Financial Transformation

Financial Transformation

Ethereum, the most valuable ($67B) smart contract enabled public blockchain, has begun its much anticipated transition to a Proof of Stake Network enabling exponential scale and added utility to the “Internet of Money”.

On December 1st, 2020, the “Beacon Chain” (beaconcha.in) launched with over 20k+ unique validators (600,000+ Ether/$300M+) to kick off Phase 0 of the ETH 2.0 upgrade. The upgrade to ETH 2.0 will take place in 4 phases. Phase 0 is the launch of the “Beacon Chain”, Phase 1 enables a scalability solution “sharding”, Phase 1.5 merges Eth1.x state onto ETH 2.0, and Phase 2 allows for executable logic to happen on the fully upgraded Proof of Stake Network. This transition is projected to be a multi-year upgrade expected to be “completed” by 2023.

Why is this important? Well besides making Ethereum a highly scalable, completely decentralized, 100% transparent/auditable, global monetary network, the upgrade provides a couple more value propositions to the underlying asset, Ether ($ETH/$ETHE). For some context, Bitcoin is provably scarce due to its hard-coded supply schedule, 21 million hard cap and supply halvings every ~4 years. That is why Bitcoin is considered by many to be “Digital Gold”. Ethereum has a different approach where supply is based on “Minimum Necessary Issuance” meaning Ether will inflate at the lowest rate possible for the highest amount of network security. This mechanism is dynamic/variable as it can be changed through consensus.

Taking into account Robert J. Greer’s “What is an Asset Class, Anyway?” (jpm.pm-research.com/content/23/2/86) and David Hoffman’s “Ether is the Best Model for Money the World has Ever Seen” (thedefiant.substack.com/p/ether-is-the-best..), Ether now has the makings of a superior asset class. Ether is currently used as money (payments), as a commodity (network gas), and working capital (staked Ether). Staked Ether can be thought of similar to a Treasury Bond, it provides holders a “safe” interest rate. Right now, staked Ether earns ~15% APR paid in new Ether from Inflation Rewards but will continue to decrease until the rate is no longer enticing to those who would lock up the capital. ETH 2.0 Economics Resource: docs.ethhub.io/ethereum-roadmap/ethereum-2... Ethereum’s current annual inflation rate is about 4% per annum. In the next few years or so, Ethereum is projected to incur negative inflation (deflation) due to an Ethereum Improvement Proposal (EIP-1559) which burns/removes Ether from Circulating Supply every block (~13 seconds). This mechanism can propel Ether to be incredibly scarce, maybe even more so than Bitcoin.

To describe how I view Ether in layman’s terms, Ether = Digital Bond + Global Digital Currency + Scarce Digital Resource.

So as we enter the next wave of hype and excitement around digital assets and public blockchains, it is important to note there is much more to this extremely disruptive and revolutionary technology than “number go up” as the media would lead most to believe.

Goal is simple. Speed up mass adoption!