Republication: Beyond Bitcoin: Ethereum and DeFi

Republication: Beyond Bitcoin: Ethereum and DeFi

Feature Stories | Jun 28 2021

In Part III of FNArena’s exploration of crypto currency, we examine the rise of Ethereum, and the implications of Ethereum’s far more extensive application capacity. An error in the original publication has now been addressed

Apologies. In the previous publication the label “proof of stake” was erroneously labelled as “proof-of-scale”. That error has been seen to in this republication. This story was originally published on June 6, 2021.

-Drawbacks to bitcoin

-The proof-of-sake model

-The rise of DeFi on the Ethereum platform

-The risks for Ethereum

By Greg Peel

This is the third part in FNArena’s series on the world of crypto. Part I explains just what bitcoin is and how it works. Part II compares bitcoin and gold as stores of wealth. Links below.

Proof of Work

As explained in the first part of this series, bitcoin is backed by the blockchain ledger system. Critical to bitcoin’s existence is the verification of each block in the chain, which is provided by solving a complex algorithm available in “open source”, and which does not require a superior brain but rather the capacity to run bllions of calculations to arrive at the right answer.

This process is known as “mining”, as the reward for verification of a block is an amount of new bitcoin. Given the work involved in bitcoin mining (by computers), the process of verification is known as “proof of work”.

The onerous proof-of-work process is what provides bitcoin with its capacity to be a store of wealth – what makes bitcoin sufficiently “rare”. It is rarity that underpins the world’s traditional store of wealth – gold. Not only is gold hard to find to begin with, the cost involved in exploration, mining and processing also underpins its value.

Bitcoin mining also comes at a cost – being that of significant energy usage required to successfully mine a bitcoin.

Bitcoin dominates the crypto-currency market due to first mover advantage. The creators of bitcoin first created the blockchain system, which, being “open source”, is universally available to anyone. Hence there are now some 8000 crypto-currencies, and growing. Bitcoin enjoys the unquantifiable “brand awareness” factor, which helps to underpin its value.

And being the first, it has a 12-year track record. In all that time, no one has been able to hack into bitcoin – into the blockchain. This is a primary selling point of crypto. And because it is a decentralised peer-to-peer system, it is not subject to regulation.

Yet.

The issue of regulation has become more pressing in recent weeks. Bitcoin may not be able to be hacked, but nor is it able to prevent “bad actors” from using it as an untraceable currency perfect for money laundering. Indeed, wholly suitable for criminal activity.

Ransomware attacks on the Colonial oil pipeline, and JBS Meats – the US and world’s largest meat packer/distributor – have brought this problem to the fore, and they represent just two high profile cases among many others. By demanding payment in bitcoin, hackers ensure those funds cannot be traced to their destination.

Or so they thought. Enter the recently formed US Department of Justice Ransomware & Digital Extortion Taskforce. It was able to recover a majority of the millions of dollars equivalent paid in bitcoin to the DarkSide network responsible.

Bitcoin supporters were somewhat shocked to hear this news. In the world of real dollars, beating criminals would be lauded by everyone other than the criminals. In crypto-world, the fact the DoJ was able to find and recover bitcoins rather brings into question all that crypto is meant to be. The dollar price of bitcoin fell on the news.

So we could list bitcoin’s major problems/threats as being energy intensity, regulation (both in investor protection and crime prevention) and, given the number of crypto-currencies now out there, competition.

Proof of Stake

There may still be daylight in between, but emerging as the biggest rival to bitcoin is ether, the crypto-currency behind the Ethereum platform. But while bitcoin and ether might be competing currencies, Bitcoin (the platform) and Ethereum do offer significant differences.

Like Bitcoin, Ethereum runs on a proof-of-work basis. Hence ether can be mined in the same fashion as bitcoin. Unlike bitcoin, ether is open-ended. As the pool of bitcoin grows, the number of bitcoins provided as reward for successful mining halves at intervals, and once that pool reaches 21 million, no further bitcoin will be released. At the current pace, forecasts are for this to occur around 2040.

The reward for successful ether mining is fixed at 5 ether, and there is no ultimate limit. One might suggest this instinctively makes bitcoin a more valuable longer term investment, but for Ethereum, the ether currency is only part of the story.

Ethereum was established in 2015 – six years behind Bitcoin. Rather than being a simple copy-cat, Ethereum was designed to be much more than just a payment system. In the creators’ own words, it is a “decentralised platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference”.

Ethereum is also in the process of migrating from a proof-of-work model to a “proof-of-stakee” model.

In a proof-of-stake model, there is no mining, and thus no excessive draw on energy. Rather than miners, there are “validators”. There is no complex algorithm to solve. Instead, to be rewarded, validators must first own ether (in Ethereum’s case) and then put that ether balance on the line to certify that a block is valid.

This way, any malicious activity will result in that ether balance being lost.

And whereas miners of bitcoin receive bitcoins as a reward for their verification of blocks, validators of ether will simply receive a fee for every transaction and smart contract they validate. On the other side of the ledger, the parties that want a transaction or smart contract to be executed will pay a fee to have it completed and added to the blockchain.

Proof-of-stake in theory removes two of the proof-of-work model’s major drawbacks, being energy intensity and the potential for malicious activity such as the recent ransomware demands made on the Colonial Pipeline, JBS meats and others.

As Creighton University (US) academics suggest, “Bitcoin is striving to provide fast and secure transactions while Ethereum is focusing on much more. As more and more smart contracts and decentralised applications are built, Ethereum’s popularity and profitability will increase”.

Both currencies remain volatile at this point, but ether is still relatively new. And Ethereum’s migration to the proof-of-stake model is still pending, with guidance remaining vague at this point. It could yet take a while.

Ethereum Classic May Be It Again

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It had a first-mover advantage. But in a volatile and ever-developing crypto market and one under extreme pressure, could Ethereum Classic (CCC:ETC-USD) still be “it” and worth investing in? Let’s look at those impacts off and on the price chart of ETC, then offer a risk-adjusted determination aligned with those findings.

Source: Shutterstock

Sony Walkman. MP3’s. TiVo. Blu Ray. They were the standards of new technology and for a time reigned supreme. Most have come and gone. A couple persist with markets to collect, hoard and trade those products by their most fervent supporters.

On that somber note and in a decentralized finance (DeFi) market with estimates of as many as 9,000 cryptocurrencies (and among those digital assets an improved Ethereum (CCC:ETH-USD) blockchain), is ETC a classic in name only? Maybe. But there’s also a chance and not unlike Coca-Cola’s (NYSE:KO) “new” Coke and Coke Classic battle, the original formula prevails.

A Look at Etherum Classic

So, what’s the distinction between the two types of Ethereum? In a nutshell ETH and ETC splintered following a 2016 hacking incident.

ETC functions under Ethereum’s original proof-of-work (PoW) protocol. Alternatively, ETH’s blockchain is transitioning to a consensus proof-of-stake (PoS) platform.

Digging slightly deeper, PoS success is determined by network engagement from its “stake holders.” ETH is seen as more transparent and does have an advantage of reduced energy consumption to function. Importantly, that means it’s also proven a greener choice for a world combating climate change.

ETH may also be a double-edged sword though. As InvestorPlace’s Josh Enomoto recently explained, as ETH’s PoS blockchain becomes ever-more efficient, in theory THE shrinking profit margin will mean less incentive for stake holders to participate.

ETC or Ethereum Classic and its more clunky inefficient workings avoids this possible economic pitfall. And let’s face it, most developers and miners aren’t involved in Ethereum to actually save the manatees.

Magneto Awaits

As well and today, or rather at the end of the month, ETC developers have set an overhaul target for a network known as Magneto.

Magneto is expected to incorporate a variety of planned projects promising greater security and lower gas fees, i.e. the computational effort required to make a transaction or execute a smart contract on Ethereum. It could be just the sort of upgrade to give the advantage to ETC.

Given those prospects maybe Ethereum Classic (and similar to Coke Classic) will take out the upstart and once again be “it” with crypto investors, miners and developers? Maybe, but it may be time to look at the ETC price chart for clues.

Ethereum Classic / ETC-USD Weekly Price Chart

Source: Charts by TradingView

By some measures, Ethereum Classic has actually been “it” with investors in 2021. Since entering the year the crypto is up a massive 719%. That compares favorably to ETH, which has seen gains of 172%. But the sizable outperformance isn’t the end all, say all by any means.

Viewed through another looking glass, the illustrated ETC monthly chart reveals a different and difficult test facing investors that believe ETC “is it.”

The combination of past underperformance and current relative weakness during the current crypto bear market has resulted in Ethereum Classic challenging much deeper key technical support area than ETH. And it appears to be an important make-or-break situation for ETC.

With ETC testing its former 2017 all-time-high and 76% retracement level tied to its Covid crash low to May 2021 all-time high, a failure to hold support could be a sure indication market participants are making a final choice with the direction Ethereum will take.

Bottom line, Ethereum Classic may still exist for a number of years to come without being relevant. But if already breached technical support can’t make good on the promise of June’s bullish hammer bottom – it may be time for all but ETC’s most ardent base, to give up the ghost.

On the date of publication, Chris Tyler holds (either directly or indirectly) positions in Grayscale Ethereum Trust (ETHE) and Ethereum Classic Trust (ETCG). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The post Ethereum Classic May Be It Again appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Mixed cultures for a greater yield

Monocultures dominate arable land today, with vast areas given over to single elite varieties that promise a high yield. But planting arable land with just one type of crop has its disadvantages: these areas are easy game for fungal and insect pests, posing a threat to crops. To keep pests at bay, farmers are having to use resistant varieties and various pesticides.

Mixed cultures present a potential alternative to monocultures. Rather than having large expanses of land planted with just one species or variety, several species or varieties are sown alongside each other. However, as little research has been done into this method, especially from an agricultural perspective, mixed cultures are rare in arable farming.

A team led by ETH Zurich Professor Christian Schöb has now revealed that mixed cultures actually produce a much higher yield than monocultures in arable farming. Their study was recently published in the journal Nature Plants.

Applying an ecological principle

Mixed cultures draw on the ecological principle that ecosystems are able to perform their functions more effectively where there is greater biodiversity. These functions include regulating water balance, maintaining soil fertility and increasing plant productivity.

This also goes for agricultural ecosystems: “Research into agriculturally used meadows has shown that areas with a larger mix of plants are more productive than those with just one or a few species,” Schöb says.

Until now, barely any comparable studies had focused on arable farming. That is why, together with his colleagues, Schöb set out to investigate whether this basic ecological mechanism would also have a bearing on arable land, specifically with regard to yield.

The researchers created two test gardens: one in Switzerland, on the University of Zurich’s Irchel campus, and the other in the Spanish province of Extremadura. The latter has a much drier and warmer climate than Zurich, allowing the researchers to examine how the crops grow under potential future climate conditions.

Greater yield from mixing just two crops

In their experiment, the researchers tested mixtures of two or four different crops chosen from eight selected species comprising wheat, oat, quinoa, lentil, lupin, flax and false flax (an oilseed similar to rapeseed) as well as coriander. Only the seeds of the different species were used. The plants were sown 12 centimetres apart in alternating, parallel rows.

The researchers compared the seed mass from the mixed-culture crops with those from monocultures. They also measured plants' biomass based on their growth above ground.

The result speaks for itself: compared to monoculture farming, even a mixture of two species increased yield by 3 percent in Spain and 21 percent in Switzerland. Where the researchers had sown four species alongside each other, the yield increase was as high as 13 and 44 percent in Spain and Switzerland respectively.

The researchers explained that this additional yield primarily comes down to the biodiversity effect: a greater variety of plants results in a better use of available resources and more effective, natural pest control - the experiments were conducted without pesticides.

Plants put a lot of energy into leaves and stems

The researchers also noted, however, that the plants in mixed cultures developed more leaves or stems than in monocultures. In other words, the plants invested more energy and matter in producing vegetative biomass and proportionally less into producing seeds. Schöb explained that the plants were having to make a compromise: the more effort they put into vegetative biomass, the less they have for seeds. “Despite this, the plants still produced more seeds on balance than in a monoculture,” says the agricultural researcher.

He attributed the fact that the plants invested more energy in creating vegetative biomass to the varieties used in the experiments. “The seeds are bred specifically for monocultures. This means the plants are designed to perform best when they grow among other plants of the same variety.”

Schöb deems it likely that the potential for extra yield is even greater with seeds suited to mixed cultures.

Over time, people have changed most crops to produce larger fruit and higher yield under monoculture conditions. The tomatoes grown today are gigantic compared with their wild counterparts, which have fruit the size of blueberries. In order to get the best yield possible from plants grown in mixed cultures, current breeding methods - targeting cultivation in monocultures - have to be adjusted slightly.

Sowing the right seeds

As things stand, no seeds are produced or marketed specifically for use in mixed cultures. The researchers are therefore busy harvesting and testing seeds from their own experiments. “We want to repeat our experiments using these self-produced seeds so we can test whether selection in a mixed culture literally does bear fruit,” Schöb says.

A change in agricultural practice is, however, required if mixed cultures are to gain ground. Among other things, machines need to be able to harvest different crops at the same time and also separate the different harvest products. “These machines exist, but they are few and far between, not to mention expensive. There is simply too little demand for them at present,” Schöb says. Together with optimised seeds and the right machines, mixed cultures will present farmers with a real opportunity for the future.

Chen JG, Engbersen N, Stefan L, Schmid B, Sun H, Schöb C: Diversity increases yield but reduces reproductive effort in crop mixtures, Nature Plants, 2021, published online 24th June. Doi: 10.1038/s41477-021-00948-4