It’s a great time to write about Ethereum for me. As markets world over have crashed in the recent weeks, so has crypto markets. Ethereum is down  30-40% from it’s recent high of $4800 at about $3100. This blog is a reminder of what the ecosystem stands for and why none of the fundamentals have changed.

When I first bought ETH in 2017, I didn’t understand much but somehow it seemed more programmable than Bitcoin and hence it felt a higher potential coin to me. Over the years I have formed a strong opinion that ETH is going to become a multi-trillion $ platform. It has the highest number of developers in the ecosystem and over the last 1-2 years, we are starting to solve some real problems which will all accrue value to Ethereum ecosystem and ETH the asset.

ETH2

Ethereum’s Proof of stake (POS) upgrade is on the horizon. In the next 3-5 months, we would see ETH transition from PoW to PoS. This will cut down the energy consumption by 99% and make it possible to stake and get ETH on a raspberry pi, making it more accessible to every user.

It also cuts down ETH issuance to 1% from current 4%. Add to that the ETH being burnt as part of EIP-1559 changes, and Ether will become a deflationary asset. So once ETH2 launches, we would have seen the peak Ethereum supply in the rear view mirror. A deflationary asset that is also highly in demand will no doubt have a strong upward pressure to asset price.

Thirdly, with this change, miners do not exist. Instead you would need to stake ETH to get rewards. Hence the miners who currently mine the coin, and then sell it for recovering some costs cannot sell the coin because that reduces their stake. This should also technically translate into lower sell pressure on ETH.

Last, but not the least, ETH2 merge lays foundation for scaling ETH with sharding. After the merge completes, we can expect to start adding more data shards to ETH blockchain which will help improve network throughput. That coupled with advances in Layer2 solutions like Optimism, Arbiturum, DyDx etc will help ETH scale to 100s of thousands of transactions per second in the next few years.

DeFi

Decentralized finance is now a validated real use case of blockchains. Pretty much every block chain including Bitcoin is trying to build a DeFi ecosystem. Money is money and if you can use anything to make money, you will try. DeFi is that solid foundational use case for Ethereum that will continue to grow as more money and more users flow into the ecosystem. Yes, there is a risk that some of this activity will go to cheaper fees blockchains but at the end of the day, if people are willing to pay high price for ETH block space – that is a positive sign on the amount of demand for this product.

Identity

Authenticating a user’s identity is one of the most challenging real world problems. We currently use passwords as the default authentication mechanism but that is flawed with leaked passwords, hard to remember, easy to crack problems. Many companies are trying their own spin on better authentication including biometrics, OTPs etc.

With a ethereum wallet, you have a private/public key pair and you can use that to authenticate yourself by signing a transaction. While it’s hard for me to explain how this works clearly, a simple example could be using your Metamask wallet to claim some rewards. When the reward site wants to verify you are who you say you are, it triggers a popup in metamask that you have to confirm. By confirming, you sign with your own private key – something only you have access to. This confirms your identity and let’s you proceed with certain privileged activity like claiming a reward.

Here are some resources: Ethereum Identity, Identity on Ethereum

Smart Contracts

Ethereum supports programmable contracts which allows various applications to be built especially those where there is a counter party risk. If a human being is involved in executing a legal contract like insurance claims, housing sale deeds, agreements on a transaction – those can be automated with Ethereum such that if certain conditions are met, certain outcomes will be triggered and there is nothing that can be done to prevent or reverse that. There are already applications built that automatically pay out insurance claims based on weather data instead of having a human judge the same.

This use case is just getting started and it will gain more traction over time as the world gets more digitalized and humans start relying on machines to execute legal contracts.

NFTs

This one has been the most unexpected use case of Ethereum that has just gone parabolic. There are just so many use cases for NFT (Non-Fungible Token) that it’s hard to understand most of them. The most common one is just digital art (be it a simple 24px art or digital copy of a physical art) being sold on the blockchain for millions of $$. However it’s not just that – because an NFT can also be programmed, you can theoretically ensure that the original content creator always gets paid 10% (or 50%) of any future sales. That ensures that the content creator can not only sell directly to the consumer but also partake in future economic benefit of content they created.

It is also a great mechanism to deal with collectibles. You can use blockchain to ensure proof of authenticity of real world collectibles or digital collectibles just by the virtue of ETH’s technology. Just mint an NFT for that fancy baseball card and sell the card with the NFT without involving tons of lawyers.

Another interesting use case is ticket management. Scalping is a big problem in various events where the demand far outstrips the supply. By issuing tickets as NFTs, you as the event producer or owner – can program various rules to ensure the tickets go into the right hands. For eg, you can ensure tickets can’t be resold within 7d or that the same ETH address cannot have more than 1 ticket or that the original content creator gets half of any future sales etc.

Not only that, but imagine you hold the ticket to a game that turns out to be one of the most famous games in recorded history. As the owner of that ticket, you now accure a lot of value in that NFT ticket and potentially you can sell it for a higher price in the future. It turns the ticket into a collectible.

These are just some of the more obvious use-cases but the real world usage will be far more complex and convoluted. There’s a lot to build and explore here.

Final thoughts

Crypto is volatile, ETH is volatile. I can’t say whether it will go to 1K or 10K next but I do believe that the technology is no doubt here to stay and there’s a lot of demand for the blockspace as well as a lot of real world problems that will be solved. It will catalyze the next adoption of what is being called Web3 and if I had to bet, I would bet on 10K being more likely than 1K. I have definitely bet money on that.

Disclaimer: This is not financial advice and do your own research before investing