The Ethereum price is up 908% in the last twelve months, with the new Ethereum 2.0 on the horizon and a craze of NFT projects running on the Ethereum blockchain for the APES and Degenerates to obsess over, we ask the question Should I Buy Ethereum in 2021?
Ethereum Price Australia
The price of Ethereum has increased 908% in the last twelve months to trade at today’s price of $3,865 and a market capitalization of $453billion. This makes ETH the second-largest cryptocurrency by market cap.
Ethereum unlike Bitcoin does not have a fixed amount of coins (coin-cap) however has other deflationary measures in place to control circulating supply.
Should I Buy Ethereum – Summary Statistics
|Inception of Network||30th July 2015|
|Current Price (USD)||$3,865|
|Coin Market Cap (USD)||$453billion|
|Circulating Supply (As of Writing)||117,394,131 ETH|
|Current Mining Block Reward||2 ETH|
|Is Fixed Supply (Coin-Cap)||No|
|Level of Decentralization||Top 2 hold > 50% hash rate|
The goal of Ethereum is to be a globally scalable payment network and smart contract platform resistant to centralized governance.
Should I Buy Ethereum – About The Project
Ethereum is a blockchain product that can essentially be described as an operating system for the blockchain. Ethereum is primarily used to build decentralised applications (Dapps) the project achieves this by combining the blockchain with a complete Turing programming language.
Ethereum is based on the concept of “Smart Contracts”, which essentially means that if certain conditions are met then a certain code can be run on the platform. This differs from its competitor bitcoin where a coin can typically only be ‘spent or unspent’ with only basic ‘smart contract’ functionality.
Ethereum is an open-source project that is not owned or operated by a single individual. This means that anyone, anywhere can download the software and begin interacting with the network.
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.Ethereum Whitepaper
Ethereum is capable of supporting a multitude of use cases including but not limited to the following:
- Token Systems (Such as NFT’s)
- Financial Derivitives and Stable-Value Currencies
- Identity and Reputation Systems
- Decentralised File Storage (DropBox but cheaper and decentralised)
- Decentralised Anonymous Organisations
- Insurance based contracts systems
- Peer-to-peer gambling protocols
Upon network creation, 72million ETH was created and allocated based on approximately $18million USD that was raised in their ICO sale. Around 83% of ETH were sold to the public at this point in time, with developers (85 individuals) and the Ethereum Foundation maintaining the 17%.
Is Ethereum Anonymous?
Is Ethereum Anonymous? Ethereum public wallet addresses are not directly linked to any personally-identifying information. However, transactions on the ETH blockchain are publicly available for inspection. This means that should your identity be able to be traced to your public wallet address then in theory all your transaction history would be available on the blockchain.
Ethereum Mining Reward History
At creation 72million Ethereum tokens were created. The token includes a key deflationary mechanism to control the rate at which new ETH is issued. The rate of issuance is currently capped at a 16million per year, however, over time this will continue to become smaller as the difficulty and computing power required to mine will increase.
The block reward for miners who successfully confirms a transaction on the Ethereum blockchain started at 5ETH back in 2015. After several hard-forks increasing the difficulty of mining the block reward now sits at 2ETH.
Unlike its, counter Bitcoin has a hard cap on how many bitcoins can exist. This number is a 21million bitcoin. Ethereum does not currently have a cap on how many ETH can exist, it has been proposed by a number of community members that this is capped at 120million ETH, however, it has not been accepted by the consensus.
Should a hard limit be accepted by the community then this may serve to introduce monetary scarcity (similar to bitcoin) and prevent the arbitrary creation of monetary value (similar to the FED, introducing inflation).
Deflationary Mechanism of Ethereum
On August 5th 2021 EIP-1559 (London Hard Fork) was released the update will introduce a minimum payment – the base gas fee- for Ethereum transactions, aiming to stabilise transaction fees. Depending on the network congestion, the base fee may adjust by up to 12.5%.
After EIP-1559, every Ethereum block burns part of the transaction fees. And some of them are deflationary: ETH burned is greater than the mining reward. Every time this happens, the total supply of ETH decreases. According to the current Eth 2.0 spec, the issuance rate will be greatly reduced as a part of Proof of Stake.
Ethereum Classic Vs Ethereum Vs Ethereum 2.0
What is Ethereum Classic? Ethereum Classic was the original token created back in 2015, however, after a vulnerability that was discovered in 2016 and $60million of ETH was stolen the community produced a hard fork to remove the vulnerability from the code base and essentially created an ETC and ETH fork. Both of which still co-exist today.
What is Ethereum 2.0? Ethereum 2.0 is the name given for a series of major updates to the code base which will be implemented in several phases to transition Ethereum from a proof-of-work (PoW) system (similar to how bitcoin works) to a proof-of-Stake (PoS) protocol. Currently, ETH 2.0 is expected to start rolling out sometime in 2022.
What is the Difference Between Proof of Work and Proof of Stake? Whilst both systems are consensus mechanisms used to confirm transactions on the blockchain they differ significantly.
Proof of work requires significant amounts of energy due to the exponentially increasing computing power required to solve the cryptographic proof to confirm a transaction on the blockchain (Mining). Proof of stake requires miners to hold a stake of ETH on the blockchain and use this ‘guarantee’ to secure the network of transactions (Staking).
The difference is that Proof of Stake should over time become a more economical and faster model for confirming transactions on the blockchain.
Should I Buy ETH – Global Hash Rate Market Share
The level of hash rate per country is somewhat different to bitcoin where China accounts for about 65% of hashing rate, with the USA. Russia and Kazakhstan coming in at 7.24%, 6.9% and 6.17% respectively.
Should I Buy Ethereum – Key Risks
Hacking of Ethereum
Can Ethereum be Hacked? In theory, the answer to this question is yes, however, in practice this is a lot harder to complete.
The original ETH (now ethereum classic) was subject to a hack on ‘The DAO’. The Dao was meant to serve as a decentralised venture capital fund. However, the project did not work as planned when a hacker exploited a bug in the smart contract doe which was used to construct DAO.
In response to the hack ‘investors’ of ETH scrambled to sell the tokens and driving the price downwards. This is an important principle in ‘Crypto-Economics’ where hackers are de-incentivised as if a hacker was successfully able to ‘steal crypto’ or double-spend, the price would be driven down as confidence in the network is lost. This would mean the hacker’s haul would be sold down and the price drop, de-incentivizing any potential hacker.
Other types of hacking can exists however at the cost of network trust, such attacks may include a 51% attack.
Should I Buy Ethereum – Scalability
Every transaction on the blockchain needs to be processed by every node in the network, this is a key security feature and ensures the integrity of the blockchain however has key tradeoffs as every node also needs to store this ‘ledger’.
The Bitcoin ledger grows by about 1MB per hour, this data needs to be stored on every node. This would grow in conjunction with the number of transactions meaning that the greater the transactions the more data need to be stored on each node.
Ethereum is similar in nature to bitcoin in this way, however, may be worsened by the fact that bitcoin purely stores transactional data, compared to ETH which will have many ‘applications’ on the blockchain. Storing all this data on each node obviously has several problems such as ‘decentralisation risk’ as if the ledger grows to a large size then only larger resourced organisations would be able to participate increasing the risk of a 51% attack on the network.
Whilst there are a number of initiatives coming in Ethereum 2.0 that aim to resolve scalability issues this is still in progress. The key concept to resolve the stability issue involves ‘sharding’ where the database is split horizontally to spilt the load reducing network congestion and allowing for increased transactions. Should I Buy Eth
Should I Buy Ethereum NFTs
Ethereum NFT’s seem to be the buzzword of the crypto space in 2021, mainly due to the success of a number of NFT projects such as the Bored Ape Yacht Club and others such as Crypto-Kitties.
In August of 2021, one of the Bored Ape Yacht Club NFT tokens sold for over $12million at an auction at Sotheby’s which seems to validate the demand for Ethereum based products.
Ethereum NFTs projects can be purchased using a leading exchange such as OpenSea.IO and linking your ETH based wallet such as Coinbase Wallet, or MetaMask. However, be aware that there are Fake NFT’s out there so be sure you know what you are buying!
Should I Buy ETH – Prophets Take
Prophet currently holds a minor amount of cryptocurrencies in their portfolio and ETH is inside. The Crypto and NFT space seem very reminiscent of the dot com boom in 2000. Investor’s who invested at the very top of the dot com boom (if the company stayed afloat) typically had to wait numerous years prior to turning a profit again.
The crypto space at the moment is highly speculative and people buying should ensure they are investing in projects which are inside their circle of competence to make a judgement on if they are good or poor investments.
Prophet is bullish on the crypto space as a whole, however, the valuations compared to the offered products seem to be skewed. For Instance, the current Gas fee’s on the conversion of ETH-MATIC are currently sitting around $52 on a $6 transaction. Whilst the technology is good and the ideologies behind cryptos seem just, we suspect there will be numerous failed coins until the technology matures.