Why Ethereum Is On The Rise

Why Ethereum Is On The Rise

The interest in Ethereum technology has never been higher. Ethereum is the second-largest public Blockchain network by both market capitalization and daily trading volume. It has already undergone remarkable development in its young history and continues to grow steadily. In 2020, an average of $231 million in ether was traded daily on spot exchanges. To start 2021, that number jumped to $2.7 billion.

The interest has in part come from the acceleration of Decentralized Finance (Defi), a concept that focuses on blockchains and smart contracts rather than traditional financial intermediaries. It has also come from Ethereum layer 2 solutions – technology built on top of Ethereum that is highly scalable and efficient — and sizeable developments with stablecoins, which are mostly anchored on the Ethereum network.

As such, the excitement and interest around Ether shows signs of growing acceptance and an appreciation of decentralization. Let’s look at three key reasons for the growing interest in this rapidly changing market:

Blockchain Technology

To start, there is global adoption and growing interest in blockchain technology. According to a report from Deloitte, 40% of surveyed companies planned to spend at least $5 million on blockchain projects in 2020, and 86% of U.S. companies surveyed built or are in the process of building blockchain teams. 55% of those surveyed said Blockchain was a top five strategic priority.

This acceptance and investment is a broad sign that blockchain technology has become more trusted among those looking to use it to improve business processes or use it as a method for transactions. Ethereum has emerged as the most established cryptocurrency for these purposes due to its DeFi and scalability credentials.

In addition, 2020 ushered in improvements in crypto market structure, thanks to growing involvement from spot exchanges and custodian projects, as well as enhanced security and regulation to the spot crypto market.

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Institutional Interest

Second, more institutions are warming up to the idea of crypto, which increases demand. In the current macro environment, some may view crypto as a hedge against potential future inflation.

Looking to futures markets, institutional demand has certainly helped drive bitcoin markets recently. Average daily open interest in CME Group Bitcoin futures rose 233% in Q4 2020 over the same period in 2019. Additionally, the number of large open interest holders in Bitcoin futures rose to its highest level ever in December with 110 large traders holding more than 25 futures contracts (125 bitcoin equivalent).

A Regulated Futures Market

Lastly, institutions that include crypto in their portfolios need a trusted venue to manage risk with price transparency and liquidity. The launch of the CME Ether futures contract provides institutional investors a regulated market in which to get exposure to price movements without having to handle the digital asset, or deal with concerns about wallets, custodians, insurance or other barriers to entry.

The Ether contract enables participants to invest in and access the cryptocurrency markets, while also managing any crypto-related risks.

What’s Next?

The introduction of listed Ether futures will help to create a forward curve so Ethereum market participants can better manage price risk. In the days ahead, we may see traditional financial institutions such as major hedge funds and asset managers to enter the ether market along with funds that are crypto native. Further, the Ether futures contract will be useful to those hedging their digital exposure accumulated through transacting in the spot market, through mining or lending activities or from fundraising for a project.

With ether demand growing, the futures contract performance will be something to watch in the months ahead. Whether viewed as a valuable blockchain technology or a store of value, Ethereum has carved out a large and important place in the market for crypto.

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Should You Invest in Ethereum Right Now?

When it comes to cryptocurrency, Bitcoin (CRYPTO:BTC) is the big name in town. But Ethereum (CRYPTO:ETH) has had an incredible year.

Since the beginning of the year, Ethereum’s price has soared by 435%. Over the last 12 months, it’s increased by more than 1,700%. The price of Bitcoin, by comparison, has increased about 100% so far this year, and 518% over the past 12 months.

Run-ups like these can be difficult to ignore, and some experts believe Ethereum has a promising future. But is it time to buy?

What is Ethereum?

First, it’s important to distinguish the difference between Ethereum and Ether. Ether is a type of cryptocurrency, similar to Bitcoin. Ethereum is the blockchain technology behind Ether.

Ether and Bitcoin share many similarities. They’re both digital currencies that can be used to make transactions. Like Bitcoin, you can invest directly in Ether by purchasing coins. Ether is significantly more affordable than Bitcoin, however. Ether costs around $4,100 per coin, as of this writing, while Bitcoin costs around $57,400 per coin.

It’s also possible to invest in the Ethereum technology. Some of your options include:

Investing in Ether directly: By purchasing Ether coins, you’re also supporting the Ethereum technology behind the cryptocurrency.

By purchasing Ether coins, you’re also supporting the Ethereum technology behind the cryptocurrency. Investing in a managed fund: Funds like Grayscale Ethereum Trust OTC:ETHE)

Funds like Investing in certain stocks: Buying stocks that have some connection to Ethereum technology is another option. Companies like NVIDIA and AMD, for example, build computer chips that are often used during the coin mining process.

Ethereum is a widely used technology that has a variety of applications. But before you invest, it’s important to understand the advantages and disadvantages.

Considering the advantages

One of the biggest advantages of the Ethereum blockchain is its flexibility. While it’s mostly known for hosting Ether, it’s also used for nun-fungible tokens (NFTs), decentralized finance, and enterprise blockchain solutions.

In other words, it has applications outside the cryptocurrency world. Even if cryptocurrency itself doesn’t succeed over the long run, Ethereum could still be used in other ways.

In addition, one major criticism of cryptocurrency, specifically Bitcoin, is how energy-intensive it is. In fact, researchers from the University of Cambridge estimate that the Bitcoin mining process uses more electricity than the entire country of Sweden.

Ethereum, however, aims to be more environmentally friendly. Developers of the technology are currently working to shift how coins are mined to make the process more energy-efficient. This could give Ethereum an advantage over Bitcoin, especially among environmentally conscious investors.

Also, as the Ethereum network undergoes changes, some of the Ether coins could be destroyed in the process. This could actually be a good thing for investors, however, because a smaller supply of Ether could make it more valuable and drive up its price.

Understanding the risks

Despite its flexibility and wide range of applications, there are still risks involved in investing in Ethereum and Ether.

For one, you’re almost guaranteed to experience significant volatility – especially if you invest directly in Ether. Cryptocurrency is a risky investment in general because it’s highly speculative at this point. Some experts also believe we’re in a crypto bubble and that digital currencies like Bitcoin and Ether are overvalued. If that’s the case, prices could plummet when the bubble bursts.

Also, new laws and regulations could pose a threat to Ethereum’s future. Investing in cryptocurrency can come with hefty taxes, which could limit the number of people willing to invest. In addition, lawmakers are still figuring out how to regulate the crypto market. This could result in more volatility and greater risk.

Before you invest in Ethereum, think about your tolerance for risk. Would you be able to sleep at night if your investment fell by 20%? What about 50%? Ethereum is a volatile investment, so be sure you’re comfortable with risk before you buy.

Finally, if you do choose to invest in Ethereum, make sure you have a well-diversified portfolio, and only invest money you can afford to lose. By keeping most of your money in safer investments, you can limit your risk in the event that Ethereum takes a turn for the worse.

Ethereum could end up being a smart investment, but it’s not right for everyone. Be sure to weigh the pros and cons as well as consider your own tolerance for risk. Whether you choose to invest or not, be sure you’re making this decision carefully.

Opinion: Why Ethereum’s MEV Is Way Worse Than You Think

As I write this, ethereum is moon-bound. ETH holders are making a bundle, with the price up 370% this year alone. In all this fanfare, though, you may have heard some chatter about MEV (miner extractable value).

In a nutshell, the Ethereum blockchain is written by consensus, but the content of each block is chosen by just one miner. Miners can profit from users by front-running, back-running, sandwiching and generally exploiting transactions in their block however they choose. The Flash Boys 2.0 paper, written by researchers at Cornell Tech, coined the term MEV to describe such exploits.

But is it really that bad? Isn’t it inevitable? And who cares if there’s a little extra slippage on Uniswap if by the end of the day your coins are worth 5% more regardless. We’re all making hay here. Perhaps the whole MEV thing is overblown, FUD even.

Pmcgoohan (a pseudonym) discovered the MEV issue in Ethereum pre-genesis in 2014. He makes a living working with purely algorithmic trading, using his own money. An analyst/coder, he has worked with scientific bodies, corporations and financial firms.

As an algorithmic trader for 12 years, I was the first to predict pre-genesis in 2014 that MEV would become an issue. So let me wind the clock forwards once again.

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It’s 2035 and the ETH price has risen to $100,000, except that dollar price doesn’t mean anything anymore because no-one uses dollars, they use ETH. Mission accomplished. We’re where we want to be.

But with Ethereum at full adoption the price is no longer moving up. You can’t grow wealth just from holding ETH anymore beyond 1.6% APR in staking rewards. It’s hard to imagine now, but by this time the currency is so ubiquitous that it’s invisible to most people. Boring even.

Today, around $1.4 billion dollars of MEV is being taken from Ethereum blockchain users annually from a total decentralized finance (DeFi) market of around $50 billion. Global financial markets are worth $100 trillion.

So, in 2035, now that Ethereum is the global financial marketplace, how much MEV will that be? $20 billion extracted in MEV per year? $200 billion? No. It’s $2 trillion worth of wealth annually taken from ordinary people due to an unfixed network vulnerability (in 2021 money). That is just shy of the yearly national budget of the United States and more than China.

That’s before any other taxes, remember. So the population of the world will be charged the entire annual budget of China in a socially useless tax that goes directly to the new masters of the universe (hint: very likely the same old masters of the universe) who have no obligation to build a single hospital, school, road, wind farm, law court, library, food bank, etc., and then you still have to pay your actual taxes on top of that.

MEV is inevitable? Not unless we choose it to be.

Bad, right? Yes, but that’s just the start because Ethereum isn’t just distributed finance. To our kids ether is the dominant global currency and it’s used everywhere: when you buy insurance, when you buy a train ticket, pay a restaurant bill, go to a game, buy a pizza, pay for your tuition.

You order some groceries from an open marketplace smart contract. A small local firm sees your order and can offer you the best price, including biking it over to you. But Mega-Corp has paid the MEV auction winner to censor all grocery transactions except theirs from the block. They don’t even have to compete on price. You overpay for your shopping and the local store closes down.

You manage to find an NFT [non-fungible token] ticket for the Dua Lipa comeback tour for $50 (in 2021 money) on an auction dapp. When you try to buy it, a bot sees your transaction and front-runs it for the same price. But, don’t worry, in the same block they’ve sold it back to you for your maximum bid of $100.

You want to convert your ETH into carecoins to fund your mother’s cancer treatment, but the MEV auction winner keeps moving the price away from you. This isn’t some exotic DeFi trade you’re executing here. These coins are vital for the well-being of a loved one. You can’t afford the complete course of treatment needed by your mother, your sister, your child.

Oh, but come on, we’d never let this happen, right? This is madness. We’ll have fixed all this by then.

Searching solutions

We’d better hope so. The outcomes I have just described are artifacts of a severe data integrity issue in the Ethereum network that must be resolved. Solutions are possible, but whether they are worked on or not is down to us as a community.

Dapp designers can use more MEV-resistant design patterns in their smart contracts. Timelock, SGX or threshold encryption may be used to hide transactions from attackers. I’m collaborating on my preferred solution of a decentralized content layer with fair ordering that engages root causes. It’s promising, but I really don’t care if this or some other approach gets implemented as long as it truly addresses the issue. I started the project to galvanize the community away from fatalism and towards real solutions.

Decentralization takes work. It is expensive in development time and computing resources. The payoff is that such systems can be robust and equitable. But if a decentralized solution becomes more vulnerable and less fair than a traditional centralized competitor (as well as more expensive) then it is unlikely to succeed long term.

I got involved in Ethereum in 2014 full of hope that it would offer an alternative to the corruption that was laid bare in the financial crash of 2008. I still hold that hope. I dearly want us to get there, but we’re not going to while maximally exploitative MEV auctions are our primary response. These no more fix the problem of MEV than running a market selling stolen credit cards helps the victims who had their cards stolen. In fact, I have shown that MEV auctions worsen the situation by introducing exploits in which only the most wealthy can profit.

MEV is potentially more damaging in layer 2 (where transactions are made off the main chain) than in mainnet because the rollup sequencer is more powerful than any one miner. One leading scaling solution provider is openly discussing building this exploitation of users into their protocol, not by accident this time, but by design.