Opinion: Ethereum - The Beginning Of A Long Journey

This column does not necessarily reflect the opinion of the editorial board of Benzinga.

Digital currencies have reached an inflection point. In the last few months alone, the industry had some major wins: PayPal and Venmo enabled US consumers to buy, sell, and store cryptocurrency on its platform; last year, the Office of the Comptroller of the Currency (OCC) granted banks custody over cryptocurrency; and crypto startup Anchorage became the first crypto custodian to receive a federal bank charter.

And of course, there’s Elon Musk’s Tesla, who announced in an SEC filing that the company was holding $1.5 billion in bitcoin on its balance sheet. Indeed, recent events have made it absolutely clear that cryptocurrency is now a household name.  

Bitcoin (BTC) is the best known among them, famous throughout the world, especially since it hit a new all-time high (ATH) of over $60,000 in March.

Yet, while Bitcoin may be the face of the crypto industry at the moment, it is important to understand that it does have its limitations and that there are other blockchains creating value for investors to explore. 

Here's where Ethereum comes in. Ethereum’s token, Ether (ETH) has the second-largest market cryptocurrency after Bitcoin.

In addition to seeing a sharp rise in demand, the Ethereum market has fostered smart contracts (automated contracting programs with seller/buyer terms written into the code) and decentralized applications (dApps) (programs running on a decentralized network and using smart contracts for their app logic). 

Here are a few key reasons why I think Ethereum is here to stay and why we all need to start paying attention to this burgeoning ecosystem. 

What's Happening?

As Bitcoin's price hits new all-time highs, the number one cryptocurrency by market capitalization is now more expensive and thus potentially a riskier bet for new retail investors.

The price of Ether (ETH), Ethereum’s native cryptocurrency, isn’t nearly so volatile or expensive, therefore it presents an attractive opportunity for new investors.

What’s more, the Ethereum 2.0 upgrade that will increase the network’s scalability, security, and energy efficiency, is generating a lot of hype. With Berlin Hard Fork last week, which improves fee structure and security, Ethereum is actively moving down on the road to upgrading its consensus protocol from Proof-of-Work to more energy-efficient Proof-of-Stake.

Also, decentralized finance applications built on Ethereum offer better interest rates than most traditional banks, so it can potentially break people’s dependence on services like checking, savings, and loans.

Last October, the SEC declared that Ethereum was not a security, thereby strengthening the decentralized finance (DeFi) sector and boosting Ethereum’s potential.

With the explosion of the DeFi ecosystem on Ethereum, Ether is rapidly gaining relevance, and it can offer a lot more than BTC itself, from smart contracts (programs that run on top of the blockchain) to a variety of digital collectibles (NFTs), and tokens project-to-project.

Consequently, the benefits, stability, and potential scalability of Ethereum make it a viable digital asset, one whose nuances people should understand as they become more ingrained in everyday technology.

Ether is Filling In The Gaps For Bitcoin

Bitcoin is the first and largest cryptocurrency in the world. It has the highest price, the largest market cap, and the name known around the globe.

However, people often have the wrong idea about it, which is shown in the fact that they look towards Bitcoin to solve all problems, from efficient cross-border payments to financial inclusion, to money printing and inflation. 

Twelve years after the advent of Bitcoin, many new digital currencies have rapidly emerged, most filling in the gaps left by their predecessor.

It’s not surprising, either. After all, a rising tide lifts all boats — all those, at least, that can float. Indeed, many of the altcoins today will not survive for a variety of reasons. But Ethereum is unique among them. 

If 2020 was any indication, Ethereum is likely to become the first public blockchain ever to settle $1 trillion in a year.

It’s hard to ignore six-year-old technologies that process more than $1 trillion in real value transfers per year, a figure that has already eclipsed PayPal’s.

Regulators, financial institutions, and central banks are realizing the power, potential, and inevitability of cryptocurrency.

They have even stopped trying to block it at every turn, as seen in the OCC’s recent move to allow banks to offer crypto custody.

Here's How You Can Use ETH Today

The first thing that you need to understand about Ethereum is that it is not like Bitcoin. Bitcoin is an asset. Ethereum, on the other hand, is an ecosystem.

An ecosystem that consists of multiple assets, such as tokens, stablecoins and NFTs, and its signature one — ETH.

Ethereum is much larger than just its coin.

From various Ethereum-based tokens - tokens built on Ethereum to satisfy specific use cases - to decentralized exchanges, oracles, and dApps, its ecosystem is thriving and constantly evolving. 

For example, smart contract usage on Bitcoin is minimal — Bitcoin's network was designed specifically to send and receive bitcoin, not to enable complex, automated financial systems.

The Ethereum community addressed this deficiency by launching a Bitcoin-pegged asset named Wrapped Bitcoin (wBTC) in early 2019.

Since then, other assets pegged to bitcoin such as RENbtc, pBTC, and BTC++ have entered the market.

These assets have the identical price as BTC but operate within Ethereum's network, and as such, they can be used for dApps and smart contracts.

This unique financial instrument provides traders, institutions, and dApps a bridge to the Ethereum network while maintaining exposure to Bitcoin, opening never before seen DeFi and arbitrage opportunities.

The goal is to bring Bitcoin’s price value into play and combine it with Ethereum’s programmability.

These solutions go outside the crypto industry itself. For example, people are frustrated with low interest rates traditional banking places on savings accounts.

The crypto industry came up with a solution in the form of DeFi and specifically yield farming, which offers much higher interest rates and the ability to earn greater amounts of crypto.

DeFi saw a major boom in 2020, first hitting $1B in Total Value Locked in February 2020, and is now $45 billion only one year later.

This tremendous growth has attracted new users seeking yields that are not possible with Bitcoin or traditional finance because of intermediaries. 

The upgrade to Ethereum 2.0 started in December 2020, will make investing much faster, more reliable, and more lucrative, with lower trading fees.

And with over five times the number of active developers as Bitcoin, Ethereum is growing at a faster clip. Developer activity on Ethereum indicates that new and better use cases are on the horizon, which will increase demand for ETH.

Ethereum Is Here To Stay

Ethereum's potential is enormous, and the project is here to stay. More than that, it has a bright future ahead, with traditional companies from PayPal to Microstrategy getting some skin in the game.

You do not have to understand smart contracts or know their workings inside-out. There are projects, like MEW, that are working to make a simple interface so that anyone can interact with smart contracts because their infrastructure is complex, but their application is so important for the ecosystem. 

These things will come in time, as that is how evolution works. This technology has the ability to become integrated with so many aspects of our everyday lives that it is extremely hard to predict its limits at this time.

And, with the blockchain industry having such a massive future impact on our lives, you might as well get familiarized with it now.

By Brian Norton, COO of MEW