Ethereum has more utility and more Layer 2s like Polygon attached. It's signed deals with Mastercard, Starbucks, Ticketmaster and has the largest NFT marketplace on the internet called OpenSea.io. It's going to be offered by Arc and others, including BlackRock, on a Spot ETF in 2024 and is the biggest and best transaction blockchain in the world. So why don't we talk about Ethereum like we talk about Bitcoin?
Here we are going to go through all the positives of what, the third largest asset manager in the world, Fidelity, calls the best investment you will ever make.
What is a Layer 2?
When talking about crypto everyone immediately goes to Bitcoin. Bitcoin is almost in its own class, we actually call every other cryptocurrency that isn't Bitcoin an Altcoin. So, thousands of Altcoins and Bitcoin. No wonder Bitcoin has a superiority complex.
However, amongst those altcoins there are some blue chips and some layer 2's which are at the top of the tree along with Bitcoin. Layer 2 cryptos are built on top of another network or blockchain.
Layer 2 cryptos have become significant players in the cryptocurrency ecosystem. The need for Layer 2 blockchains arose when top layer one blockchains such as Bitcoin became unable to adequately handle the growing demand for transactions on its blockchain. During periods of high network traffic Layer 1 blockchains struggled to execute a large number of transactions quickly, this leads to network congestion which can drastically increase transaction costs to the point that sending small transactions is no longer cost effective.
To address all these issues, Layer 2 solutions were introduced. Bitcoin, for example, is only capable of handling about 7 transactions per second (TPS). Alternatively, Lightning Network a Layer 2 scaling solution built on top of Bitcoin can process over 500,000 TPS. This way it allows Bitcoin to accommodate more users without the network slowing down and keeping fees cheap.
Polygon is the most popular Layer 2 scaling solution, with high potential for growth and mainstream adoption, the network can handle 7000 transactions per second huge increase on the Layer 1 it's on.
The Total Value Locked (TVL) is a metric used to measure the total value of digital assets that are locked into that particular decentralised finance (DeFi) platform. The higher the amount the more trustworthy the platform is perceived to be. Polygon has a TVL of over $900 million with over 37,000 applications running on its chain. It’s token MATIC is used in network governance payments. This Layer 2 crypto is dominating the L2 scaling market with a market cap of about $6.3 billion and a maximum supply of 10 billion you can trade MATIC on all the top exchanges.
Inspect is one of the Layer 2 crypto projects that is making significant waves in the crypto space. It's building two different solutions for X (Twitter). Aiming to build additional functionality for Elon Musk and his X ideas, such as accepting payments in crypto, a full NFT marketplace, Online Gaming and more. The network boasts over 150,000 unique users right now estimated to go up to at least 1,000,000 by the end of the year. If Elon has his way everyone with an X account will be using this Layer 2 over the next two years.
Arbitrum is a Layer 2 solution that uses roll up technology to combine multiple transactions into one lowering on-chain transaction costs and boosting scalability. This allows the chain to achieve a throughput of up to 40,000 transactions per second at a significantly lower fee than the network it's on.
You then have multiple cryptos such as StarkEx with a TVL of over $540 million and Immutable X with its ability to allow users to build ‘play-to-earn’ online games and NFT market places without any of the usual large fees.
By this point you must be wondering why I'm telling you about all these different Layer 2 scaling solutions. Quite simply, they are all built on the Ethereum.
The Blockchain Trilemma
In the cryptocurrency world, there is a concept known as the Blockchain Trilemma, which states that a typical blockchain can only focus on two out of three of the following elements: security, decentralisation, and scalability. Ethereum has taken a strong stance of focusing on security and decentralisation, which means, according to the trilemma, it has to sacrifice a level of scalability. This is where Layer 2s come in.
Layer 2 blockchains, built on top of Layer 1 blockchains like Ethereum, assist with scaling by handling some of the transaction load from the base layer blockchain. This helps Layer 1 become less congested and significantly lowers fees for users since Layer 2s typically combine multiple transactions into a single one ie: Roll Up Technology. According to Ethereum creator Vitalik Buterin’s vision, “the internet of money should not cost more than 5 cents per transaction.” While the Ethereum main net itself is far from reaching this goal, some Layer 2s are able to achieve this target. For example, a transaction on ‘zkSync Lite’ only cost $0.04.
Wall Street Adoption
So Ethereum is the first to solve the Trilemma. Now we have to add Wall Street institutions on the Ethereum hype train. Fidelity is the third highest asset manager in the world with over $4 trillion under management. They recently release their Ethereum Investment Thesis, an 18 page document that esentually laysout why Fidelity will be pursuing Ethereum as it’s core digital asset offering. The whole thesis you can read here.
In the conclusion they wrote;
“There is virtually no doubt that Ethereum is a leading blockchain technology platform that enables developers to build decentralised applications, many of which are capable of things that could not be done on Bitcoin's network due to Ethereum's superior programmability. This has led to some of the largest and most active applications in the digital asset ecosystem being built on Ethereum.”
By this point everyone has heard the BlackRock and 26 others have filed for a spot Bitcoin ETF. However, Kathy wood’s Ark Invest and 21Shares have just filed for a spot Ethereum ETF. You can be absolutely sure that BlackRock are not too far behind along with other major asset managers. You better believe that everyone who's filed for a spot Bitcoin ETF, Grayscale, VanEck, Invesco, Valkyrie, Global X, they will all be filing for spot Ethereum ETF's over the coming weeks and months.
Although it may have taken five years from the first spot Bitcoin ETF filed, to the acceptance that we expect to see over the next few months. You can guarantee it will only be a few months after that, that the first spot Ethereum ETF will be issued, which will open the floodgates for traditional investors to buy, manage and store Ethereum in their portfolio.
Is Ethereum a Security or Commodity?
Regulators will declare Ethereum a commodity. I'm not sure when but it will happen over the course of the next few months. Gary Gensler the head of the S.E.C. said this while he was teaching at MIT before he took office.
“…over 70% of the crypto market is Bitcoin, Ether, Litecoin and Bitcoin Cash. Why did I name those four? they're not securities.”
This makes it as clear as the nose at the end of my face. This will secure regulatory clarity for Ethereum and the spot ETF being accepted by the S.E.C.
Mainstream will follow
Once all of this has happened the mainstream will follow and by the mainstream, I mean the blue-chip stock companies. Every single one of them will need a platform to build their online currency system. Initially they won't need to take payments in crypto but they'll need to have their NFTs stored on a blockchain. Don't forget NFTs are not just pictures of monkeys, an NFT is a non-fungible token, it's a piece of digital information which is assigned to someone on a blockchain ledger. Meaning your phone contract at Apple, or your car lease at Honda, any online game you've ever played or even your receipt from Nike will all be NFTs.
Every mainstream company will need to either build their own Layer 2 or jump on the back of a Layer 2 so they can accept online payments. This is why Polygon is such a promising asset to be invested in.
We know that Tim Cook, CEO of apple, has an extensive crypto portfolio. This was him on CNN in 2021.
Do you own any Ethereum? Would you play around with this?
“I do yeah, I think it's reasonable to own as a part of a diversified portfolio.”
When did you get interested in it?
I've been interested in it for a while, and i've been researching it and I think it's interesting.”
So, Elon Musk at X is using a Layer 2 on Ethereum. Tim Cook is a most likely going to use an Ethereum Layer 2 for any Apple crypto payments. How long until other major fortune 500 CEOs start publicly stating they will be accepting crypto payments?
Starbucks’ Loyalty Programme is all on an on-chain app. Airlines are trying the same with their loyalty programmes. Ticketmaster distributed 30 million NFTs this year. The tickets aren’t yet NFTs but they drop an NFT in the bookers wallet as a memento. This is showing proof-of-work. They currently have the best and biggest retail wallet on their app and it won’t be long before loads of Music, Sport & Culture apps provide wallets that allow on-chain ticketing and storage.
Conclusion
Ethereum right now feels like the hype of Bitcoin at the end of the last cycle. Most people had kind of heard of Bitcoin at that point and when someone who was in the know said “did you know Bitcoin is trading at over $65,000”… and most people said “Oh my God that's crazy” and then went home to have a look about how to buy Bitcoin. Skipping forward to 2023, this is what people who are in the know are talking about now. Ethereum.
Ethereum has a lot going for it and if it's only trading $1600 a token, expect between 5x and 10x the value of its all-time high at the peak of this cycle, we could be looking at up to $50,000 prediction for Ethereum by the end of this cycle.
With Ethereum being much younger than Bitcoin, having more applications than Bitcoin, having more Layer 2s than Bitcoin, and being priced higher than Bitcoin was at the same age, is there a point where Bitcoin reaches $500,000 a token and stays there while Ethereum becomes the world's online payment system and overtakes Bitcoin by market cap? Discuss.
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