At BQT, we our curated list of asset pairs is and will perpetually remain a work in progress. That said, we’ve already listed BNB, Binance’s internal token. If it were a true cryptocurrency, it would be the seventh-largest by market cap. That’ suggest we need to examine the top six: EOS, LTC, BCH, XRP, BTC and today’s installment, ETH.
The big brains at Chainalysis report that, based on their quantitative analysis, 376 so-called “whales” own one-third of all ether ever issued. That sounds like a lot, but the trend favors dispersal. Also, these individuals don’t seem to actually be using their aggregated power to intentionally move the market.
“We took a deeper look into the role of ether whales in the market and found that they account for just 7% of all economic transaction activity. Furthermore, these whales have no meaningful impact on the price of ether; they do, however, make the market more volatile on a daily basis with their large sell-offs,” the unsigned post states. “We found that these 376 whales control 33% of the circulating supply in 2019, down from 47% in 2016.”
The report puts some data behind a phenomenon that active traders already know — ETH prices follow BTC’s. Specifically a 1% change in BTC tends to lead to a 1.1% change in ETH. As much as has been written — here and elsewhere — about alt-coin divergence, it might be more about time lag than directional movement. I suppose that’s why “alt-coin” is still a thing — ETH and the other true cryptocurrencies are still considered by the market as alternatives to BTC for given use cases rather than as having intrinsic value of their own.
A lot of people think that ether is the second-oldest, as well as second-largest cryptocurrency after bitcoin. A lot of people are wrong. When it was established in July 2015, there were already several alt-coins in existence — some of them still of major consequence, as we’ll learn in subsequent articles.
The history of Ethereum is tied up in the biography of its founder, Vitalik Buterin, a Russian-born Canadian who became a Bitcoin devotee in 2011. Bitcoin was two years old; Vitalik was 17. The precocious lad contributed articles to a chat forum that paid 5 BTC per submission — then the princely sum of about three-and-a-half bucks. After only a few months of that, he cofounded Bitcoin Magazine. Two years later, he wrote the Ethereum white paper. In 2014 he received a Thiel Fellowship, which sounds prestigious and perhaps is objectively prestigious, but let’s be clear what it it: It’s a $100,000 stipend from PayPal founder Peter Thiel with the stated goal of allowing select collegians to drop out and pursue their projects fulltime. In Buterin’s case it worked. He started Ethereum, became the face of cryptocurrency thought leadership and ended up getting an honorary doctorate from the University of Basel.
But let’s get back to the white paper. Formally titled “A Next Generation Smart Contract & Decentralized Application Platform,” it begins by pointing out what its author considered the underappreciated part of what bitcoin had become.
“So far, the ‘bitcoin’ as a currency unit has taken up the bulk of the public attention,” Buterin wrote. “However, there is also another, equally important, part to Satoshi’s grand experiment: the concept of a proof of work-based blockchain to allow for public agreement on the order of transactions. ... And now, attention is rapidly starting to shift toward this second part of Bitcoin’s technology, and how the blockchain concept can be used for more than just money.”
As big a Bitcoin enthusiast as he was, Buterin saw a number of weaknesses around its UTXO scripting. Specifically, for those who want to show off at cocktail parties, he pointed to a lack of Turing-completeness, value-blindness, lack of state and blockchain blindness. Want to know more? Follow the link from three paragraphs above and read the white paper.
Buterin and his cofounders established the nonprofit Ethereum Foundation in Switzerland to serve as the administrator of ether, the Ethereum token.
And it’s all been rainbows and unicorns since. In some alternate universe where we all have jetpacks and chocolate cures cancer. Discussing the advent of smart contracts, Buterin writes in his white paper:
“The logical extension of this is decentralized autonomous organizations (DAOs) — long-term smart contracts that contain the assets and encode the bylaws of an entire organization. What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create ‘contracts’ that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.”
Be careful what you wish for, Vitalik.
Everything had been going swimmingly for Ethereum for some time. It got funded through a crowdsale in the summer of 2014 and, a year later, went live to thunderous applause. In the first quarter of 2016, ether went from just under $1 to almost $12. More tellingly, it went from 0.002 BTC to 0.035 BTC in the same period. In other words, it was appreciating even faster against the bellwether cryptocurrency than it was against the world’s most widely held fiat currency.
During that time, a DAO that took the name The DAO, was established via a crowdsale of smart contracts valued at $150 million. It was intended to serve as a decentralized venture capital firm. Great idea but, alas, it was not to be.
Within two months of its founding, The DAO was hacked to the tune of $50 million, and ether lost one-third of its value. To stanch the bleeding, the Ethereum Foundation decided to hard-fork the currency. The ETH token tracked the new blockchain, but not everybody followed.
Crypto purists, with such rallying cries as “Code is law!” and “Immutable means immutable!” resisted. The thinking went that, if the hack was possible because the smart contracts were flawed — and nobody’s contesting that fact in The DAO’s case — then the suckers deserved to be ripped off. These nodes continued along the original blockchain and rebranded their token as ether classic. ETC has a market cap of around $800 million as of this writing, making it the 18th-largest player in the crypto space.
The ETH/ETC split was followed rapidly by two more hard forks on the ETH chain designed to reduce the likelihood of the kind of distributed denial-of-service attack that smacked down The DAO. So far, it seems to have worked but, as we’ll see later, development continues.
ETH has several advantages over BTC. First, its block time is something like 40x faster. It’s more efficient to mine as well, although there’s lots of serious talk about moving off proof-of-work — and thus mining — entirely. Again more on that later, but in the meantime this translates into lower transaction fees for us traders.
Unlike Bitcoin, an Ethereum instance need not be a public blockchain. The Enterprise Ethereum Alliance (not the Ethereum Enterprise Alliance — everyone makes that mistake) is a community of almost 300 entities chartered “to develop open, blockchain specifications that drive harmonization and interoperability for businesses and consumers worldwide.” Which means it’s a consortium of legacy businesses that recognize the value in Ethereum and want to be on the right side of the inevitable disruption.
The interest stems from the capability of building private blockchains, also called permissioned blockchains, via Ethereum. Financial services firms have been fairly quick to pursue development of private blockchains, which offer all the advantages of distributed ledger technology but still require rights granted by a central authority to work on. This is great for allowing regulators to peer into clients’ business without the public at large being able to. This may not be consistent with the philosophy of blockchain’s early adopters, but technology itself has no philosophy. If code is law, then why can’t application be philosophy?
But the real distinction is ETH’s inherent value. While it’s possible to predicate smart contracts on BTC, ETH’s protocols are much more elegant and built-for-purpose with their own runtime environment, Ethereum Virtual Machine.
So what can you use smart contracts for? After all, if all this code doesn’t solve any real-world problems, then there’s none of that aforementioned inherent value.
Most immediately, they can be used to transfer value in return for goods or services. Those goods could be other cryptocurrencies, but not necessarily. Everything from real estate deeds to provably fair online casinos.
But the real killer app for ETH is, well, apps. Specifically, the Ethereum blockchain is the preferred platform from which to build decentralized applications, or dApps. These can be used to track produce from farm to table, build a smart power grid or ensure the safety of such products as pharmaceuticals and airplane parts. But a lot of attention right now is going toward building in-game currencies and economies.
And, I proudly state, BTQ is essentially a dApp, as is every decentralized cryptocurrency exchange.
More than 200 developers are working right now to improve the Ethereum chain. This goes far beyond tinkering and the upcoming Serenity release is also referred to as 2.0.
Much of that effort is going to moving it from the current proof-of-work consensus protocol to a proof-of-stake. This means that, under the new Casper v2 protocol, brute-force hashing will be superceded by the mere act of coin ownership. This change is intended to serve two purposes. The first is to wean the chain off expensive and ecologically unsound mining. And that’s fine even though, in my opinion, the environmental impact is becoming less and less a concern as miners and the economy in general are switching to renewable sources. But the other purpose is to break up the centralization associated with large-scale, capital-intensive mining operations. But, as noted above, 386 ETH holders could manipulate the market or direct a 51% attack just as surely as any mining cartel. So good luck with that.
(As an aside, one of the main reasons that Ethereum isn’t just some guy’s personal piggybank is the founder’s own public-spiritedness. Cofounder Gavin Wood, the computer scientist who lent the most academic heft to Ethereum’s launch, is on record as saying, “The only reason why we say it’s decentralized, or pander to that notion, is because Vitalik isn’t a dictator.”)
Serenity offers other improvements too, including an incremental upgrade of the Ethereum Virtual Machine to the new eWasm tool. But the other main feature is sharding, which basically debottlenecks the chain so that processing volume and speed can be vastly improved. Considering how much faster Ethereum is than the Bitcoin chain, this could be the thing that catches crypto up to Visa or Venmo.
As of this writing, all these bells and whistles should have been installed a month ago, and who knows how many times that date was pushed back before that?
Nobody knows when the Ethereum will be in steady state again, but Mango Research seems inclined to believe that might not happen until sometime in 2021.
Even with all this futzing around — indeed, because of it — ETH has demonstrated an ability to maintain its value even when facing serious headwinds. Because of the time lag between its movements and BTC’s it has sometimes appeared to crater in relation to its bigger cousin, only to sharply bounce back a few weeks later. The fact that so much development is going on, and so many project managers are keeping a lid on releases until all the bugs are sprayed, gives many confidence that this coin will continue to hold its position relative to BTC if not rival it someday.
It is already attracting mainstream financial markets interest in the form of exchange-traded funds weighted by market cap to track the overall crypto space. Until Crescent Crypto filed its prospectus for such a fund in May 2019, crypto ETFs were largely confined to BTC and other forks off the Bitcoin chain, which we discussed last time. If this fund takes off and others follow suit, that trend could only serve to increase ETH’s liquidity.
Not that liquidity is a problem for it today. With the exception of BTC, ETH is the easiest cryptocurrency to buy or sell. Aside from that, it also has the kind of inherent value as a smart contract token that BTC could have developed but never bothered.
For both these reasons BQT is sure to list ETH as a pairing with many other tokens. We wish The Ethereum Foundation success in continuing to develop the coin’s utility as well as its liquidity, and we wish you equal success in trading it on our platform.
Edward is an Ernst and Young Entrepreneur of the Year Finalist, Blockchain Enthusiast and visionary behind many successful organizations. An avid entrepreneur, Edward has a knack for designing distinctive business models complemented with superior technology to deliver unparalleled service and profitability. Edward also has been advising and consulting for various successful Blockchain technology and ICO projects and recently launched his own BQT.IO P2P exchange helping traders connect with each other to leverage their crypto assets.
BQT.IO has been in development since March 2017 and its ICO launched September 18. The information can be found online at BQT.IO, on Telegram @BQTCommunity and on Twitter as @bqt_ico.