In the world of cryptocurrency, one name stands tall behind the industry leader Bitcoin – Ethereum. When it launched in 2015, few could have predicted how indispensable Ethereum would become in the Web3 ecosystem and as an investment. Those savvy enough to bet on the fledgling crypto in its early days have since struck metaphorical gold.
Cast your mind back to early 2019. Bitcoin’s price was in the doldrums following the popping of the 2017 crypto bubble. But a small community of developers and enthusiasts kept faith in the transformative potential of blockchain technology. One such believer invested $1,000 in Ethereum at the start of January 2019, when it traded at around $150. Fast forward to today, and that $1,000 would now be worth a staggering $21,500 – a return exceeding 2,000%.
To put that into context, an investment into the high-flying Nasdaq Composite index over the same period would have returned just 50% – impressive by traditional market standards but utterly eclipsed by Ethereum. So how exactly did Ethereum create so much wealth in such a short space of time, and what does its future look like?
The Killer App of Crypto
Unlike Bitcoin’s narrow focus as digital gold, Ethereum was conceived as a global computing platform upon which an endless array of applications could be built. And by enabling “smart contracts” – self-executing snippets of code – Ethereum unlocked a world of possibilities beyond peer-to-peer transactions.
Imagine buying a house using Ethereum, where the payment is automatically transferred upon digital transfer of the property deed. Or borrowing money without needing a bank to act as intermediary. Or even building totally new kinds of digital companies, economies and marketplaces. That disruptive potential is what fired up early Ethereum evangelists and developers.
Today, Ethereum accounts for over 95% of revenue earned from crypto applications, according to market data provider DappRadar. Over 3,000 apps now run on its network spanning decentralized finance (DeFi), non-fungible tokens (NFTs), crypto gaming and beyond. Venture capital firm Electric Capital tracks developer activity as a key metric for crypto health – a reasonable view given software drives everything. Here too, Ethereum dominates, with over 2,400 monthly active developers compared to just 456 for the next biggest crypto by devs, Solana.
With the most developers building the most integrated apps, Ethereum enjoys powerful network effects. And those effects acted as a centripetal force during crypto’s latest two-year slump, concentrating more talent and capital into Ethereum as projects on other chains collapsed.
Vitalik Buterin Warps in a New Era
All transformational technologies endure periods of hype before confronting reality. For every exciting use case Ethereum unlocked using smart contract magic, its technical limitations also became glaringly apparent over time.
Foremost among those was scale. Due to its pioneering proof-of-work consensus model that validated transactions through energy-hungry computational mining, Ethereum could process only 13 transactions per second – not even a hundredth of payment giants like Visa. With usage booming, average transaction fees on Ethereum frequently spiked over $50, undermining usability.
Addressing that became an existential imperative if Ethereum was ever to fulfil the grand visions of its still fresh-faced founder, Vitalik Buterin. The solution was an epic tech upgrade known as The Merge, finally activated in September 2022. This seamlessly ported Ethereum from proof-of-work to a proof-of-stake system, whereby transaction validation shifted to participants staking their ETH coins.
The Merge birthed Ethereum 2.0, supercharging capacity to 100,000 transactions per second, slashing average fees by 99.95%, and reducing energy consumption by ~99.99% overnight. With Ethereum’s headwinds flipped sharply to tailwinds, the buzz is again centering on boundless potential.
When Crypto Winter Thaws, DeFi Will Bloom
Ethereum now sits just over 50% below its all-time high, with crypto still firmly stuck in its 2022 winter freeze. But spring will eventually come, and Ethereum is poised to exit the downturn in a position of relative dominance for five key reasons:
- It solidified its stature as the backbone for Web3 during the culling of crypto losers over the past two years.
- The Merge solved its glaring problems around fees and scaling, whilst boosting environmental credentials.
- Its pipeline of upgrades suggests more improvement to user experience and app capabilities.
- Network effects create a magnetic pull as the rich ecosystem attracts the highest quality development talent.
- Corporate and institutional interest continues rising, offering real-world validation.
Bulls make the case that Ethereum represents the transactional fabric for the future internet, powering trillions of dollars worth of digital value exchange. And like domain names during the early internet, crypto real estate is scarce – only 120 million or so ETH coins will ever exist.
Whilst risks remain in these uncharted waters of technological progress, Ethereum already rewards belief handsomely. Any investor endowed with the foresight for early conviction back in 2019 would likely agree that hindsight is 20/20. Perhaps the million dollar question now is whether Ethereum can continue bestowing such otherworldly gains upon its believers in the decade ahead.
