TLDR - The Fundamentals of ETH in 2021

TLDR - The Fundamentals of ETH in 2021


Here are some of the Fundamentals of ETH for those who maybe new and hear people saying “it’s easy to hodl when you understand the fundamentals of ETH”.

• Ethereum is the blockchain that has the most developers using it’s smart contracts and blockchain.

• High fees demonstrates the huge demand and therefore scarcity of Ethereum block space.

• EIP1559 will introduce more predictable fees and will allow users to not have to “outbid” each other for block space. Thus limiting the amount of wasted ETH on gas.

• EIP1559 brings in fee burning which may reduce the amount of ETH in circulation.

• Proof of Work to Proof of Stake merge will make Ethereum much more environmentally friendly and reduce the amount of electricity required to validate transactions. It will also require less hardware cost to become a validator. Making Staking much more accessible to the wider community.

• Proof of Stake will make Ethereum the most decentralised blockchain as more people will opt into become a validator. There is currently 4 million ETH locked into the beacon chain.

• Sharding as part of the ETH 2.0 upgrade will increase transactions per second by a factor of 64. There will be 64 Ethereum chains running in parallel with each other.

• ETH may come deflationary. One of the biggest “flaws” that people currently slander Ethereum for is the fact that inflation is about 4% per year and that there is an infinite supply of ETH. With ETH 2.0 and EIP1559, there may be a deflationary supply.

• ETH deflationary? Well, validators of the blockchain will be staking 32 ETH each. There is likely to be ~25% apy after the merge for validators. They are earning ~8% apy now. This is before they get fee bomuses which are currently being paid to miners. This will attract many more validators. There are already 4 million ETH locked up, not freely available to the market. Add on top of this the fee burning from EIP1559 and all the ETH locked in DeFi then you are left with a hugely reduced supply of ETH on the free market. This will make it a very scarce asset. Scarcity leads to demand which leads to a higher premium on the under lying asset.

• Worlds first Triple Point Asset. ETH could easily become a store of value in the long term. ETH as a bond. Stakers of ETH will be paid dividends in ETH for validating transactions on the network. ETH is a commodity. A small (at the moment quite large) amount of ETH is required to make a transaction on the main chain.

• Layer 2 scaling solutions. We now have Polygon leading the way for scaling Ethereum. Allowing the same benefits of the Ethereum blockchain but in a way that highly reduces gas fees. There are many more to come over the next few months including; ZKrollups, Optimistic roll ups and other side chains.

• The huge number of transactions being settled on ETH.

• Mainstream adoption of the network (eg. Visa settlement and European Investment Bank bond issue).

• Total value locked in ETH I’m DeFi/smart contracts and NFTs. The existing value is unlikely to move and network effect attracts more value/transactions.

• Roughly 70% of the Top 50 cryptocurrencies are ERC-20 tokens which run on Ethereum.

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TLDR - The Fundamentals of ETH in 2021
TLDR - The Fundamentals of ETH in 2021

A run down of all the things that are bullish for Ethereum in 2021 and beyond.

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