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The Ethereum Vision: Bigger Than FAANG

  • Ethereum offers an alternative vision for the digital world instead of one dominated by a few unaccountable tech giants.
  • Ethereum is becoming 100x cheaper and faster because of new technologies.
  • These technologies allow applications built on Ethereum to compete on more fronts against Big Tech and other centralised incumbents.

Big Tech and Ethereum

Large tech companies have become some of the most powerful entities in the global geopolitical landscape. Google and Facebook are more powerful than nation-states. They can shift political landscapes, censor people’s access to information and reshape worldviews. Their algorithms, while ostensibly unbiased, are slowly shifting the course of history. These are not novel observations.

But importantly, there is an alternative tech stack, that has been built by a different set of technological wizards, with a different set of philosophical beliefs. The alternative is crypto, and, specifically, Ethereum. Ethereum represents a fundamentally different paradigm. Ethereum is owned and controlled by no one. It is almost democratic in the way that it runs and governs itself. Ethereum has no CEO and no executives. It is an autonomous system that anyone can build on, but that also runs on certain immutable laws.

Ethereum and other blockchains offer an alternative to a world controlled by centralised entities. The tech giants and their CEOs are like un-appointed emperors over the digital world. They are ultimately accountable to no one. As Ethereum’s technology becomes cheaper and faster, it can start to compete with Big Tech to become an alternative ruler of this digital world. Ethereum represents liberty and autonomy while big tech is a dictatorship. When given the choice, we know which people will choose.

Applications built on Ethereum have already started to take over finance. With scaling solutions, the same can happen for other applications traditionally dominated by Big Tech, such as social media.

What is Ethereum:

Ethereum was founded in 2013 by Vitalik Buterin and other developers, including core contributors to Bitcoin. Bitcoin was an inspiring step that proved decentralisation could work. But its only functionality is to allow the safe storage and transfer of a single asset (Bitcoin). The Ethereum co-founders believed a similar decentralised architecture could support a much more general system and that is what they set out to build.

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Ethereum went live in July 2015, and has since become the centre of one of the most dynamic and exciting areas of technology. Ethereum is a world-changing piece of technology that is far more than just a curiosity for nerds and hackers. Ethereum can fundamentally reshape the balance of power in the world as more of the world’s assets and digital applications start to live on top of Ethereum.

Ethereum TVL:

Ethereum is a general-purpose decentralised computer. Anyone can write open-source applications for this computer and these applications are publicly available for anyone to use. Ethereum is a new computing platform. It is the latest in a technological arc starting with mainframes, then personal computers and lastly smartphones. It has changed the way companies can be built.

Without Ethereum, a company that handles valuable assets would have to build a brand and gain trust before it could scale. Furthermore, a government would typically have to be involved in regulating these companies to ensure that they act in the best interests of their users. For example, banks, insurance companies and financial exchanges are heavily regulated because they manage consumers’ assets. Your life savings or stocks are represented as balances in an electronic database. If your bank or exchange were to act maliciously or incompetently, these balances could be erased or reduced. In the exchange example, a company like Robinhood could unilaterally halt or reverse trades.

But anyone today can build a digital bank or an exchange on Ethereum and launch with the same security guarantees as Ethereum. There is no trust necessary, because anyone can read the code to their digital bank and know exactly how the funds will be custodied and under what circumstances they can be moved around. This is part of why DeFi is so exciting. Protocols can go from $0 to billions in a matter of days, because they don’t have to spend time building trust in order to acquire assets. Instead, anyone can read the code and decide for themselves whether this is a good place to park their money. As an example, Sushiswap, a decentralised exchange, took 48 hours to reach $1.5bn in assets.

The Ethereum computer is controlled by the miners. They decide the future state of Ethereum and, as a collective, they ensure that the code is executed as written. Miners have the ability to create new blocks and the latest block represents the current state of the Ethereum computer. Mining is like a democratic voting process. Miners vote with their computer power-the more computing power you have, the more votes you get. Miners do not have unlimited power, but they decide which transactions are included in the next block. However, they cannot execute transactions on your behalf, because they do not have access to your private key.

Ethereum can also be thought of as an alternative to the traditional nation-state/legal system. Instead of relying on a nation-state and its legal system to enforce laws and act as an unbiased third-party, the Ethereum blockchain and the miners, specifically, can play this role. The miners are essentially a globally-distributed set of voters that cannot be bribed as a collective. They are trusted to enforce the laws (aka smart-contract code) that govern the use of hundreds of billions of assets that live on the Ethereum blockchain. Today, as transactions become cheaper, they could be trusted to autonomously implement the censorship policies for the next big social network or enforce the rules behind novel virtual economies.

Next Steps for the Ecosystem:

It has become increasingly expensive to send transactions on the Ethereum blockchain. Block space is very limited on Ethereum layer one, but demand for transactions is high. This limitation has blocked out (no pun intended) many Ethereum users. A simple token transfer can cost $20 or more.

However, the solutions are already here, in the form of “layer 2s.” The most promising Layer 2 solutions are “rollups.” These are built on top of Ethereum and inherit from Ethereum’s security. Hundreds of transactions (or potentially thousands) completed on layer 2 are eventually aggregated and then published as a single transaction on Ethereum layer 1. So each Layer 2 has a capacity hundreds of times that of Ethereum layer 1, and has transaction fees that are a small percentage of those on layer 1. Layer 2s enable a much wider array of applications, that were restricted due to cost, and a much broader variety of users, to take advantage of Ethereum. Right now, two general-purpose rollups are live, Arbitrum and Optimism, and each already have hundreds of millions in assets.

Rollups are like different cities in the “crypto nation” while Ethereum is the capital city. Ethereum Layer 1 (L1) is expensive, so many people will choose to live/work/transact elsewhere.

ETH’s role in the system and Potential as an Investment:

Just as Ethereum is an amalgamation of concepts, the ETH investment thesis is also multidimensional. ETH is used to pay gas fees and represents a bet on the value of ETH layer 1 block space. ETH is also a store of value which has similar properties as BTC.

With every block, miners earn transaction fees and newly minted ETH. However, this summer, a new proposal was implemented for the Ethereum network. With this proposal, called EIP-1559, Ethereum is burned by every transaction issued on the network. Today, net of new issuance and burning, Ethereum’s supply is growing at a rate of 2.3% annually.

However, in 2022, Ethereum will be transitioning to become a proof-of-stake network. This has been in the works for years, and is perhaps the largest change in Ethereum’s history. Part of this transition includes a reduction in new Ethereum issuance. In fact, after proof-of-stake is implemented, ETH will become a deflationary asset which is estimated to deflate by 2% every year. ETH bulls have termed ETH “ultra-sound money” because of its deflationary properties. The move to POS is seen below as “POW removal.”

Changing to proof-of-stake also allows a much broader set of ESG-focused institutional investors to begin holding ETH. Many institutions cannot purchase ETH because it is considered to be environmentally-unfriendly. Environmental concerns, for example, hindered Tesla’s ability to adopt Bitcoin as a payment and reserve currency. But after the transition to proof-of-stake, total potential investable capital goes up by hundreds of billions of dollars, which could lead to significant inflows into ETH.

BTC hit a market cap of $1.1tn earlier this year. At a market cap of $1.1tn, ETH would be worth approximately $10,000. With the tailwinds from scaling technologies, the introduction of deflation and the increased ability for institutions to invest, it would not at all be surprising for ETH to hit $10,000 by the end of 2022.

Conclusion
ETH is a revolutionary platform. Due to scaling technologies, applications built on Ethereum can now compete with a broader set of centralised incumbents. Furthermore, the thesis for investing in ETH has never been more promising, with major tailwinds behind the asset for the foreseeable future.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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