Why Ethereum?

Over the past 12 years Ethereum has evolved and emerged as the second largest crypto currency by market cap of $201B (slightly less than half Bitcoin’s $452B) and even exceeds Bitcoin in some metrics including DEX trading volume and current rate of inflation. This week, I’d like to answer the question, “Why Ethereum.” when there are many other coins and tokens available and perhaps even more exciting ones.

Smart Contracts:

Ethereum was the first blockchain to introduce smart contracts. Contracts could be made permissionlesly (by anyone with Solidity coding experience) without a third party to execute the most simple or complex agreements between two parties. The basic equation in these contracts if, “If I, Then you.” If a contract was written and the terms were agreeable, both parties could execute a transaction on the blockchain that was on a public ledger that could be easily audited. This seemingly simple function of the Ethereum blockchain immediately set it apart from that of Bitcoin and other chains as a chain that could do more than just transfer crypto.

Decentralization:

Ethereum is the second most decentralized blockchain with over 10k nodes behind only Bitcoin with over 15.6k nodes. Though over half of Ethereum nodes reside in the United States, decentralization means that if even one node is still running, the blockchain will be able to function properly. With such great decntralization, no single business, country or government could possibly shut down the network.

EIPs:

The governance of the Ethereum blockchain is also decentralized and relies on Ethereum Improvement Proposals or EIPs to make changes to the operation of the chain. These EIPs have been extremely successful and have led to two major changes to the Ethereum network in the past year and a half. First, EIP 1559 created a burn mechanism that lead to a drastic change in the tokenomics of the network. Before EIP 1559, ETH was paid to the miners, incentivizing them to crate blocks to secure the network. After EIP 1559 part of that fee was burned to lower the inflation of ETH. The second major EIP was the recent Merge which transitioned the chain’s security mechanism from mining to staking. Issuance of ETH has since been overall deflationary. ETH has subsequently burned a full 1% of its circulating supply (over 2.9M ETH and counting).

Staking:

Staking has become an extremely large part of the Ethereum chain and currently 14% of all ETH is locked in the staking contract. 32 ETH are required to be staked for each node to secure the network by creating blocks. Each staked ETH is accruing over 4% APR in ETH issuance, yet the burn mentioned above is eclipsing that 4% and then some. ETH LSDs or Liquid Staking Derivatives, are the common “reciept token” of staked ETH which gives the owner of the staked ETH some tradable equity or to exchange their staked position for unlocked ETH.

ERC-20:

ERC-20 is the protocol name for any token that is transacted on the Ethereum blockchain and any Ethereum compatible chains. This protocol has created the framework for decentralized apps to build on top of the smart contact format of Ethereum and use the ERC-20 standard to tokenize their applications. This has lead to wide use (Defi), and compatibilty (EVM).

EVM:

The Ethereum Virtual Machine or EVM is like the operating system of the Ethereum chain and other chains that use this operating system to function and be compatible with the Ethereum Mainnet. There are over a dozen chains that are EVM compatible, in fact two of the largest layer 2 chains, Arbitrum and Optimism, even use ETH as thier native gas token which leads to even more burned ETH!

Defi:

Decentralized Finance, or Defi, has been a game-changer for the crypto space. Ethereum and the multiple EVM compatible chains, are attempting to bring world finance on chain and lead it into the 21st centrury and beyond. The centralized off chain banking and financial systems of today (TradFi), in the eyes of most defi users is far too old, antiquated, and elite. These crypto native beliefs are why Bitcoin and Ethereum were created in the first place. Arguably, the highest virtues of the blockchain space are Decentralization, Innovation and Democratization which are in stark contrast to the former. Defi has democratized the financial system and lead to massive gains to early adopters.

NFTs:

Defi and NFTs were both born on the Ethereum blockchain. Neither were possible on the Bitcoin network, nor any other for that matter until 2021. NFTs have become a household name and, though many may not know what NFT stands for, they know they exist and that they are unique tradable and often valuable commodities.

I could certainly go on and on about the great innovation that is the Ethereum network, but I think I’ve made my point. In my opinion the Ethereum and EVM chains will continue to grow in so many ways, but lastly I’d like to focus on value. In my humble opinion, with all the innovation the Ethereum network has undergone since the last bull cycle and subsequent bear market, I believe that ETH is vastly under priced, but don’t take my word for it. Do your own research and don’t invest what you can’t afford to lose. This is not financial advise and I’m not a financial advsior, but you can follow my Ethereum journey on Twitter at @AllThingsETH or on YouTube. Be sure to like, follow, subscribe for more Ethereum and related cyrpto content. Thanks again to George and the Team at CryptosRUs for the opportunity to write about my favorite crypto currency and technology. All the best and God bless!

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Filed under: Bitcoin - @ March 4, 2023 4:00 pm