Coinbase Interpretation: The Rise of the Ethereum Economy
Editor's Note: This article comes fromBabbitt Information (ID: bitcoin8btc)Editor's Note: This article comes from
Babbitt Information (ID: bitcoin8btc)
Babbitt Information (ID: bitcoin8btc)
, Author: Coinbase, Compiler: Captain Hiro, published with permission.
As the second largest cryptocurrency after Bitcoin, Ethereum is not just a digital currency, it is the foundation of a multi-billion dollar economy. From DeFi to digital art, we need to understand the driving forces behind the rise of Ethereum.
On February 22, a whimsical headline appeared in the business section of the New York Times:
Why an Animated Cat in the Shape of a Pie Sells for $600,000
If you used the internet a lot in 2011, you definitely knew this cat. Chris Torres, creator of the internet's wildly popular "nyan cat" GIF (a pixelated kitten shining over a rainbow), is selling his 10-year-old meme for nearly $600,000.
And Torres isn't alone in finding a way to sell this type of digital content, which was previously considered nearly worthless, in part because anyone can endlessly copy-paste digital files. And just in the last few weeks, it seems everything has turned around:
Christie’s revealed plans to auction its first “all-digital” work, a series of images by an artist named Beeples, with prices starting at $100.
A cool-looking lo-fi monkey from the series Cryptopunks has sold for $1.5 million.
A series of 3D models of "weird furniture," such as a bubblegum table, fetched $450,000.
All of these stories really tell the same thing, which is that people are starting to buy properties in the virtual digital world with real world money.
This booming market is enabled by a class of cryptocurrency assets known as NFTs. NFT, short for "non-fungible token," is essentially a certificate of authenticity that says the version of digital content you hold (whether it's an image, video, song, or anything else) is real.
Mostly issued on the Ethereum blockchain, NFTs utilize the functionality of "smart contracts" that users can buy or sell on dedicated NFT marketplaces. (While NFTs are popular right now, they’re not actually the newest thing to play; you might remember the craze surrounding the digital cat trading game Cryptokitties in 2017.)
image description
Sales volume of different Ethereum NFT projects
As NFTs have become a staggeringly large business, with sales exceeding $100 million, there has also been a debate surrounding ownership. Is collecting digital art any different than collecting rare sneakers, vinyl records, or Picasso?
These are fascinating questions, but they don't even speak to a larger story. Smart contract technology allows artists, meme creators and musicians to sell their virtual goods, which further promotes a new, decentralized system that replaces the current financial system. In this alternative system designed to empower individuals economically, capital will flow via open-source protocols that are faster, cheaper, more transparent, and open to all.
We call it Finance 2.0.
secondary title
Even before the NFT craze, Bitcoin has dominated recent non-cryptocurrency media headlines. And when the topic of Ethereum comes up, people in this field are even more excited. This is not because Ethereum is the second largest cryptocurrency by market capitalization after Bitcoin.
People who do not have a deep understanding of Ethereum often fail to understand that Ethereum is not just another form of digital currency. The original intention of the creation of the Ethereum blockchain is to become a decentralized computing platform with diversity, which can facilitate developers to build a digital art market, and at the same time run "decentralized computing platforms" like Compound and Uniswap with hundreds of billions of dollars in value flow. Finance" (DefI) and other tools.
image description
Ethereum price
image description
Global searches for Ethereum
image description
Reddit Crypto User Subscriptions
A big reason for the rise in these figures is the price of ETH. You might be surprised to learn that since the beginning of 2021, the price of ETH has actually increased faster than Bitcoin (partially due to the spread of the new crown virus, which has caused a large number of retail investors with extra time and disposable income to try it out). new investment strategies). Since the beginning of the year, the price of Bitcoin has risen by about 65%, while ETH has increased by more than 112%, and its market value has surpassed Morgan Stanley and Square, reaching $177 billion.
secondary title
But soaring market capitalization is only part of the ethereum story. The real appeal of Ethereum is that the wider economy is made possible by the Ethereum blockchain.
We can think of the price of ETH as the tip of the iceberg. Due to the flexibility of the Ethereum blockchain, a large number of economic activities are running on the Ethereum blockchain. Ethereum-based cryptocurrency categories include DeFi, stable coins, wrapped tokens, and NFTs.
The market capitalization of the ethereum economy (defined by the total market capitalization of the largest ERC-20 tokens issued on top of the ethereum blockchain) has soared to more than $250 billion in recent weeks, not including NFTs.
The total market capitalization of the Ethereum economy
Stablecoins reduce volatility by pegging their value to reserve assets like the U.S. dollar, and they are one of the most promising and fastest-growing areas of the ETH economy. They have been widely adopted as a stable medium for payments between exchanges.
image description
A small but rapidly growing part of the Ethereum economy is the "wrapped token," which allows those non-Ethereum-native cryptocurrencies (especially Bitcoin) to be used on the Ethereum blockchain and easily integrated with DeFi applications. interact. As a result, the value of tokenized bitcoins has risen substantially.
image description
Market Cap of Tokenized Bitcoin
secondary title
When Reddit meets DeFi
So, what is driving the recent enthusiasm on Ethereum? Although much of this has to do with the broader cryptocurrency boom. But there is an interesting group that deserves a closer look, and that is the "memstock" investors on Reddit, who have been tortured in the traditional financial field and are looking for decentralized alternatives.
These decentralized tools (also known as “DeFi” or “Finance 2.0”) allow for investing, trading, yielding savings, new types of “flash loans” and more. According to Fabian Schär, a professor and researcher at the University of Basel, Ethereum-powered DeFi applications have “the potential to create a truly open, transparent and immutable financial infrastructure.”
If you haven’t found your way in the DeFi space yet, let’s take a look at three categories of DeFi applications—their common goal is to become a faster, more efficient alternative to the inefficiencies in the current financial system. , slow and often expensive capital flow conduits.
Decentralized exchanges: Decentralized exchanges such as Uniswap and Sushiswap allow users to trade tokens without an intermediary.
Lending protocols: Lending protocols like Compound and Aave allow users to lend and borrow tokens without an intermediary.
Oracles: Oracles like Chainlink are designed to provide real-world data to DeFi applications.
At least one persuasive voice has started pitching DeFi directly to Reddit's most active stock traders. Mark Cuban shared his views on DeFi in an AMA: DeFi will make "markets more efficient, transparent and effective for small investors."
Not only Cuban thinks so, even Reddit co-founder Alexis Ohanian also expressed his views on DeFi in an exchange with US Representative Alexandra Ocasio-Cortez: No one will wake up in a week and say, let us all go back to the past The public cannot ignore this, so I think there will be more and more energy to find decentralized solutions. People have so much energy to support something that cannot be manipulated. "
image description
Monthly trading volume across all decentralized exchanges crossed the $50 billion mark in January:
image description
Monthly trading volume on decentralized exchanges
secondary title
Institutions Begin to Adopt Ethereum
The Ethereum economy has also attracted the attention of major financial institutions. The ethereum blockchain has become one of the most popular payment vehicles for U.S. dollars thanks in large part to the stablecoin’s role as a non-volatile method of sending value between exchanges and DeFi protocols.
In December 2020, Visa announced that it would connect its global payment network of 60 million merchants to the US stablecoin USDC. (USDC is backed by consortia such as Coinbase and Circle.)
PayPal also recently offered limited ETH transactions to its large U.S. user base, and plans to expand the feature to its 325 million users worldwide. The company's CEO Daniel Schulman said on the 2021 earnings conference call: "We all know that the current financial system is outdated, and we can foresee a future where transactions will be completed in seconds, not days. We are vigorously Invest in our new Crypto Blockchain and Digital Currency business unit to help shape this more inclusive future."
image description
Grayscale Ethereum Trust Holdings
Another exposure platform for Ethereum institutions - Chicago Mercantile Exchange Futures was recently launched, and the transaction amount of the platform exceeded 33 million US dollars on the first day. In December 2020, Connecticut-based hedge fund One River Asset Management announced a commitment that "by early 2021, its holdings in Bitcoin and Ethereum will reach approximately $1 billion."
The development of Ethereum
When ethereum was created in 2014, it was clear to the founding team that the blockchain had a fundamental flaw that ultimately needed to be fixed. Because it uses a "consensus mechanism" called proof-of-work, transaction times slow down and fees increase when blockchain traffic increases.
The sheer volume of transactions processed by DeFi and other smart contract tools we’ve covered in this article has resulted in Ethereum’s scalability bottleneck. As a result, the use of the Ethereum network has become increasingly expensive. As of February 2021, ETH "gas" costs about $10 per transaction.
image description
But major solutions are on the horizon. The nonprofit Ethereum Foundation has officially partnered with Reddit to seek solutions and new use cases for the technology. In August 2020, nearly 24 development teams submitted Ethereum scaling proposals to Reddit. Projects like Optimism and Rollups can potentially help blockchains process hundreds of thousands of transactions per second (although each solution has unique challenges).
Meanwhile, the ethereum community has embarked on the long-planned transition to the faster, cheaper, and theoretically more secure ethereum 2.0 blockchain.
