What is Ethereum?

An Introduction to Ethereum and Ether

Ethereum and Ether are often confused for one another, primarily by bitcoin maximalists, and I'm here to clear that up. Buterin and others hope to expand on the potential of blockchains beyond storing and transferring monetary energy, as with Bitcoin. Ether is the token that powers Ethereum, so when you buy Ethereum on the likes of Coinbase and others, you're buying Ether, not Ethereum. Now you know, but to perform functions in Ethereum, it will cost you some amount of ETH or $ETH.

Vialik Buterin and others launched Ethereum in 2015 as a general-purpose blockchain. Blockchains will not be as fast as centralized servers but have the potential to support uncensorable options by non-blockchain authority figures like our US government.

Bitcoin, the big daddy of Ethereum

The mysterious founder known to the world as Satoshi Nakamoto created Bitcoin in 2008 and launched it on January 2, 2009. This mystery allowed the network to develop without being taken down by the powers of being. Who Satoshi Nakamoto is, is not revenant to the inner workings of the network.

The network of computers running the bitcoin client software is known as "upper case Bitcoin," and the token we buy is known as "lower case bitcoin." So, Bitcoin is the network, and bitcoin is just an accounting entry in the Bitcoin blockchain. The blockchain is a chain of blocks, and these blocks are a set of transactions within ten minutes. So the Bitcoin blockchain is the total verified history of all bitcoin transactions running on the base layer of bitcoin, aka Bitcoin.

The Ethereum Virtual Machine

What is the Ethereum virtual machine, and why is it important? As the Ethereum Foundation explains, the EVM is as follows: ‘the rules that govern the state of the blockchain (transactions between accounts holding ether) in the period between block(s). The period between two different blocks is around 13 seconds. Unfortunately, the EVM is defined mathematically as further expanded by the Ethereum Yellow Paper, which I link to in this paper’s references.

In short, the EVM is the set of math rules that govern what happens in Ethereum between blocks.

Smart contracts and use cases for EthereumEthereum, the smart contract-focused blockchain, have you pondering what a smart contract is. A smart contract is a computer program that executes a well-defined set of instructions once all conditions have been met. Here's an example:

Operation: Pay the following wallet: 0x55….aHa23 a single ETH.

Requirements: Has the wallet holder submitted this week's assigned work?Pay: Yes, the state is met.No, the condition is not completed.To support Ethereum's ability to execute these operations, they'll need to verify if these often real-world conditions have been met. Oracles will be required to provide real-world verification. Currently, the only player in the oracle space is ChainLink.

How does Ethereum compare to Amazon Web Services?

How does the second largest blockchain by value compare to AWS? It's slow AF to AWS, but here's how: Ethereum currently processes 30 transactions per second, and AWS can handle one million transactions per second. Why use Ethereum over AWS? Ethereum can't block you, but Bezos's Amazon can. The various layers two and above can be used to provide credible, politically neutral added transactions that should be able to rival AWS.

In the future, most users will not need to use the Ethereum blockchain, which will serve as the blockchain for other blockchains. A clearinghouse of blockchains is similar to how banks clear account holder transactions with other banks using Fed Wire, ACH, and SWIFT.

Proof and Work vs. Proof of Stake.

Today, various methods verify the history of transactions on different blockchains. The focus is on the two known as proof of work" and "proof of stake." Proof of work behaves as follows: Miners expend computer power to solve complex math problems and verify transactions. If successful, first earn the newly created bitcoin(s). So, as proof of work, one verifies transactions by mining (which requires one to work and expend the opportunity cost of computing). In the case of proof of stake, stakers lock up their holdings of certain crypto to vote on what they deem to be legitimate transactions on the network. Both systems have the potential to reward those who make large investments and potentially large control of the network, whether in computing power or crypto holdings.

At the moment, Ethereum (not Ethereum Classic ($ETC)) is operating on proof of work, but in mid-September should transition to proof of stake.

The demand and supply profile for Ether (Merge-triple halving).

I am modeling the evolution of the metaverse and derivative trading on Ethereum. The future demand for ether tokens should increase exponentially as firms and individuals realize the benefits of operating within the Ethereum ecosystem. That demand will arrive using the metaverse, derivatives, NFTs (non-fungible tokens), etc. As Ethereum transitions to proof of stake, we should experience a massive decline in the annual illusion of Ether (s) by 87.5% (or the equivalent of three bitcoin havings, hence the triple havings). I was able to project a nearly 12.8 million dollar valuation per ether token in 2031. The key assumptions are that there are 1.5 billion users on the metaverse (following Facebook's S-adoption curve) and derivative earnings of 3.2 trillion dollars for the Ethereum ecosystem.

The Future of Ethereum (Metaverse, DeFi, Web3, etc.)

The future looks bright for Ethereum. The big things developed in the Ethereum ecosystem are the web 3.0 metaverse, DeFi, NFTs, etc.

What is the Metaverse? The Oxford dictionary provides an interesting definition: "a virtual-reality space in which users can interact with a computer-generated environment and other users." Currently, most individuals experience the metaverse via the web 2.0 tech giants' centralized servers via laptops and mobile phones. In the future, it will be primarily via VR/AR/XR modes, whose assets will be stored on non-fungible tokens through decentralized blockchains like Ethereum. The largest players in the web 3.0 metaverse are Decentraland, Axie Infinity, Sandbox, and UHive. Each corner of the metaverse has its tokens, but each of these tokens runs on smart contracts on Ethereum. Which of these corners will be the corner to be one is still early, but it should be clear that Ethereum should benefit from the growth of the metaverse.

At the moment, the number of all-time users of the metaverse is estimated at around 8.5 million. On UHive, it was reported that the current figure of all-time users was two million. Using the below model that was generated using user growth from January 2020 and July 2022, I estimate that by December 2031, the all-time users of the metaverse will be two billion. If AI gets any better, the largest population of users on the metaverse might be AI bots interacting with each other and actual human users, which might improve our experience, unlike their web 2.0 counterparts.

DeFi, or Decentralized Finance, is a decentralized version of Wall Street dominated by the likes of Uniswap, Aave, etc. The ability to lend Ether for a yield through smart contacts without KYC with anyone will give power back to users from the prying powers of governments and allow for massive innovation improvements. Suppose we could have transactions fully transparent on the blockchain. In that case, we can verify the collateral pledged to make due if the borrower cannot make payment through USDC or some other stablecoin(s). One of the biggest issues of the 2008 meltdown was the ability to trace the full scale of under-collateralization and hypothecation.

At the November peak, almost 100 billion dollars were locked in the DeFi ecosystem. Still, it's down back to nearly 47 billion dollars at print. Even though it's down 53% in the last ten months, it's up 4600% in the previous four years. DeFi is here to stay, but over time the biggest developments will be the developments of centralized service providers built on top of DeFi blockchains. The use of smart contracts to be self-executable derivative contracts with the use of Ether as collateral and for gas fees will be a major demand source for Ether over time. A major source of growth for Ethereum might be through Synthetix, where many derivative contracts are being traded. At the moment, the notional value of derivatives globally was estimated at 1.4 quadrillion dollars.

Summary

Ethereum is the largest blockchain-focused on smart contracts. Bitcoin was the first blockchain on which the Ethereum blockchain is based. AWS is faster at conducting transactions than Ethereum. Still, avoiding sanctions on Ethereum vs. AWS makes a case for Ethereum very compelling. The upcoming drivers for the investment case for Ethereum are the merge-related supply shock and the demand drivers for the growth of the metaverse and derivative trading. Suppose my assumptions happen, and the market agrees to the valuation assigned to those assumptions. In that case, each Ether token could be worth 12.8 million dollars in 2031.