Opinion - Martin Burgherr

The Ethereum road will turn into a super highway with higher traffic and lower toll charges

When talking about Ethereum I often face the question: “but what is the value – isn’t it just speculation?” To answer this, here is an explanation you probably didn’t come across yet.

by Martin Burgherr, Chief Clients Officer at Sygnum

Ethereum is infrastructure and infrastructure is difficult to understand – even in the traditional world (who directly invests in a powerplant or in a highway?). But still traditional infrastructure is less abstract than the economies of a blockchain.

Let’s look at Ethereum like a road. The road itself doesn’t generate a cashflow – but still we wouldn’t consider it useless. We can monetize the road – if people are willing to pay a road toll. In its early days Ethereum ways a functioning road but not many people used it. Over the last 7 years many use cases emerged, such as Decentralized Finance, Non-Fungible-Tokens, Metaverse, etc. Given the Ethereum “road” is still quite a narrow one – people had to pay a lot in order to be allowed to drive on it. Price of Ethereum shot up to 4800$. Some people stopped using it and drove on cheaper roads – this is how competitor blockchain like Solana, Cardano, Tezos, Near emerged. However, many of those people would still prefer to use the Ethereum road – as this road is the most secure/shortest distance in their view.

Realizing this issue of high road tolls and people going elsewhere, Ethereum is undergoing multiple upgrades such as change to proof of stake, sharding etc. This will turn the road into a highway – with lower tolls than the old road.

My hypothesis is that this will lead to:

  • Traffic on Ethereum will exponentially increase. People driving on other roads today will come back. A highway will allow for new use cases (i.e. trucks using the highway instead of just cars). In simple terms: Ethereum will gain market share.
  • Like traffic increases (doubled in Switzerland over the last 50 years) the traffic on blockchains will also increase. Many players globally realize the potential of Blockchain and are using or plan using this technology in the future. However, like we’ve seen with the internet, social media etc. this will not go at the pace of car traffic – the traffic on the blockchain will increase exponentially (and historically already did).

So we will probably have x 1’000 or x 100’000 the amount of users (traffic) on the Ethereum blockchain as we have right now. People will pay a lower toll – but if we assume a 90% lower toll with 100’000% user growth – the network will still be 100 times the value of today.

In the last year people paid 3‘000‘000 Ethereum (road tolls) – that’s more than 4bn$ at current valuation and more than 15bn$ at All Time High valuation. This x100 – 🚀.

So why did it crash this year? Road traffic in Switzerland increased every year in the last 50 years, except in 2020! Can you guess why? COVID! Ethereum doesn’t have COVID – but it caught a cough called inflation.

About Sygnum
Sygnum is the world’s first digital asset bank, and a digital asset specialist with global reach. With Sygnum Bank AG’s Swiss banking licence, as well as Sygnum Pte Ltd’s capital markets services (CMS) licence in Singapore, Sygnum empowers institutional and private qualified investors, corporates, banks, and other financial institutions to invest in the digital asset economy with complete trust. Sygnum operates an independently controlled, scalable, and future-proof regulated banking platform. Our interdisciplinary team of banking, investment, and Distributed Ledger Technology (DLT) experts is shaping the development of a trusted digital asset ecosystem. The company is founded on Swiss and Singapore heritage and operates globally. To learn more about Sygnum, please visit www.sygnum.com.

This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual‘s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.

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