Undervalued Ethereum
Editor's Note: This article comes fromVernacular Blockchain (ID: hellobtc)Vernacular Blockchain (ID: hellobtc)
Ethereum started out as a blank canvas!
Vernacular Blockchain (ID: hellobtc)
Ethereum started out as a blank canvas!
You don’t have to look closely to see where Ethereum is headed. Protocols and applications built on Ethereum began to find product-market fit, quickly building a community of thousands of paying users.
Ethereum is an open, permissionless blockchain that developers can use to create any type of application they want.
This year, the early brushstrokes covering the canvas began to form a coherent picture.
You don’t have to look closely to see where Ethereum is headed. Protocols and applications built on Ethereum began to find product-market fit, quickly building a community of thousands of paying users.
Blank spaces on the canvas are no longer a source of uncertainty or doubt. Instead, they look more like opportunities: What can we build there?
Ethereum has grown more confident in 2019. With tough engineering problems solved, the technology roadmap clearer, and the largest community of cryptocurrency developers building apps that people actually pay to use.
This past year, it seemed like the Ethereum community had solved every major challenge facing the entire crypto industry:
DEX on Ethereum solves the problem of not needing to trust a third party by allowing users to conduct transactions without giving up their private keys
Smart wallets on Ethereum can solve tricky UX challenges without requiring users to relinquish control of their funds
Stablecoins like Dai on Ethereum are addressing the volatility issues that make other cryptocurrencies poor payment technologies. On Ethereum, peer-to-peer digital cash is not a dream, but is gradually becoming a reality.
This article is a summary of the most important developments and trends in Ethereum, which are important questions to ask when we look back ten years from now.
In our opinion, the biggest developments of 2019 were:
1. The Ethereum economy continues to grow. DeFi is still the largest segment on Ethereum, and we are seeing early signs of growth in gaming and decentralized autonomous organizations (DAOs).
3. Ethereum 1.0 improvements. Many projects brought significant performance improvements and chose directions for long-term sustainability.
4. ETH2.0 has made progress as an engineering project and laid the foundation for the launch in early 2020.
5. Steady progress has been made on layer 2, and new technologies have attracted the attention of the community. Rollups and zero-knowledge techniques are the biggest advances this year, while others, such as state channels, have made steady progress.
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In this year's review, we hope to place the adoption of Ethereum in the context of the cryptocurrency industry as a whole.
An obviously important metric is: what are people actually paying to use cryptocurrencies and decentralized applications?
Every time someone uses a blockchain such as Bitcoin or Ethereum, they pay the miners a small fee. Here are the total fees paid in 2019:
image description
Source: Coinmetrics
The graph shows the top 16 blockchains, ranked by the fees paid to use themThe reality is that there are only two blockchains of significant utility: Bitcoin and Ethereum.1. The Year of DeFi
In 2019, DeFi (
decentralized finance)
The vision of DeFi is simple: an alternative to the global financial system.stable currencyWhile the internet made information cheap and universally accessible, blockchain promises to free up the flow of money. Everyone on the planet should be able to access the financial system via the Internet: make payments, save, lend, invest. If you live in a country with a weak financial system or high inflation, DeFi may already be better than the financial institutions around you.
DeFi provides us with stable value "cryptocurrency" (
stable currency
), which is a necessary innovation to support any practical payment scenario. DeFi enables thousands of ETH holders to earn interest by lending the asset, ETH, to borrowers. DeFi makes it easy to create assets that can automate trading strategies and grow an individual's wealth.
Today, all of these functions are realized, publicly audited and transparent through a never-closed financial system, personal assets are sacrosanct, and no one can close an account created by an individual.
This year, one of Ethereum's undervalued values became clearer: Ethereum-based applications are interoperable and composable. If you are creating or issuing new assets on Ethereum, you can easily "plug in" to the protocol to facilitate asset transactions. As David Hoffman puts it, Ethereum is the “Lego bricks of money,” making it easy to create more complex systems. This allows DeFi products to quickly become useful to users, taking advantage of the extensive infrastructure that has been built.
2. How much has DeFi grown in 2019?
The easiest metric to track DeFi growth is TVL (total value of assets "locked") in the Ethereum DeFi ecosystem. In other words, how much money is currently stored in the smart contracts that are the infrastructure of this financial system?
In 2019, that value more than tripled from $300 million to more than $900 million.
image descriptionMakerDAOAnother way to look at the growth of the DeFi ecosystem is to look at not just the total value locked, but the number of accounts using them and the number of interactions between those accounts and applications.
In early 2019,
image description
Source: AlETHio
But towards the end of 2019, the field became more diverse:
image description
Source: AlEthio
Compound’s TVL (Total Value “Locked” in assets) grew by 1,000% from 35,000 ETH to 350,000 ETH and rapidly increased the number of users.
The value locked in MakerDAO is transitioning between the original "single-collateral" version of DAI (green circle) to "multi-collateral" DAI (yellow circle). The TVL (total value “locked” in assets) of both types of DAI totaled 2.15 million ETH, a 16% increase.
3. The variety and quantity of DEX are growing
One of the most exciting developments of 2019 was the rise of Uniswap.
Since Uniswap is built on top of Ethereum, anyone can use it by calling a contract. This allows other DeFi protocols to leverage Uniswap as a way to unlock market liquidity, allowing anyone to quickly trade new assets. Uniswap is a particularly useful "lego of money" that has been integrated into many other products and services.
Source: DeFi Pulse
In 2019, Uniswap’s average daily trading volume increased from $25,000 to $1.5 million (+6,000% growth), and its available liquidity increased from $500,000 to $25 million (+5,000%).
image description
Source: DeFi Pulse
During 2019, Uniswap liquidity providers (those who “lock up” assets in the protocol in order to be rewarded for providing liquidity services) earned more than $1.2 million in fees.
Also in 2019:
With the exception of Uniswap, the DEXs on Ethereum are impressive. The total transaction volume of DEXs built on Ethereum exceeded $2.3 billion.
Kyber, one of the largest DEXs, saw a 443% increase in trading volume from $70 million to $380 million.
0x ended the year with $254 million in transaction volume, a 27% increase in the number of transactions (a year it focused on liquidity and R&D).
We are seeing the rise of DEX aggregation services that allow users to search for the best prices across all DEXs.
4. Lending service
Users of these apps can lock their cryptocurrencies into smart contracts through which other users can borrow money and pay interest. In 2019, Ethereum generated more than $600 million in loans. That's more than double the combined value ($248 million) of all payday loans issued in Washington state in 2017.
5. Stablecoins
For example, right now you can take any existing DAI and lend it out via the “Compound Lending” protocol to start earning 5.9% interest per annum. In 2019, Compound’s TVL grew from $20 million to $91 million. Alternatively, you can lock some ETH in the MakerDAO protocol as collateral to obtain a loan.
In 2019, users paid $5.5 million in fees to the MakerDAO protocol, which is more than the sum of all transaction fees paid on every public chain except Bitcoin and Ethereum.TetherStablecoins fulfill the original vision of cryptocurrencies as "peer-to-peer digital cash," a useful means of making cheap, fast payments over the internet. A digital dollar that you can use to pay, or get a paycheck, won’t lose its value overnight in the volatile cryptocurrency market.
Almost all stablecoins are built on Ethereum. This year, Ethereum has gained a greater advantage and has become the default platform for stablecoins.
As the oldest and largest stablecoin, most of its balance is supplied to Ethereum, which is no longer based on the full Bitcoin protocol.
image description
Teteher issued based on Ethereum and Bitcoin
In 2019, Tether issued about $2.3 billion to Ethereum, of which more than $1 billion directly replaced Bitcoin's full protocol. This is the largest migration of an asset from one public chain to another in history.
6. The Cambrian Explosion of Ethereum-Based AssetsA major new trend in DeFi is the expansion of products and protocols to facilitate the use of synthetic assets. A “synthetic asset” is one that has specific characteristics, often mimicking the characteristics of other assets.The programmability and interoperability of assets on Ethereum makes this easy. Using Ethereum smart contracts, developers create assets that track the value of other cryptocurrencies, automate specific trading strategies, or create custom derivatives.
Synthetix launched their "synthesizer" product,
ERC-20 token
, used to track the value of major currencies, commodities or indices. Notably, Synthetix tried to implement its protocol on EOS, now believes it was a mistake and has doubled down on Ethereum.ERC-20In 2019, users paid about $3.5 million to use Synthetix, which is more than all transaction fees paid on every public chain except Bitcoin and Ethereum combined.
Also in 2019:ERC-20The attempt to make Bitcoin usable on the Ethereum network has seen a breakthrough. Kyber, Bitgo and Republic launch wBTC, which is truly backed by Bitcoin
Tokens, stored in the hands of trusted custodians. In August, Keep & Summa announced their “Trustless BTC” (tBTC) initiative, which will allow custody of BTC without the need for a central party, scheduled for implementation in 2020.
Bitcoin gained momentum on Ethereum. Kyber, Bitgo and Republic launch wBTC, which is truly backed by Bitcoin
Tokens, stored in the hands of trusted custodians. In August, Keep & Summa announced their “Trustless BTC” (tBTC) initiative, which enables custody of BTC without the need for a central party. Implementation is planned for 2020.
RealT marked the legal title to several homes in Detroit starting at 9932 Marlowe. Owners of these tokens have access to liquidity through Uniswap, where they can always find a counterparty to buy their stake in the house.
Compound - Launched cDai, an interest-generating token, mentioned above in the lending services section. Products such as cDai are narrowing the distinction between "the lending service you use" and "the asset you buy."
Many synthetic assets rely on some kind of "oracle" to report information. The unresolved "trustless" oracle remains one of the puzzles in the cryptocurrency space.
7. The Growth of Ethereum Gaming
In 2019, Ethereum's gaming ecosystem showed early signs of growth.
A standout example of this is Gods Unchained: a turn-based, collectible card game similar to Blizzard's Hearthstone. The difference is that Unchained God Cards are assets on Ethereum: they can be bought, sold, traded, and even one day used as collateral through a DEX.
PoolTogEther is a lossless lottery system implemented by Ethereum. It's simple: players deposit DAI into a program running on Ethereum. This currency pool earns interest over time by automatically lending it to Compound. Then, at the end of the period, one player wins the interest earned (as of this writing: $688 per week). This is "no loss" because if you don't win, you don't lose the price of the "ticket" because you can always withdraw your principal.
PoolTogEther launched in June 2019, and its users won a total of $3,594 over the next six months. During the same six-month period, Tezos validators only earned a total of $3,745 in transaction fees.
PoolTogEther stands out in particular as a sign of a larger trend: the confluence of finance apps that look like games and games that look like finance.
Also in 2019:
Skyweaver, an ethereum-based card game, launched its beta version in June and raised $3.75 million from investors.
Decentraland is a virtual world where property exists in Ethereum assets.Cryptokitties - The first breakout title on the ethereum game continues to maintain its dominance.。
8. Decentralized Autonomous Organizations
From the early days of Ethereum, people have dreamed of building a decentralizedAutonomous Organization or DAOThe idea is simple: Ethereum lets us write censorship-resistant code that executes on a distributed, decentralized platform. We can create a program for managing funds and define a governance process for how those funds are managed. For example, define a voting process.
Painful since 2016
Since the fork of "DAO"
, the idea has been plagued by mixed historical legacies. But in 2019, some new projects revived interest in DAOs.
While 2019 didn't make it "DAO Year One," it did have at least a few "moloch months." MolochDAO was launched in February 2019 to fund important public goods in the Ethereum ecosystem. Members of MolochDAO vote on projects to be funded using funds donated from multiple sources such as the Ethereum Foundation, Vitalik, Joe Lubin, and ConsenSys.
In another notable example of the value of Ethereum’s composability, “distributed fashion house” DAO Saint Fame launched their first product in December.
St. Fame issues tokens on Uniswap, which can later be redeemed for specific products: designer T-shirts. Openly trading tokens on Uniswap allows the price of a T-shirt to rise or fall based on demand. DAO members will vote on how the funds are used to create new T-shirt designs, which can then be sold through the same mechanism.
Fame is built using Aragon, a comprehensive framework and toolkit for DAOs. Aragon itself has seen early signs of adoption, with more than 900 DAOs already created on the framework by the end of 2019.
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Ethereum enters the mainstream
1. In September, NBA player Spencer Dinwiddie announced plans to “issue a token to his contract.” He will sell 90 ethereum-based tokens, which will give holders a portion of their future contract value plus interest. In exchange, he'll get $13.5 million up front on his $34 million contract.
The NBA initially opposed the move, claiming it violated Spencer's contract with the league. But over the next few months, the program resumed, with a launch scheduled for January 2020.
The most surprising thing about this story is that, in 2019, it doesn't seem all that different. If you speculated in 2015 that within a few years NBA players would actually be using Ethereum as a financial innovation platform, no one would have taken you seriously then.
But it happened this year, along with a few other little moves toward the mainstream.
The Sacramento Kings have launched a rewards token built on Ethereum.
Star Trek has announced a collection of iconic ships that will be available as NFTs on Ethereum.
Opera, the world's sixth-largest browser, added native support for ethereum in late 2018 and launched a desktop browser with a "Dapp store" in 2019.
Samsung released a developer platform for Ethereum and announced a new phone with a built-in Ethereum wallet.
Ethereum's DeFi ecosystem was reported by Bloomberg.
Gridplus, an energy company on ethereum, went live in February and now provides electricity services to customers in Texas
2. In the corporate world, the line between "enterprise blockchain" and "Ethereum mainnet" is starting to blur.
Mainstream enterprise companies have realized that building a private or consortium chain is no different from an isolated centralized database. But they have already started to take interest in the Ethereum mainnet because Ethereum provides an open platform with billions of dollars in economic security.
Ernst & Young (EY), one of the strongest supporters of the Ethereum mainnet for enterprises, continues to work on the "Nightfall" project. This project, which aims to enable enterprises to use the Ethereum mainnet, while ensuring the privacy and scalability of transactions, solves two major problems that limit enterprise use of Ethereum today. In December, EY launched Nightfall V3, bringing transaction costs down to pennies.
Meanwhile, Microsoft continues to be deeply involved in the Ethereum ecosystem. In May, Microsoft released the Azure Blockchain Development Kit, specifically to support Ethereum development. Microsoft's popular IDE Visual Studio now supports Ethereum through an extension fully integrated with Truffle. In June, they released VeriSol, a formal verification tool for Ethereum.
In October, Microsoft and the Enterprise Ethereum Alliance developed a tokenized incentive system for use within conglomerates. Last November, Microsoft launched Azure Blockchain Tokens, a service that allows businesses to issue their own tokens to ethereum.
3. In both consumer and enterprise settings, these advances appear to be minimal. But together they paint a clear picture: Even as interest in cryptocurrencies generally dwindles and flattens, Ethereum continues to reach beyond the cryptocurrency industry and is seeing early signs of adoption beyond its core community.
Also in 2019:
Cloudflare launched an Ethereum gateway.
……
JP Morgan has announced plans for its JPM Coin bank-backed cryptocurrency. In May, they added an implementation of the Zether confidential payment protocol to Quorum.
Santander settles a 20 million bond on Ethereum mainnet
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1.GETH
Performance and Sustainability of Ethereum 1.0
Every application we covered above — from multi-hundred-million-dollar DeFi protocols, to DEXs, to enterprise applications — runs on today’s Ethereum protocol and today’s Ethereum clients.
2.ETH 1.X
This year, "Ethereum 1.0," and the clients it supports, received some of the most significant upgrades since Ethereum's Homestead release in 2016. These updates, begin to address issues such as state growth, client sync times, client disk IO (reading and writing), throughput, and issuance. More EIPs (Ethereum Upgrade Proposals) were deployed in 2019 than in any other year.
Ethereum's main client, GETH, received a major upgrade this year. The GETH team released v1.9.0 in July, which includes major performance improvements and many new features. This year, the GETH team halved the fast synchronization time of the entire node to about 4 hours, and increased disk IO (reading and writing) by 10 times.
The GETH team has earned a remarkable reputation for continuously improving the workhorse client software that powers Ethereum. While this work may not always receive attention for new groundbreaking applications or areas of theoretical research, it is this work that makes Ethereum possible.
At Devcon4 in November 2018, a group of core developers started informally discussing how to make Ethereum 1.0 more performant in terms of state size, sync time, and disk IO (reading and writing).
While the long-term goal is to migrate to ETH2.0.0, Ethereum must remain sustainable until then.
While many people have used this as an opportunity to come up with all sorts of ideas on how to change the EVM (virtual machine), fundamentally the core goal has always been to achieve sustainability. The purpose is an overall improvement over Ethereum 1.0.
The maximum throughput of Ethereum has increased from about 25 transactions per second to about 38. This was achieved by increasing the block limit to 10 million gas, while the block time was reduced to 13 seconds after the Istanbul hard fork. EIP-2028 also contributed to this improvement by reducing the cost of a single byte in tx input from 68 gas to 16 gas.
Alexey Akhunov suggested a client-side optimization for parity that would allow the block limit to be increased without a corresponding increase in the uncle block reward. As a result, uncle block rewards plummeted in 2019.image descriptionSource: Etherscan
uncle block
Partial rewards are won, and the drop in uncle block rewards also reduces circulation.
As a result, Bitcoin and Ethereum now have similar issuance rates, and ETH's planned issuance rate will drop again when the network is fully proof-of-stake (POS):
image description
Source: Eric Conner
In order to solve the problem of long-term sustainability, in 2019, significant progress was made in the research of ETH1.0's "stateless" model. Other methods considered at the beginning of the year, such as state rents, have been deprioritized.
3.ETH2.0
Many nodes will still maintain a full state, but using these techniques we can allow some nodes to store less data.Proof of Stake (PoS)A related project is Beam Sync, which uses witnesses to reduce sync times to a few minutes or so, while a "full" sync is done in the background. Beyond that, other types of "semi-stateless" clients will be introduced as the work progresses.The vision of Ethereum has always been scalableProof of Stake (PoS)
blockchain. From the early days of cryptocurrencies, it was clear that despite technological leaps
Proof of Work (PoW)
There are still serious flaws.
Even an optimistic estimate of Bitcoin’s energy usage would rival the total amount of energy used by countries like Portugal or New Zealand.Migrating to proof-of-stake would eliminate this waste of energy and allow Ethereum to grow for decades without dramatically increasing the world's energy consumption.
While the overview of Ethereum's (ETHereum) migration to proof-of-stake was clear even in 2015, completing the details required careful and painstaking work.
Ethereum's Migration to Proof-of-Stake
(known as ETH2.0) is taking longer than many expected. After years of research and development, in 2018 the project transitioned from a research topic to an engineering challenge. In 2019, multiple independent teams worked together to develop the software needed to launch the first phase of ETH2.0. Now there is no doubt that ETH2.0 will go into production in 2020.
ETH2.0 is a large project that will be rolled out in stages over several years.beacon chainThe first phase - Phase 0 - is expected to launch in the second quarter of 2020. This involves launching the beacon chain, which is the "backbone" of ETH2.0. Phase 1 then introduces shard chains, which are secured by the underlying beacon chain. In Phase 2, the system is integrated into a functional whole. Sharded chains can be used for transactions and smart contracts, as well as all the core functionality familiar to Ethereum users today.
In early 2019, nine independent teams were inspired to start implementing Phase 0 of the
beacon chain
. By the end of the year, ETH2.0 started to see mature testnets.
Adjustments were made as ETH 2.0 gained clarity and the broad developer community was able to provide feedback and criticism.
Specifically, shortly after Devcon, Vitalik published several notes suggesting changes to Phase 1 to reduce the complexity of interactions between shards.
Discussions are still ongoing about the best way to implement Phases 1 and 2 and how best to migrate the existing Ethereum blockchain to ETH 2. Currently, there are proposals being debated to make ETH1.0 the first shard of ETH2.0, between phases 1 and 2. There are also active debates in various places to finalize the current ETH1.0's proof-of-work chain and ETH2.0's beacon chain, which will reduce ETH issuance earlier.
4. Second layer and off-chain technologyzero-knowledge proofThe idea behind all layer 2 technologies is that we can perform expensive computations "off-chain" while still retaining Ethereum's characteristic safety guarantees. This "second layer" can process transactions or calculations faster than the Ethereum main chain, resulting in a more scalable network overall.
In late 2018, Barry Whitehat proposed ZK Rollup. The basic idea is that we execute many transactions off-chain and "bundle" them together. Then use the concise
zero-knowledge proof
(SNARK) verifies this "aggregated" group of transactions, which confirms that each transaction is correctly signed by the owner, preventing any invalid or manipulated transactions.
In early 2019, multiple efforts took the idea in a new direction. In June, John Adler & Mikerah published their work on "Minimum Viable Merge Consensus", while the Plasma Group published their work on "Optimistic Virtual Machine" in July.
Ultimately, the research community chose "optimistic rollups" to describe such techniques, which is similar to the idea that Vitalik originally called "shadow chains" in a 2014 blog post. Vitalik summarized this area of research in an August blog post.
Optimistic Rollup uses a similar "bundle" transaction technique as ZK Rollup, but uses a different mechanism to "proof" transactions. Instead of using zero-knowledge proofs (SNARKs), optimistic rollups use a cryptoeconomic mechanism that makes the system "optimistically" assume that there are no invalid transactions, while still catching, preventing, and punishing those who try.
In October, the Plasma Group published a demo that used Optimistic Rollup to provide a lightning-fast version of Uniswap called Unipig at Devcon.
ZK Rollup and optimistic rollup have different advantages and disadvantages.
Optimistic rollups are easier to implement in the short term and are flexible enough to be used in different applications.
However, ZK Rollup has greater potential in the long run, but due to the use of zero-knowledge proofs, it is more specialized and requires more R&D work before it can be used in various applications.
Meanwhile, state channels entered a less sexy but equally important phase of development. In the absence of an outstanding research question, several teams have worked on implementing a viable framework that applications can use to support channelized applications.
In July, the main state channel teams met at ETH NewYork to discuss unifying standards and ensuring interoperability. This led to the publication of a unified specification, simply called State Channels. Counterfactual and Magmo merged their engineering teams, replaced their own brands with new joint projects, and continued to make engineering progress.
The state channel project launched on mainnet this year. In March, Connext (micropayment platform) launched Dai Card, a simple browser-based payment system that operates on a channel basis. In September, Connext released v2.0 of its platform to mainnet, which is based on the now unified State Channels codebase.
What exactly do these mean?
This article is not comprehensive. There are just too many things to keep track of on Ethereum, even if you write a weekly newsletter.
Other things to note:
Smart wallets launched and attracted attention. Smart wallets use smart contracts to implement access and control logic, making wallets more useful. For example, this enables multi-factor authentication, "batching" transactions for ease of use, and better recovery methods in the event of a lost key. Three notable players in this category are Argent, Dharma, and Gnosis Safe.
The number of users of large Ethereum wallets continues to increase. Metamask has over 1 million installs in the Chrome browser store and a mobile version is available. Brave, the Ethereum-based browser, topped 10 million monthly active users as of December, and reached more than 350,000 "publishers" using its micropayment platform.
The Ethereum Name Service (ENS) has launched a new permanent registrar to make ENS names NFT-compatible, and users have paid a total of $350,000 in fees across its two registrar contracts. This is roughly equal to the total fees paid in 2019 using Dash, Monero, NEO, Bitcoin Cash, and Bitcoin SV.
postscript
The Ethereum community expanded its ability to fund public goods. MolochDAO launched, Gitcoin grants caught the attention of the community, and the Ethereum Foundation's grants program was reborn as ecosystem support.
ETHereum.org relaunched, translated into 20 languages by the Ethereum community, and the site has over 100 contributors
postscript
