Today's recommendation | The era of Ethereum is coming: In the next 10 years, ETH price rise will be driven by these five factors

Disclaimer: This article aims to convey more market information and does not constitute any investment advice. The article only represents the author's viewpoint and does not represent the official stance of Mars Finance

Disclaimer: This article aims to convey more market information and does not constitute any investment advice. The article only represents the author's viewpoint and does not represent the official stance of Mars Finance.

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Source: Babbitt

The author of this article, David Schwartz, is a software engineer who graduated from the University of California, Berkeley School and currently resides in Los Angeles. David assisted in organizing Ethereum party activities in Los Angeles and jointly managed the @ Ethereum LATwitter account.

Ethereum has changed finance just like the Internet has changed data. Therefore, Ethereum will become the investment with the best risk adjusted return in the past decade.

Ethereum is the first global economy that does not need permission less. For those who are new to this ecosystem, Ethereum is simply an economy. Ethereum (ETH) is the currency of this economy. Ethereum is essentially a borderless "digital country", in which the code is governance, and everyone in the world is the "citizen" of the country. Anyone anywhere in the world can write code for Ethereum to provide logic based automated services, such as digital bank accounts, financial exchanges, lending platforms, etc., and deploy them on Ethereum.

The code on Ethereum is auditable and will always run according to the coding rules; Anyone in the world who can connect to the Internet can access Ethereum services without obtaining the permission of a third party. The establishment of Ethereum has had a significant impact on global finance. The current Fiat money, such as the US dollar and the euro, has systemic problems because of its licensing nature. By improving trust and efficiency in global trade and settlement, Ethereum has become the best economy in the world.

Many investors are concerned about the crypto market, and they still remember the ICO boom. Although scams were prevalent during that boom, for projects without a pure speculative foundation, their valuations were high. A few years later, it is clear that Ethereum may achieve growth in the next cycle based on fundamentals rather than speculation. We will come to our conclusion in this article by exploring the mechanisms behind ETH prices and why ETH may experience price spikes in the next decade.

The current global 'license based' economy

Economy is a series of transactions built on trust. The global economy is the sum of all transactions within and between countries. Within each country/region (such as the United States), the transaction sets are added together to form Gross Domestic Product (GDP). If there is no trust between the two parties, transactions will be very few, causing the economic machine to stagnate.

Governments issue Fiat money to promote trade and use complex legal systems to enforce rules and arbitrate differences between two or more parties. The main responsibility of the government is to manage citizens' welfare by maintaining low unemployment rates, setting minimum wages, and ensuring monetary stability, so that citizens can use their income to purchase the goods and services they need for their daily lives (foreign or domestic).

To achieve these goals, the government uses complex technological infrastructure and human capital systems to support its Fiat money. Nowadays, these government deployed systems typically enable online transactions, credit card payments, and physical cash, and for those who engage in financial fraud or attempt to counterfeit currency, they may face imprisonment and threats of violence.

The government not only manages the technology behind these currencies, but also manages the issuance of currency. They can and do print the money they want. However, they need to be careful not to print too much, as this can lead to inflation or loss of trust in global financial markets, leading to rapid price increases for goods and services. Countries that maintain low inflation rates while maintaining low unemployment and high-quality jobs will thrive.

The government manages its financial infrastructure through a licensing based system. The government grants licenses to banks, then allows them to access technology companies (Visa, PayPal, Venmo, Plaid), and then authorizes other enterprises or users to access their applications or APIs, and so on. At each level, this permission authority is used to control the economy, prevent money laundering, and enforce KYC rules. The government starts from the top to view and execute all operations.

The existing licensed system lacks Financial innovation

A licensing based system is crucial for national governments to ensure the trust that exists in the economy. However, it does have a negative impact as the government has the ability to review any applications that do not comply with its rules.

For payment networks such as Visa, many Fiat money are supported by exchange rates determined by larger financial markets. This makes it easier for citizens of all countries to travel and enables a healthy global economy. However, in order to provide these services, Visa requires licenses from each government/country in its network.

In addition, in order to create financial products, companies must pay expensive legal fees to ensure that they meet regulatory requirements and can operate. Enterprises must pay these fees in the country/region where they operate and ensure that they comply with the latest laws and requirements. These high costs can protect citizens from fraud, but they come at the cost of innovation and enable rent-seekers to obtain financing. Rent seekers reduce Economic efficiency by increasing the share of existing wealth without creating new wealth.

Without significant capital investment, it is almost impossible to create new innovative startups to compete with existing companies such as Visa. For anyone who cannot obtain a large amount of capital, the funding cost of requiring government approval based on multiple licenses and interacting with them is too high.

Trusted Platform

Due to the high barriers to entry, it is difficult to compete with them, so large financial companies are allowed to collect monopoly Protection racket and make a fortune from them. Despite these advantages/profits, companies such as Wells Fargo are still engaged in illegal activities and have only recently been fined $3 billion. Wells Fargo Bank unknowingly created millions of new accounts for existing customers, resulting in unexpected expenses for these customers.

The trust of consumers in these 'trusted' institutions is not always guaranteed. These companies have no problems with the current situation, but users who are charged high fees and developers who can develop better products should not be complacent.

Unfortunately, due to the nature of licensing and high entry barriers, only a small portion of the population is able to innovate in the financial industry. You may have a team of talented developers, but if you don't have a track record, live in a country with a strong network of venture capitalists, or have not attended a prestigious university, then you are unlikely to innovate in finance because the likelihood of success is slim compared to companies without significant capital.

Unlike the retail and newspaper industries, the financial industry has never experienced the destruction brought about by the internet. What we need is a platform that anyone can trust. It does not require a large amount of funds to find rent-seekers and overly complex legal systems. Here is a feasible alternative without permission built by a large number of developers and researchers: join Ethereum.

Ethereum: innovation platform

Ethereum economy is a network country/region economy that is not controlled by any third party. Users can rest assured that any code placed in its system will always be executed according to the code. Ethereum is a tool used by developers to provide people around the world with new and innovative self sovereignty products, including but not limited to bank accounts, exchanges, exchange traded funds, derivatives markets, lottery systems, gambling websites, virtual reality, game projects and digital collections.

Ethereum has two main advantages in confronting the national economy and its products. First, Ethereum does not require a license. Second, it has more efficient technology than traditional banking systems. Unlike letting people participate in the settlement process, everything in Ethereum is automated. Having said that, most governments and banks are currently transitioning to blockchain technologies similar to Ethereum, such as JPMorgan's Quorum, which is a licensed, slightly modified version of Ethereum. Therefore, with the integration of technologies between countries to improve efficiency, it is the unlicensed aspect that makes Ethereum economy truly innovative.

Ethereum is an open financial system. This is a powerful driving force for innovation. Anyone with Internet connection can develop services or access these services on Ethereum, and no one can block or review them. A group of smart developers are working hard to build better financial services. Just as the Internet has changed the way data flows, Ethereum will change the way money works.

Early attractiveness

Now, with Ethereum, you can have a stable currency that can track the value of the U.S. dollar, consume or trade the currency, and earn about 8% interest (which is unheard of in today's economy). You can use this interest to participate in new products, such as lossless lottery tickets or donations to charities, but your principal balance has not been affected. From stocks to sports to political achievements, you will soon be able to obtain investment opportunities in almost everything, and the cost is very low. The list of possibilities is still increasing.

We are now in 2020, and Ethereum is still in its infancy. Developers are exploring network effects, and the user interface interacting with Ethereum products is also constantly innovating.

One of the main problems faced by Ethereum adoption is the self sovereignty of the ecosystem and private key management. A private key is a long password that can access user funds and requires professional skills to store and use it correctly. However, advanced encryption technologies such as Multiparty Computing (MPC) are being used to create new wallets, which greatly improves the availability of daily users and the ease of account recovery.

In addition to the improvement of current Ethereum 1. x technology, Ethereum 2.0 will be released soon and will completely change this field, so as to provide enough throughput for Ethereum and make it the de facto global settlement layer of the world economy. As the government and banks migrate to Quorum and other blockchain technologies, Ethereum will be at the center.

Network effect

Network effect

Network effect

Bullish Ethereum

We have discussed the reasons why developers can choose to develop on Ethereum, and how the platform can prepare for large-scale innovation waves, but how will this be reflected in the price?

There are five main driving factors for the rise of ETH prices in the next decade. Each factor can be attributed to reducing supply or increasing demand, thereby driving up prices.

1. Staking

Staking (token mortgage) is a process to protect Ethereum network by locking tokens and using them as collateral to provide users with good security. If a mortgagor acts in good faith, they will receive a reward. Otherwise, they will be punished through a mechanism called reduction.

It is estimated that due to collateral, up to 3 million tokens in the current total circulation of approximately 110 million ETH will be locked and removed from the circulation supply. At present, Ethereum Staking is expected to start on July 30, 2020, but if the safety test shows that it is necessary to make other changes, Staking may be delayed.

Other blockchains that also offer Stacking have a greater share of being locked in. For example, as of now, Tezos' mortgaged tokens account for 77.65% of the total supply, but the reason for this is because Tezos tokens are rarely used except for hype. As we will see soon, Ethereum is a powerful ecosystem, with a large number of applications competing for ETH as collateral, thus reducing the funds available for collateral.

2. End mining

The permanent withdrawal of miners from the system for stacking will reduce the new supply of ETH and will occur within the next year or two after the initial implementation of stacking. Within a short time after Ethereum 2.0 goes online, mining and staking will coexist. Mining technology can protect the blockchain network, but it can generate new ETHs as rewards for miners.

Mining circulation is much higher than Stacking's circulation, and abandoning mining will greatly reduce new supply. It is expected that when mining stops, there will be a mechanism to burn transaction fees to offset the Staking remuneration and make the total circulation of Ethereum negative, thus increasing Scarcity.

3. Application of collateral

Many innovative applications on Ethereum need to lock ETH as collateral to function properly. For example, MakerDAO is a project to create a Stablecoin DAI, which can currently track the dollar price. There are multiple complex mechanisms, but ETH is collateral for DAI. DAI is essentially a stable synthetic ETH. Another form of ETH can be used as a reliable payment for goods and services. The price of ETH used as collateral dropped from $1428 to $83, and the DAI remained stable, making it a powerful system.

By simply developing business and allowing more users to purchase and lock in ETH to create more stable tokens, MakerDAO will reduce the supply of available Ethereum. There are many applications that rely on ETH/DAI and compete for this scarce resource. With the launch of more projects, it is expected that the demand for Ethereum will increase sharply, and more and more supplies will be locked in these services.

Defepulse.com: The value of ETH locked in applications over time

4. Gas fees

ETH is used to pay gas on the network. In 2019, the average daily gas cost of Ethereum is 95000 dollars. With the release of Ethereum 2.0 and the increase of throughput, as well as more developers developing on Ethereum, the total amount of gas paid is expected to increase significantly, forcing users and/or companies to purchase ETH to obtain services.

5. Speculation

Finally, we will see pure speculative activity, which is common in all financial markets, especially in high growth high-tech industries. As we saw before 2017, the bull market in Cryptocurrency could lead to surprising price increases. What happens next when users have real products and protocols to use. They do not need to invest in false promises, but can experience the power of an open financial system.

conclusion

In the 10 years from now, millions of developers will carry out strict work in the 1920s to create a new open financial system on Ethereum, replace the existing financial markets and exchanges, and create new products that we cannot imagine. Just like Facebook, Amazon and Google were also difficult to understand at the beginning of the Internet. Ethereum will also have use cases outside the financial field, such as creating better voting systems, decentralized social networks, decentralized cloud computing, and the list of applications is growing. Stay tuned. An exciting moment.

This article does not represent any financial or tax advice. This article is strictly educational in nature and is not investment advice for purchasing or selling any assets or making any financial decisions. This article is not tax advice. If necessary, please talk to your accountant. Do your own research.