Bitcoin addresses during this period. This was attributed to the ICO boom that saw thousands of applications and blockchain ecosystems created, all depending on ERC20 tokens.
In 2014, Vitalik predicted three main applications of Ethereum in the whitepaper.
The first category encompasses financial applications, which aim to empower users to manage and execute contracts using their money in more efficient ways. This includes a variety of sub-currencies, financial derivatives, hedging contracts, savings wallets, wills, and even employment contracts.
The second category, known as semi-financial applications, integrates money in addition to non-monetary elements such as self-executing bounties for solving complex computational problems.
The final category comprises non-financial applications like online voting and decentralized governance, which demonstrate the versatility and potential of the Ethereum platform beyond just financial use cases. There are many companies that use Ethereum for these new use-cases, some of them: MakerDAO for a smarter currency, Civic for digital identity, or even Morpher for painless trading.
In his updated blogpost Vitalik went on to name a few applications that still excite him in the Ethereum ecosystem. The pivotal part here is that he argues that the exploration part for Ethereum is done, and he is excited about the applications that have gained traction:
“Hence my change in perspective: my excitement about Ethereum is now no longer based in the potential for undiscovered unknowns, but rather in a few specific categories of applications that are proving themselves already, and are only getting stronger. “Vitalik Buterin
1. Money: the first and still most important app
2. Defi: keep it simple
3. The identity ecosystem: ENS, SIWE, PoH, POAPs, SBTs
From these advancements and applications, it’s evident that Ethereum isn’t just a cryptocurrency but an entire ecosystem that’s fostering a new wave of decentralized applications and financial systems.
While Ethereum holds significant promise and has shown commendable growth, it should be approached as part of a diversified investment strategy. This ensures that even if Ethereum faces unforeseen challenges, your portfolio is still sound. For those bullish on Ethereum’s future, add staking into your strategy for additional returns, but this, too, should be balanced with a broader, diversified investment outlook. In essence, diversification is not just a strategy but a safeguard against the unpredictable nature of markets.
In conclusion, we hope this article shows you that Ethereum stands out not just as a cryptocurrency but as an ecosystem ready to revolutionize the digital landscape with decentralized applications and novel community systems. Now, in the current market phase, technological and political challenges are coming up that will influence the future of Ethereum and crypto in general. Only time will tell how Ethereum will come out of these turbulent times.
Indeed, Ethereum will continue to be the backbone for awesome new companies like Morpher. Thanks to Ethereum, Morpher can create a better trading experience than traditional investment platforms in almost every possible dimension.
“But the same creative patterns that happened in the 2000s live on today, driven by enthusiasts who see possibilities where others don’t. You just need to know where to look. My belief is that the best place to look is crypto and web 3.”Chris Dixon
Precisely due to all these innovative applications being created on top of Ethereum, many believe investing in ETH might be an intelligent move with huge upside potential. But before you decide to put your money in, ensure you understand what you’re getting into and seek guidance from financial professionals before making any investment decisions.
Disclaimer: All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual’s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, and liquidity needs. This post does not constitute investment advice.
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