ETH

Ethereum

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Currently 2 ETH per block (approximately 4.5 percent) new tokens and base transaction fees burnt, with net inflation of 1.4 percent; after the merge, ETH will cap block rewards at 1.71 percent, likely making ETH deflationary.
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Project history

After the creation of Bitcoin, the Ethereum white paper contained the most important insight that kickstarted the blockchain megatrend. Published in 2013, it expressed early Bitcoin adopter and programmer Vitalik Buterin’s vision that blockchain technology can have a multitude of use cases and executable smart contracts on the blockchain would facilitate the development of a wide range of applications.

The founding team raised funds for the project in 2014 via a then relatively new crowdfunding method, the Initial Coin Offering (ICO), with Ethereum being technically the sixth ICO, but the first high profile one. The network went live on 30 July 2015.

Ethereum is in the process of upgrading the protocol from proof-of-work to proof-of-stake. The new proof-of-stake chain launched in September 2022 and has been operating in parallel. In addition to the Shanghai upgrade is set to introduce several performance enhancements to further streamline Ethereum’s blockchain capabilities. Read more here.

Technology

The key technological difference between Bitcoin and Ethereum is the smart contract execution capability embedded in every Ethereum node (called the Ethereum Virtual Machine) as well as various other advances such as faster block time and greater resistance to centralisation.

Initially Ethereum also used the proof-of-work consensus algorithm for validation (ie miners committing computational power), however, it has since been migrated to proof-of-stake (where validation is performed and the transaction fees and staking rewards accrue proportionate to the amount of tokens locked), vastly lowering the network’s energy requirement.

The remaining stages of the Ethereum 2.0 upgrade roadmap are aimed at improving scalability as well as targetting further improvements in centralisation resistance, security, efficiency, and censorship resistance.

Key people

Other than Vitalik Buterin, the early contributors and founders of Ethereum included several high profile developers such as Charles Hoskinson, Gavin Wood and Jeffrey Wilcke – some of whom went on to start important blockchain projects of their own (Cardano, Polkadot) –, as well as influential crypto entrepreneurs Anthony Di Iorio and Joseph Lubin.

The Ethereum Foundation, a Swiss nonprofit organisation, conducted the original fundraising, and continues to support technology development and ecosystem growth.

Ethereum has the highest developer support of any blockchain project.

Ecosystem

Ethereum’s smart contract functionality attracted developers and thousands of applications have been built on the platform. Popular use cases have included crowdfunding (ICOs), and NFTs, among others.


Ethereum is by far the most widely used platform for decentralised applications, and the ERC20 token standard created on Ethereum has been the most popular used method for creating and issuing new digital assets. Ethereum is also the leader in total value locked as collateral in decentralised finance (DeFi) applications.
Meanwhile ether is gaining acceptance also as a store of value and a medium of exchange, and some regard it as “better money” than bitcoin.

Supply model and tokenomics

Ethereum has a fixed issuance schedule without a cap on the total number of Ethereum issued.

The lack of a supply cap was intended to limit excessive wealth concentration, while it was foreseen that over time the rate of issuance will roughly converge to the rate of loss of tokens, creating an equilibrium.

Over time, the rate of issuance of Ethereum has been adjusted downward, and there have been suggestions of a possible hard cap. A proposal for revising Ethereum’s transaction fee model, expected to be implemented in July, will involve burning (destroying) the Ethereum paid as base transaction fees – this will offset some, or all, of the new issuance of tokens. This has made Ethereum less inflationary and even deflationary, with the majority of the new supply destroyed (“burnt”) since the upgrade and the burn rate exceeding the issuance rate in certain periods.

The Merge reduced the issuance of ether from 4-5% to 0.5% a year by eliminating the need to compensate miners for their costly efforts, strengthening Ethereum’s deflationary status.

Key value drivers

The great demand for using the Ethereum platform has meant that transaction costs and speed became a problem and delivering the solution to this is pivotal to the continued success of the network. Successful delivery of the remaining phases of Ethereum 2.0, in particular the next phase, the Surge, will be critical to Ethereum maintaining its dominance as the preeminent smart contract platform.

As decentralised finance (DeFi) applications currently account for the majority of the transaction volume on Ethereum, the shortterm upside versus risk on Ethereum is also closely tied to the trends in DeFi.

Due to Ethereum’s success as a platform for blockchain applications, and a view held by some that Ethereum is “better money” than Bitcoin, there has been an expectation that Ethereum will overtake Bitcoin in terms of market capitalisation – referred to as the “flippening”.

Ethereum staking 

Sygnum offers a bank-grade staking service for Ethereum that is fully integrated in its baking platform. Learn more about this the Ethereum staking service here.

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