Ether
Note: All data in this section updated as of March 30th, 2022
What is Ether?
Ether is a form of “programmable” money. It was conceived in 2013 by Vitalik Buterin, launched in 2015 and is currently the second largest cryptocurrency with a market capitalization of $406 Billion.
Ethereum’s Market Cap is Nearly $500 Billion
Unlike Bitcoin – which functions very similar to traditional forms of money such as the USD or gold – Ether can be programmed to act in a certain way if predetermined criteria are met.
This has several important applications including (but not limited to):
Recurring Payments: Ethereum can be programmed to make automatic payments at predetermined times. This has an almost unlimited number of use cases including loan repayments, stock divided payments, automated payroll, etc…
Escrow: Large transactions often require escrow services to hold funds while a sale takes place. Currencies like Ethereum eliminate the need for this as they can be programmed to automatically release the funds once the deal is consummated
Contracts: Ethereum can also be programmed to settle more complex transactions. For instance, one could write an insurance contract that automatically pays policy holders if certain criteria are met (i.e. it could pay drought insurance funds to a farmer if the temperature averages over 90 degrees for any given month)
This functionality is supported by a decentralized “cloud” computer known as the Ethereum Virtual Machine (“EVM”). Like any computer, it can run a variety of programs – not only the ones listed above, but also a host of decentralized applications such as cryptocurrency exchanges, play-to-earn games, lending and borrowing protocols, music streaming services, etc… (to learn more check out the article on Smart Contract Platforms).
In addition to serving as a currency to buy goods and services, Ether is also needed to i) pay for the computing power required for transactions on the EVM and ii) serve as the platform’s primary consensus mining mechanism.
This trifecta of uses makes the coin unique among assets.
What are the Benefits of ETH?
Perhaps the most interesting take I’ve heard on the potential of Ether as money comes from David Hoffman of Bankless in his article “Ether: The Triple Point Asset”.
Hoffman references an argument by economist Robert Greer that assets have historically served one of three functions. They are either:
Capital Assets: Capital assets generate cash flows for the owner. Examples include stocks that pay dividends, bonds or rentable real estate.
Consumable Assets: Consumable assets generate value when they are used. Oil, coffee and electricity all fall in this category. outcome that is economically beneficial. Think about the gold plating in electronics, the gasoline in a car, or the coffee beans in a coffee machine.
Store-of-Value Assets; Store of assets can’t be consumed nor do they provide cashflows, but they nonetheless have value. Examples include gold, traditional currencies, real estate, art, or Bitcoins.
Although real estate and gold come close, no single asset has satisfied all three functions.
No existing asset simultaneously produces cash flow, stores value and is consumable
Ether, however, does. A token on the Ethereum network has what Hoffman calls an “economic trifecta” because it acts as a:
Capital Asset: Ether produces passive income through staking
Consumable Assets: It is needed to pay gas fees on the Ethereum Virtual Machine
Store-of-Value Asset: Ether is the most used form of collateral to be “locked” in DeFi
So in a sense, owning an Ethereum token is like a dollar bill, blue chip stock and barrel of oil all rolled into one!
Who are the Other Players in the Space?
The smart contract market is highly consolidated, with Ether holding over 50% of market share and the second six players – Binance, Terra Luna, Cardano, Solana, Avalanche and Polkadot garnering an additional 31%.
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