The rise of the Ethereum Economy

In our last article, we took a look at Bitcoin Mining.
In this article, we leave Bitcoin to look at Ethereum.

First conceived by Russian Computer Programmer Vitalik Buterin and launched by a number of other founders in 2015,

Ethereum has single-handedly launched a number of innovations that have helped blockchain spread from “just being Bitcoin” to being something that penetrates a great many industries including finance, art, music, logistics, insurance, real estate, sport, governance, charities and many more.

Whilst Bitcoin remains the oldest and largest cryptocurrency by marketcap & functions mainly as a store of value, Ethereum offers a greater number of use cases and utility for projects and organisations that are wishing to create new blockchain projects.

ERC20: a blockchain industry standard

Over the last seven years and still today, a large number of new blockchain projects begin by first launching their maiden cryptocurrency token as a Ethereum ERC20 token before migrating to their own token following their mainnet launch. Being the standard, also means that the majority of helpful apps that are built for blockchain and crypto users such as wallets, decentralised exchanges, storage and finance protocols are most commonly developed to work with ERC20 tokens. Factors, that make working with ERC20 tokens an easier experience, especially for newer users who are unused to working across different blockchains.

Ethereum Smart Contracts

Ethereum pioneered the use of smart contracts that helped to make the Ethereum blockchain the predominant platform for projects looking to build applications (DAPP’s). Indeed, Ethereum has been so successful in attracting developers and projects to its open source blockchain, that the fees or gas payable to process or run a single transaction on the network can sometimes run into hundreds of dollars. Price surges, that have helped to fuel the growth of competitor blockchains like Binance Smart Chain (BSC) and Solana (Sol) that have gas fees that are a fraction of Ethereum’s.

Notwithstanding, for those who users and projects who wish to remain in an Ethereum environment, albeit at a lower cost, there are a growing number of “layer 2” projects such as ImmutableX, Metis, Starkware, Polygon & Optimism that provide cheaper and faster off-chain (EVM) Ethereum compatible transactions.

ERC721: An NFT industry standard

There has been a lot of press and media about the growth of Non-Fungible Tokens (NFTs) in the last 12 months that are essentially a new class of asset and provide a means for people to store, distribute and sell the rights to almost any digital asset. Growth that has seen the largest online marketplace Opensea progress to sales of more than $4 Billion USD per month.

It is true, that there are purpose built NFT platforms outside of Ethereum that are doing well selling NFT’s such as Dapper Labs Flow Blockchain and also the WAX blockchain plus there is also NFT user growth on chains such as BSC, SOL, AVAX, MATIC & XTZ. However, ERC721 NFT’s minted on the Ethereum Blockchain continue to represent the lions share of the market, a pattern that is gaining the attention of popular influencers who are anxious to demonstrate their crypto “OG” status by purchasing select Ethereum NFTs.

A decentralized financial trend towards Ethereum denominated assets that is also engaging the more traditional part of the market;

The current market cap of Ethereum in circulation today is around $300Billion US dollars and growing.

Put another way, this represents the appearance and growth of a new global digital currency over the last seven years that presently has at least $300B USD worth in circulation running through the world economy. A figure that is greater than the entire 2021 GDP for New Zealand.

If we consider the growing price of Ethereum that has returned 1970x since launching at $1.25 USD and compare it with common inflation-eroded fiat dollars that most people receive their pay in and hold in their bank savings accounts. Then perhaps, it may not be surprising to gradually find more people asking to receive their salary in crypto? Whilst most of these people are asking to be paid in Bitcoin, it may only be matter of time before they start asking to be paid in Ethereum?

Or, for those without the risk profile or tolerance of Eth’s volatility for salary payments, they may choose to hedge against inflation by purchasing some Ethereum denominated assets, such as NFT’s that become cheaper when the price of Ethereum falls.

Ethereum Denominated Assets

For example, we can look at the period of 12th -24th May 2021, where the price of Eth fell from $4182 to $2120 USD. The graph below suggests that many Eth holders either switched out of Eth into stablecoins or took their Eth out of the exchanges altogether to purchase Ethereum denominated NFT’s which had just been discounted by 49% due to the Ethereum price correction.

Suggesting, that there could be an inverse correlation emerging between the price of Eth and activity in the NFT market.

Despite any possible correlations, for the legion of people who are new to crypto, without wallets, exchange accounts, seed phrases and passwords.
A managed purchase of an Ethereum NFT via credit card or mobile platform could be one of the fastest ways into the Ethereum economy that provides users with a visible identity of what they have bought, as opposed to buying and holding Eth itself which is harder for many to conceptualize.

A position, that is supported by recent Google Search data that is showing “NFT’s” are being searched for more than the word “crypto”.

The question “what can you buy with Ethereum?” is an important one, both now and in the future. Presently, NFTs are a hot ticket item for Ethereum purchases, but is it always likely to be the case?

If we can imagine a future when bank payment rails for making daily purchases of anything with Ethereum become common, then perhaps we might expect to see some greater spread of Ethereum purchases across a wider basket of goods and services.

In the meantime, Ethereum denominated assets that have the ability to free ride on the long term price increases of Ethereum, could continue to attract interest and investigation from a growing pool of the global community.

*The author of this article holds some small amounts of Ethereum

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