Ethereum and Blockchain 2.0
Ethereum was the start of Blockchain 2.0 applications. Ethereum lets you do more on the blockchain than send a payment (Blockchain 1.0). Bitcoin was the start of Blockchain 1.0.
Ethereum added smart contracts to the blockchain. Smart contracts let software code automatically execute when specified conditions occur. This makes the exchange of an item of value, such as money, content, property, shares, etc. easy.
Smart contracts are written in software programs known as decentralized applications (dApps). Because there are many possible applications for smart contracts, Ethereum and its cryptocurrency ETH was quickly accepted.
The growth of the Ethereum network
The Ethereum network was available for use on July 30th, 2015. In a short period of time, the number of available dApps increased very much as did the number of users (that is accounts). The outlook for Ethereum has been good, and Ethereum is the leader in Blockchain 2.0 and dApps. At this time, Ethereum is as important as Bitcoin.
In the years since it became available, the Ethereum network has become better. Ethereum is a more robust software platform than it was in 2015. On January 13th, 2018 the price for ETH was at its all-time-high (ATH) of $1,432.88.
The state of Ethereum today
In the period from the ATH in January 2018 to December 2019, the number of accounts on the Ethereum network increased by 344%. In this same time period, the number of dApps increased by 250%. Below is a table that shows some important metrics for Ethereum in January 2018 and December 2019.
To see the source for the data, click here.
But since the ATH, the price for ETH has decreased by 88%! Has the outlook for Ethereum changed from good to bad? What occurred that made the price for Ethereum to decrease so much? Below the facts that point to a good outlook and to a bad outlook for ETH are given.
Why there can be a good outlook for ETH
Law of supply and demand
The economic law of supply and demand is that:
- price will increase when an asset is bought
- price will decrease when an asset is sold.
There are two different possible items that will occur in the future that will reduce the supply of ETH. Thus, the price for ETH will increase as specified in the law of supply and demand. These are:
- collateral in dApps
- used in staking
Collateral in dApps
For some dApps, it is necessary to use ETH as collateral. In the future, as more dApps are used in the Ethereum network, the supply of ETH will decrease.
Ethereum is set to change to a Proof of Stake (POS) consensus mechanism in 2022. In a POS system, it is necessary for the participants to stake (or put up) ETH. This cryptocurrency is not available for other uses. It is estimated that between 10%-to-30% of ETH will be removed from the supply for staking. (Click here for the link.)
Why there can be a bad outlook for ETH
A small number of good dApps
As shown above the number of dApps for Ethereum is very large. It has increased 250% from January 2018 to December 2019. But it is possible that many of these dApps are not used. This may be seen the decrease in the number of transactions. In this same period, the number transactions have decreased by 25%.
As an example, Barry Silbert from the Digital Currency Group, noted that:
(Click here for the link.)
It is necessary for developers to make dApps that important and easy to use. See this post for a list of the types of dApps that are most applicable for the blockchain.
Proof of Stake
At this time, the Ethereum blockchain (Ethereum 1.0) uses a “Proof of Work” consensus mechanism as does Bitcoin. But Ethereum will change to a “Proof of Stake” (Ethereum 2.0) consensus mechanism. The change is set to occur in 2022 and in a number of steps.
This go from Ethereum 1.0 to Ethereum 2.0 is a big change. There is a minimum of four possible problems that can occur during the change:
- It will be necessary for a developer to make sure that their dApp can continue to operate correctly on the new blockchain. It is possible that a developer will make the decision not to change the dApp.
- It is possible, that users of Ethereum 1.0 will make the decision not to use Ethereum 2.0.
- The time necessary to do the change may be so long that users of Ethereum 1.0 will move to a different smart contract blockchain.
- The change to Ethereum 2.0 may be too hard to do.
The outlook for Ethereum is good. The future supply of ETH tokens is set to decrease, and this will help to increase its price. But there may be some problems that will make the price increase at a slow rate.