A Detailed Analysis of Ethereum
A Detailed Analysis of Ethereum
and Why I Don't Own Any
When people approach me to ask about cryptocurrency, Ethereum is among the cryptocurrencies they ask about. They are consequently surprised to find out that I don’t own any of the #2 cryptocurrency in the world. My history with Ethereum is actually rather in depth. I’ve mined Ethereum, invested in ETH, and used ETH to invest in other projects. I’ve followed Ethereum closely since I was introduced to it in 2015, and am grateful for what it has contributed to the space of cryptocurrency. The thing is, I see other projects doing a better job of manifesting the potential once held by Ethereum. This letter will tell you what you need to know about Ethereum as a newcomer, as well as my reasons for not being invested in it any longer.
Ethereum
Like Bitcoin, Ethereum has been notoriously difficult to define. Technical jargon is useless to the average user, and so I’ll do my best not to use terms that are likely to confuse.
A Token (Altcoin) Platform
Altcoin - Any cryptocurrency that isn’t Bitcoin.
Synonyms: Coin, Token, Shitcoin;
As covered in my previous letter, an “Altcoin” is anything that isn’t Bitcoin. There now exists thousands of Altcoins, and this is all thanks to Ethereum. Before Ethereum, you needed to be a competent computer programmer in order to create your own cryptocurrency. Using Ethereum, anyone can create their own token with a few clicks of a button. In this sense, Ethereum can be thought of as a “Token Platform”.
Facebook / MySpace Analogy
People started creating their own webpages in the early 2000’s. The thing is, you needed to know quite a bit about HTML, CSS, JavaScript, and Web Hosting in order to create a website. Facebook made it so anyone can create a webpage to host their social profile. In this sense, Facebook is a “Social Platform”. Using Facebook, anyone can create their own webpage with a few clicks of a button. Sound familiar?
The caveat is that your webpage is a page within Facebook. Similarly, any token created on Ethereum is a token/coin within Ethereum.
Facebook now has tons of apps, information sources, and marketplaces within one website. It is an entire ecosystem of various functionalities that creates the Facebook experience. Ethereum is the host to hundreds of Decentralized Applications (dApps), each with their own token and use case.
Ethereum is Lego for Finance
Have you ever played with Lego? Every piece of Lego is able to be connected to every other piece in some way shape or form. This is the same with Ethereum Tokens. Every token, can be connected to any other token. This greatly enhances the utility of Ethereum as a whole. In this example, Bitcoin is raw plastic. A great innovation in an of itself, that can be moulded into a variety of shapes, but not directly useful if you’re playing with Lego.
Your World Your Rules
The tagline of Lego is “Your World, Your Rules” which is why I chose to explore this analogy. Bitcoin’s rules are already defined, and set in stone. If you want to play with Bitcoin, you must play by its rules. Ethereum gives developers a way to define their own rules, for their own tokens. This creates virtually endless possibilities for how developers and entrepreneurs design their tokens.
The Innovation of Ethereum
The core innovation of Ethereum is something called “Smart Contracts”. These now go by many names, but they’re all smart contracts in one shape or form or another.
Smart Contract allows developers to easily design and create tokens.
Examples: NFTs, Programmable Money, ICOs, Stablecoins
This innovation spurred the creation of more than 200,000 Ethereum tokens by 2019.1
Such a Great Invention, Why Don’t I Have Any?
There are three reasons why I’ve decided not to hold any Ethereum. I’ve arrived at each of these reasons after much research and deliberation. I am always open to modifying my opinion when new information becomes available.
Fees
Just like Bitcoin, Ethereum requires a transaction fee to be paid for each and every transaction. With all the interest in Ethereum since its launch in 2015, the network has become rather congested. It is bloated in the sense that there are too many people sending transactions at any one time. In order to get your transactions verified sooner, people can send transactions with higher fees. This inevitably leads to higher and higher fees. I wrote a blog detailing the problem with high fees on Ethereum in the summer of 2020.
TL;DR from the article
DeFi is Decentralized Finance for “The Unbanked”
High Ethereum Fees completely prices out The Unbanked Population, destroying the narrative that Ethereum is for DeFi and the Unbanked
Since then, Ethereum’s high fee problem has only gotten worse. Ethereum fees are near their all time high. Some transactions that interface with large dApps can cost as much as $200 for a single transaction.
Competitors
Ethereum has always had competitors, its just that Ethereum has always been able to outcompete them. Initially, Ethereum had the first movers advantage on smart contracts. Furthermore, it garnered an impressive grass roots developer community. However, fragments of the founding team of Ethereum have left to start their own projects that are aimed at solving Ethereum’s biggest problems, and hence be its competition.
Cardano (ADA)
Charles Hoskinson was a cofounder of Ethereum, but has since moved onto Cardano, a project aimed at outperforming Ethereum on every level. The only thing missing from this project at this point and time, is the ecosystem. However, the Cardano team has truly thought of everything, and has built into Cardano a way for Ethereum projects to easily move their project to Cardano.
Polkadot (DOT)
Polkadot was also started by one of the cofounders of Ethereum Gavin Wood. The aim (and success) of Polkadot is to implement many of the things that were promised long ago by the Ethereum development community such as sharding, state channels, and sidechains. The way they’ve gone about achieving this is by starting from scratch. This brings me to my last point on why I don’t hold any Ethereum.
Upgrading a Plane, While in Flight
Ethereum has been promising upgrades to the system since 2017. The things that Ethereum has promised are difficult, but achievable. The existence of projects like Cardano and Polkadot have proven that the concepts laid out in ETH2.0 are attainable. The key difference between Ethereum and other networks promising similar features, is that Ethereum is a plane in flight. It is much easier to build a fully featured plane on the ground, rather than upgrade a plane while it is already in flight.
I Want Ethereum to Succeed, I Just Don’t Think it Will
I used to mine Ethereum from 2016 to 2018. I invested in a dozen ICOs. I even learned how to build smart contracts so I could build on top of Ethereum. I think it is filled with good ideas, I also think that it won’t succeed by the time its competitors catch up. Something to note is that if Ethereum fails, all of the tokens on Ethereum are at risk to have the value locked within them evaporate overnight. This is because every token on Ethereum is dependent upon the success of ETH and Ethereum in general. If Ethereum fails, so does BAT, SNX, MKR, DAI, UNI, etc. The companies behind these projects may pivot to another platform, but this is a hit that some tokens may not survive. It is for these reasons that I do not own any ETH, or any of the sub-tokens that live on Ethereum.
Ethereum Laid the Groundwork for DeFi
I think DeFi is a good idea. I like the idea of unbiased code connecting and providing financial services to individuals such as those within the unbanked population (1.5 billion people)2. Because I think it’s a good idea, I hold BNB, CRO, and ADA as I believe these tokens have a foothold in securing a significant market share in providing DeFi or CeFi3 services to the public. I am extremely grateful to Ethereum and everyone that has contributed to it, because they’ve laid the groundwork for the things to come. Many important discoveries have been made around decentralized financial systems because of Ethereum. It may just be time for a new champion of DeFi to take over.
All The Best,
Keegan Francis
P.S. My wife, Mrugakshee, is hosting a webinar on March 20th on “Why Bitcoin is Not a Pyramid Scheme”. Register here.
DeFi/CeFi - Decentralized / Centralized Finance