Ethereum Annual Report: Looking back at 2020, the market value surpasses Bitcoin and sees hope in Ethereum
Editor's Note: This article comes fromVernacular Blockchain (ID: hellobtc), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Vernacular Blockchain (ID: hellobtc)
Vernacular Blockchain (ID: hellobtc)
, reprinted by Odaily with authorization.
By Josh Stark and Evan Van Ness
Translator: Yin Jiansong, author of "Yin Jiansong Talks about Blockchain"
Ethereum is the new frontier of the digital industry.
Because it is open and programmable, Ethereum offers an unknown vast space, full of opportunities.
Over the past few years, this new frontier has attracted the first major settlers. The decentralized financial market (DeFi), which has been soaring all the way, has developed into an industry that has begun to compete with Silicon Valley. This year, a second ecosystem began to take root: a creator economy for crypto art, music, and media.
Meanwhile, the ethereum community is preparing for the most significant upgrade to the core protocol in its short history. This new frontier is finally busy paving roads.
Like the 2018 and 2019 annual reports, our aim is to zoom out and show you the bigger picture. This article is not comprehensive (it is almost impossible to write a comprehensive overview of Ethereum). Instead, we've focused on some of the trends we believe are most important.
In our opinion, these are the biggest developments of 2020:
2. The Creator Economy of Ethereum. Artists, musicians, and creators of all types, come to Ethereum, where they control the value of their work;
3. Revenge of decentralized exchanges... and more. The decentralized trading platform has changed the trading method of the cryptocurrency industry, up to 16% of the transaction volume of the centralized trading platform;
4. The expansion and upgrade of Ethereum is in progress. Eth2's first upgrade project (the Beacon Chain) was launched on December 1st, starting a multi-year process with the goal of growing Ethereum into a global settlement layer.
In 2020, ether reached a critical value. From a high enough perspective, it's clear the industry's center of gravity has shifted. This year will be remembered as the year the entire cryptocurrency industry began to revolve around Ethereum.
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Beyond the size of Bitcoin, what is the most popular blockchain in the world?
For the first time in history, the answer isn't "Bitcoin."
The answer is: "Well...by what metrics?"
In 2020, Ethereum surpassed Bitcoin by two of the most important metrics commonly used to compare blockchains. First, Ethereum is used to trade the greatest value:
Ethereum traded assets worth $1.6 trillion, 60% more than Bitcoin’s $1 trillion.
The most successful application of Ethereum (stablecoin) is the main driver of the growth of Ethereum transaction volume. A stablecoin is a cryptocurrency that has a fixed value in a fiat currency (usually the U.S. dollar), and is therefore more useful as a store of value or medium of exchange than volatile assets like BTC or ETH.
Ethereum has seen transaction volumes grow throughout the year, and it has been settling a higher value than Bitcoin since July.
Second, another key metric used to compare and measure the actual usage of cryptocurrencies is total transaction fees. Every time someone uses Ethereum or Bitcoin (to send money or use an app), they pay a small fee. Charges are a useful metric because it shows the real needs of paying users.
In 2019, the total amount of fees paid with Bitcoin was 4 times that of Ethereum.
In 2020, that has reversed. Fees paid with Ethereum are almost double that of Bitcoin.
If we look at the cumulative fees for 2020, there is a clear shift in August when demand for Ethereum increased and fees started to rise.
It’s worth noting that even applications built on top of Ethereum have (temporarily) more paid usage than the entire Bitcoin blockchain. For example, on August 10, the fees paid with Uniswap were comparable to the fees paid with Bitcoin, and since then, Bitcoin payments have occasionally exceeded 24 hours.
Of course, Bitcoin still leads on other metrics. Bitcoin’s market capitalization is still higher than that of all Ethereum-based assets. Moreover, Bitcoin has a higher profile among people outside the cryptocurrency industry.
But when you look at the actual usage of these platforms, Ethereum is already clearly ahead of Bitcoin, and other blockchains are more than orders of magnitude behind.
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Creator Economy on Ethereum
Beeple is a digital artist whose real name is Mike Winkelmann.
His work ranges from visual effects for concerts (where he worked with One Direction, Eminem, Justin Bieber and many others) to 3D animation design work for clients such as Apple, Nike, Activision and others .
For the past thirteen years, Beep has honed his skills and amassed a huge following on Instagram by creating and publishing a piece of 3D art every day.
He first heard about Ethereum in 2017, but didn't pay close attention. Then this summer, he noticed some artists working in his industry and started selling art on ethereum.
These artists sell unique digital artworks in the form of "Heterogeneous Token NFT". They make a lot of money this way. In July, Trevor Jones sold a digital artwork for $55,555, a record at the time. Beep decided to try it out for himself.
Until this time, Bipper's "everyday" works had not sold for a good price, or at all. Instead, Beep's art has made money for Instagram and Twitter, which sell ads to his millions of followers. You could argue that on these platforms, Beep (and every other artist) just makes money from exposure.
Ethereum gave Bip an opportunity to withdraw from the existing system. On Ethereum, thirteen years of art works are no longer just the assets of Instagram and Twitter, but become the assets of Bipp. He was able to put his work on an open market and discover its value.
In December, Bipper auctioned off a set of his daily works for a total of $3.5 million, setting a new record for encrypted art sales. In that auction, he sold three versions of the artwork in five minutes for a combined value of $582,000.
2020 is the year when Ethereum’s creator economy reaches a critical value. If the initial token issuance of ICO is the first breakthrough application of Ethereum, and DeFi decentralized finance is the second, then the creator economy will soon become the third.
Other artists, musicians, fashion designers, writers, and more, have also started using the tools that helped Bip take ownership of their artwork. But artwork is the segment with the most visible growth in crypto productions. Last year saw a spike in the number of people buying and selling crypto art every month:
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Data source cryptoart.io
In 2020, the total sales of encrypted art is about 23 million US dollars. While that's small compared to the broader crypto market, it's not insignificant when compared to other creator platforms. In 2019, Patreon paid $500 million to creators, and the early encrypted artwork on Ethereum is about 5% of its volume.
What’s remarkable about the creator economy is not the absolute numbers, but the incredible relative variety on offer to artists. For Beep, crypto art isn't just a little bit better than the way he used to work. That's a leap from zero to $3.5 million.
This is why most artists get into ethereum and are not long-term crypto believers. They were already established artists with an existing following who were drawn to what Ethereum had to offer: a better way to make money, and an unexplored canvas for experimentation.
A few examples: Murat Pak is probably best known for his Archillect twitter account, and he recently started creating and selling NFTs, explaining them in detail to his followers on a nifty portal. Pak's NFT grossed over $1 million in 2020. Mario Klingemann, who uses artificial intelligence and machine learning to create bizarre and surprising generative artwork, is also involved in the NFT game (Mario's Super Rare Page). Or Joanie Lemercier, whose work ranges from large-scale photoprotection installations, to climate activism, to silkscreen prints, see Joanie's beautiful portal page.
The same tools that make Ethereum a new frontier for art also provide better models for musicians. In the past 6 months alone, musicians have sold over $1 million in NFTs and social tokens.
The growth of the creator economy is empowered by a new generation of platforms, tools and markets.
Over the past few years, a plethora of “creator economy” marketplace platforms have sprung up. Some act as platforms for any type of NFT (Rarible, Niftygateway, Opensea), while others, specialize in a certain genre (Cryptographic Art AsyncArt, KnownOrigin, MakersPlace, Foundation, and Superrare) or a certain aesthetic, almost like a brand or label (Zora). The recently released Mirror aims to be a user-owned content publishing platform, while Cent is trying to tokenize and sell tweets. Audius, an encryption-based music streaming platform, had more than 1 million monthly users in October.
For most of its history, the crypto space has been synonymous with money. However, the frontier of Ethereum is much larger than the financial field. Meanwhile, creative sites are at an inflection point, as artists, musicians, writers and creators of all kinds grow dissatisfied with these platforms. The platforms exclude them, censor them, control their relationship with audiences, and charge for the privilege.
Ethereum's digital new frontier is an exit for creators to escape the old platform.
DeFi: The Revenge of Decentralized Exchanges
In 2018, many concluded that decentralized exchanges (DEXs) were a failed experiment.
In our review of that year, we included a short note on Uniswap, a new DEX that launched in November 2018. In 2019, Uniswap grew significantly, with a 6,000% increase in daily transaction volume.
In 2020, Uniswap was used to trade over $58 billion worth of assets. In September, Uniswap's business volume once surpassed that of Coinbase. This growth is not limited to Uniswap. The volume of DEX companies is growing across the board:
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In October, the trading volume of all DEXs reached 16% of the trading volume of all centralized exchanges (CEXs).
This is another year of incredible growth for the DeFi decentralized financial system. DeFi is a network of financial services and protocols being built on the internet, expanding access to basic financial services for everyone on the planet. Today, you can use DeFi apps to save money, get loans, make payments around the world, earn interest on assets, or speculate on crypto markets.
In February, the total value locked in DeFi protocols reached the $1 billion milestone. By the end of December, that figure had grown to $15 billion.
image descriptionflash loanData source: duneanalytics
It’s impossible to sum up everything that’s happened in DeFi this year, but there are four developments that stand out in particular:
1. In January, Aave launched
flash loan
. Flash loans let anyone borrow an asset, do something with that asset, and then repay the original loan in the same transaction block. In effect, this makes it possible to offer unsecured loans. The lender's risk is protected by the fact that "the loan and the repayment happen at the same time", in effect, if the borrower cannot repay the loan, the loan was not disbursed in the first place. This is decentralized arbitrage. In Ethereum, if you find inefficiencies in the market and have some technical acumen, then you can profit from it. You don't need to be a multi-million dollar institution to take advantage of this arbitrage.
2. This summer, Compound introduced liquidity mining, which started a protocol arms race. Compound introduces the governance token COMP, which users can earn (mine) by adding liquidity to or borrowing from Compound. This strategy was quickly followed by other protocols, especially very new ones with no depositors, that need to quickly gain market share by offering high interest rates to “liquidity miners”
Lost in the noise: Protocols stop learning how to use the tools Ethereum has to offer, grow themselves up to take their place, and compete with established protocols in a cutthroat free market.
3. Uniswap has set off a trend of rewarding old users with tokens. When Uniswap launched Token UNI, 15% was allocated to early users of the protocol. This includes users who have previously provided liquidity, as well as anyone who has ever used Uniswap — even just once. Unlike liquidity mining, this is something new.
Imagine if AirBnB or Uber distributed 15% of the equity to the early hosts, drivers and users. Crypto protocols, like Uniswap, are experimenting with new models that blur the lines between users and owners. What would the world be like if our most valuable marketplace platforms were owned by the people who use them?
Why do Bitcoin holders transfer their Bitcoins to Ethereum? Because on Ethereum, in addition to holding bitcoins, you can also use bitcoins for other things.
You can use your Bitcoin as collateral for a loan, or lend it out to earn interest.
At the beginning of this year, there were about 1,000 packaged bitcoins on Ethereum.
As of November, there were about 154,000 bitcoins in use on ethereum, or nearly 1% of the total bitcoin supply.
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Ethereum's Performance Upgrade
After years of research, planning, development, and testing, the Ethereum community laid the groundwork for a multi-year, multi-step Eth2 upgrade.
This marks the beginning of a new phase. Over the next few years, the Ethereum community plans to make multiple interdependent upgrades to the core protocol, radically expanding the capacity and security of the network.
You may have heard of the project, called "Eth2," but that's always been a bad name. "Eth1" and "Eth2" are not a before and after version of one thing, but two components of a whole that will be merged together to become "Ethereum". This broader project is actually a set of separate but related upgrades. The first upgrade project is the beacon chain launched on December 1, 2020.
1. The beacon chain starts
The beacon chain is the backbone of Ethereum's new PoS consensus mechanism. Today, the Ethereum protocol doesn’t use the Beacon Chain — it’s just running smoothly while the community is fine-tuning and hardening it to support a network worth hundreds of billions of dollars.
Ethereum's PoS consensus mechanism is unique. No other blockchain community prioritizes "decentralization" to the extent that anyone can afford to run a node with even consumer-grade hardware, as much as the Ethereum community.
What's next? In the near future, there are two main tasks. One task is to merge the Eth1 chain and the Eth2 chain, and replace PoW with PoS of the beacon chain. Another task is to add data sharding, which will open a new path to instant scalability through aggregation.
2. A summary-centric roadmap
In October, Vitalik proposed adjustments to Ethereum’s roadmap. This plan will prioritize scaling using “rollups” to bring huge scalability benefits to the Ethereum ecosystem in the near future.
Rollup is a second layer scaling technique. The idea is that we can keep the data on-chain while moving the execution "off-chain", to an environment that can handle faster performance, but still maintain the characteristic security guarantees of Ethereum transactions "on-chain". For a detailed explanation, check out Vitalik's guide.
The key to a rollup-centric roadmap is that rollups become even more powerful when combined with a specific Eth2 upgrade (data sharding). Data sharding allows anyone to pay transaction fees to post data to several different shard chains. Aggregation today (without sharding) gives Ethereum a throughput of 3,000 transactions per second, but with sharding, throughput can reach 100,000 transactions per second.
We now have rollups running on mainnet (although not yet using Eth2 sharding). Loopring, Fuel, and zkysnc have enabled ETH and Token transfers. They are both capable of processing thousands of transactions per second, with security assumptions similar to transactions on the Ethereum mainnet.
3. The staking community of amateurs continues to grow
As the launch of the beacon chain drew closer, a community of amateurs grew up around it. This is a direct result of the decision of the Ethereum community to prioritize the PoS consensus mechanism so that consumer-grade hardware can participate.
Such communities existed before the arrival of ASICS that centralized PoW mining to large companies, and are now appearing again. Readers who have been in the crypto industry from 2014-2016 will remember that being able to contribute to the consensus of the network on an individual basis is an important part of the crypto ethos. That spirit has largely disappeared. Now, Ethereum is bringing it back.
This is another example of what makes the Ethereum community great. Education, resources and technical support are needed to help people learn how to build their clients and invest successfully. The largest of these communities is Ethstaker, a Discord community of approximately 6,000 people. If you're interested in staking, this is a great place to start.
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What does all this mean? Ethereum is growing
