How Big is Ethereum?
It is the year 2010, Blizzard decides to remove the damage component from the warlock's Siphon Life spell in the World of Warcraft game. That’s when Vitalik Buterin realizes the horrors that centralized services can bring and decides to quit playing the game.
While searching for a new purpose in life in 2011, he discovered Bitcoin. Even though he was skeptical at first, he decided to learn more about it. He started writing for the Bitcoin Weekly blog for $1.5 an hour and later cofounded the Bitcoin Magazine.
In 2013 after realizing that he was spending over 30h/week working on crypto projects, Vitalik decided to drop out of Waterloo University. He went on a trip around the world to explore different crypto projects. He noticed that they were all concerned about specific applications. He decided to launch Ethereum with its own programming language to support broader uses of the blockchain technology.
🌟The Early Days
It is worth noting that Vitalik was only 19 when he co-founded Ethereum! He is also the only member of the confounding team who is still actively working on the Ethereum Platform.
Here are the other co-founders:
Mihai Alisie: A cybernetic economics graduate who at the time was making a living coaching and playing poker.
Anthony Di Iorio: Di Iorio comes from a rich family and had already invested in several projects before learning about Bitcoin.
Amir Chetrit: Chetrit is a college dropout who worked in real estate. He lost faith in the traditional financial system after the 2008 crash and started looking into alternative systems.
Charles Hoskinson: Hoskinson worked in consulting before quitting to work on Bitshares, an early decentralized exchange.
Gavin Wood: A British computer programmer. He wrote the first implementation of Ethereum in C++. He also proposed Ethereum’s programming language Solidity.
Jeffrey Wilcke: A programmer from the Netherlands. He worked on Mastercoin — the first ICO— before joining Ethereum.
Joseph Lubin: Lubin worked in software engineering, music production, and finance. He later became interested in cryptocurrencies and helped fund the project with Di Iorio.
In 2014, the team sold Ether for the first time through a crowdfunding campaign. 6 million tokens were sold in that event. Another 12 million were sold to the Ethereum foundation. The event raised $18m, making it the most successful crowd sale at the time! The currency’s live release launched on July 30th, 2015.
🤔How Does it Work?
Ethereum uses Proof of Work(PoW) to authenticate the transactions. PoW is the underlying algorithm of mining. When a transaction is authenticated, Ether miners race to solve increasingly difficult mathematical problems to create blocks on the blockchain. When a block is created, miners get 2 ETH as a reward.
So, assume the Ethereum blockchain is like this massive computer made of thousands of nodes. Users of the blockchain pay the node operators(miners) gas fees in Ether. As the demand for using the blockchain increases, so do the gas fees which makes doing transactions such as minting NFTs more expensive.
🥈The Second Largest Cryptocurrency
Even though the price of Ether is down almost 50% from its peak, it still has a Market Cap of $312 billion!!!!
Ethereum is much more than a cryptocurrency. It is the settlement layer powering decentralized apps including NFT marketplaces, DeFi apps.
What is DeFi?
By now almost everyone knows what are NFTs. In case you don’t, check this article by The Verge. But WHAT IS DEFI??
DeFi is short for decentralized finance. The term covers many applications in the blockchain that aim to replace the way financial transactions took place. Traditional financial institutions depend on human gatekeepers which limits the speed and requires an element of trust in the execution of transactions. The blockchain eliminates the need for trust allowing for complex financial use cases.
What distinguishes Ethereum from Bitcoin is that it is highly programmable. This allows users to build applications on top of it easily. These applications include loans, insurance, crowdfunding, betting, and more.
Those applications are facilitated through smart contracts which execute when certain conditions are met. Say you want to send your friend $1 million if the temperature reached 200°F —I hope they never get the money— you can just write these rules into a contract which automatically executes if the temperature rises to 200°F.
DeFi applications include:
Decentralized exchanges: Exchanges that connect users directly without the need for an intermediary.
Lending platforms: Platforms that use smart contracts to replace banks in managing lending.
Betting Markets: Markets that allow betting on the outcome of future events.
Stable coins: Tokens that are tied to other assets(e.g., USDT which is tied to the dollar)
Several multi-billion dollar DeFi projects exist. Maker, one of the biggest DeFi apps built on top of Etheruem, has over $7 billion worth of tokens locked in smart contracts. It allows users to borrow and lend a stable coin.UniSwap, the largest decentralized exchange, reached $7.17 billion on October 26, 2020.
Ethereum experienced explosive growth in Q1 2021:
The total transaction fees reached 1.7 billion in Q1 2021 compared to only $8 million in Q1 2020.
The transaction volume was $713 in Q1 2021 compared to $33 billion in the same period of 2020.
NFT art sales were $396 million in Q1 2021 compared to only $0.7 in Q1 2020.
The Decentralized exchange volume reached $177 billion in the quarter.
The value of stable coins on Ethereum reached $41.9 billion.
Several international companies now recognize the potential that Ethereum boasts. Visa announced that it is piloting transaction settlement in USDC, A stable coin pegged to the dollar, on Ethereum. De Beers, the diamond industry giant, developed Tracr, a platform to track diamonds through the entire supply chain, on Ethereum. Canada approved several ETFs to trade Ether.
What started as an idea to allow broader uses of the blockchain is now valued at over $300 billion!!!!! That is more than double that of American Express— I wanted to say more than Visa but it’s not true yet 😔.
Vitalik Buterin even became a billionaire a few weeks ago after the price hit $3,500. But sadly he’s no longer in the three commas club.
🔮Bright Future/ Dark Future
Ethereum is currently transitioning from Proof of Work (PoW) to Proof of Stake (PoS). The new mechanism requires users to stake Ether coins to become validators. Since the new mechanism selects validators at random rather than make them compete to mine blocks, it is expected to decrease the power consumption by 95.56%!!!
However, it is not all roses. Many Ethereum miners are angry since the change will deem their GPUs obsolete.
Another change that the miners are angry about is the implementation of Ethereum Improvement Proposal EIP 1559, under which the gas fees will be burnt instead of being sent to the miners who will only receive optional tips.
We’ll see what the future holds for Ethereum. Hopefully, the new changes will only improve it and increase its adoption as the settlement layer of decentralized apps.
If you like this post, subscribe for more: