Crypto at a Crossroads: Is the Era of Ethereum Dawning?

Crypto at a Crossroads: Is the Era of Ethereum Dawning?

 

The “London” Hard Fork is now live on Ethereum’s network as of Block 12,965,000, minted around 8:34 AM EDT, August 5th, 2021. Importantly to investors, the upgrade implements changes to the platform that may have a profound impact on the future of our current crypto economy. 

While the London upgrade implements five Ethereum Improvement Proposals (EIPs), EIP-1559 stands out. By introducing token burns, EIP-1559 changes Ether’s tokenomics by reducing long-term supply projections. Previously, 100% of transaction fees on Ethereum were allocated to miners as reward for processing and recording network transactions. With EIP-1559 implemented, however, there is now a base fee applied to network transactions. This base fee is burned, destroying the Ether and reducing its total supply.

Basic economics dictates that a reduction in supply or an increase in demand increases the price of an asset, given all else is held constant. Thus, tokenomics, which describes the supply and demand characteristics of a crypto token, is a core consideration for investors. Bitcoin’s tokenomics famously utilize a hard cap, meaning that the maximum supply of Bitcoin created could only ever reach 21 million. Digitally-verified scarcity like Bitcoin’s was never possible until the advent of blockchain technology; today, it is a driving narrative for decentralized stores of value.

The implementation of Ethereum’s EIP-1559 marks an important milestone for its position along the spectrum between inflationary and deflationary assets. Even though Ethereum still does not have a hard cap like Bitcoin, both of the assets are technically disinflationary in their current form—this is commonly misunderstood, as Bitcoin is often touted as being deflationary. In reality, Bitcoin is disinflationary. Disinflation occurs when the rate of inflation is decelerating. Current estimates put Bitcoin’s inflation rate between 1.5% – 2.0%; this will likely continue to decline as halvings continue to reduce the issuance rate of Bitcoin relative to its price. 

Source: woobull.com

Unlike Bitcoin, however, Ether’s supply may actually begin to decrease if token burns resulting from EIP-1559 begin outweighing new Ether issuance from miners. So long as Ether’s price holds steady or appreciates against a dwindling supply, Ether becomes truly deflationary. Ethereum 2.0 implementation could make such a deflationary scenario even more pronounced as Ether mining becomes obsolete and Ether issuance continues to decline. Moreover, Ethereum 2.0 scaling and continued network expansion will likely increase the rate of Ether-burning transactions. While some of Ethereum’s community continue to debate introducing a supply cap to Ether, both the current and upcoming deflationary mechanisms suggest that a cap may be unnecessary to perform as a store of value.

Ethereum number of active addresses
Source: glassnode.com

Ultrasound.money is a new website tracking Ether’s supply in the wake of EIP-1559. The site’s Q&A states, “Ultra sound money is an Ethereum meme focusing on the likely decrease of the ETH supply. If capped-supply gold is sound, decreasing-supply ether is ultra sound.” Clearly, this new narrative for Ethereum encroaches on Bitcoin’s “Gold 2.0” status as the ultimate digital store of value. The site also references Nikhil Shamapant’s (known on twitter as @SquishChaos) 77 page report on Ethereum entitled, “Ethereum, The Triple Halving”. In the report, Shamapant draws a parallel between Ethereum 2.0’s upcoming supply issuance reduction with previous Bitcoin halvings. More specifically, he equates a 90% reduction in issuance with 3 Bitcoin halvings. The implications this could pose for Ether’s price are hard to ignore.

Raoul Pal, CEO/publisher of The Global Macro Investor and CEO/co-founder of Real Vision Group recently spoke with YouTube channel Altcoin Daily on his recently written article, “The Greatest Trade in the World”, substantiating his decision to sell significant amounts of his Bitcoin for Ether. Acknowledging Ethereum 2.0’s inevitable staking unlock, Raoul states, “I think the unlock will probably lower the price. But between now and that unlock? Oh my god, this is one of the best setups I’ve ever seen. I think arguably better than Bitcoin in March 2020.”

Without doubt, Ethereum’s fundamental developments against the already blistering backdrop of the broader crypto space can make such speculations difficult to process. At Sarson Funds, we believe that thorough and unbiased analysis, disciplined portfolio management, and appropriate risk tolerance are necessary to maximize the value we create through digital asset investing. In pursuit of these goals, we welcome engagement from our readers. What do you think about Ethereum, EIP-1559, Ethereum 2.0, and the broader markets? Follow us on Twitter, LinkedIn, and check out our newsroom

Smart Contracts: A Future of Frictionless Commerce

Smart Contracts: The future of financial operations - Sarson Funds Cryptocurrency Financial Advisor

Smart Contracts: The future of financial operations - Sarson Funds Cryptocurrency Financial Advisor

As finance becomes more digitized, it is important to consider the different ways our preexisting financial infrastructure can be more decentralized. One of the major shifts in peer to peer, business to business, and global commerce is the movement toward smart contracts as the mediation between transactions. Smart contracts are an application of blockchain technology that automatically facilitate transactions between two parties, removing the need for banks or middle institutions to be the intermediary in a transaction, and record the history of the transaction on the blockchain. The purpose of this blog is to inform the finance community on one of the most lucrative trends in the crypto industry to help them prepare for the changing landscape of fintech innovation.

Removal Of Counterparty Risk

In the current financial framework, interactions between people and businesses have always required some sort of intermediary to approve and execute a transaction. While the traditional system works, it is inefficient. The costs of involving a third party intermediary to approve a transaction are not only steep but unnecessary. Depending on the distance a transaction must travel, these transactions take several days to fully execute, changing hands multiple times and accruing more and more unnecessary costs. As each transaction passes through different banks, the risk of loss and hack grow higher. Smart contracts simplify transactions by removing unnecessary steps, creating a smoother pathway for transactions to occur, removing counter party risk, cost and time inefficiency for both of the involved parties.

Enabling the Future of Commerce

P2P Use Cases

One of the most prominent use cases for smart contracts in the current financial landscape is between individuals engaging with decentralized exchanges like Aave, Compound, and Uniswap where users can lend and borrow crypto for high yields. In these exchanges, users join lending pools where they can lend and borrow crypto with other users at agreed upon interest rates, agreements that are executed by smart contract deployment on the platform. These smart contracts, which are written code on the blockchain, execute these lending and yield agreements automatically to ensure both parties meet their agreed upon contract terms.

B2B and B2C Use Cases

Another critical use of smart contracts are in supply chains. Supply chains are using smart contracts to confirm and track shipments and deliveries as they take place, creating an instantaneous way of payment, transaction validation, and record keeping throughout the processing and delivery of consumer goods. Smart contracts are making supply chains more efficient by digitizing the payment, validation, and record keeping of the processes that goods go through from production to consumer, creating quicker and more cost efficient ways of running a supply chain.

Use cases for financial institutions

While banks are slow to adopt blockchain, the use cases for the finance community will shape the future of financial operations. Banks like JPMorgan are pioneering the future of smart contract deployment in banking as they recently launched their own blockchain, Liink, and stablecoin, the JPM coin. JPMorgan uses the JPM coin with smart contract mediation to perform risky interbank transfers and international payments instantly and without the need for an intermediary, removing the inefficiencies described above from their affairs. JPMorgan is blueprinting a lucrative landscape for other banks to follow suit with blockchain and smart contract deployment.

At Sarson Funds, we believe the financial community must keep a close eye on the development of smart contract capabilities as these automated systems enable greater, frictionless financial freedom. We believe that as the ecosystem develops, smart contracts will become the future of P2P, B2B, and B2C commerce.

By Liam McDonald

Enterprise Ethereum Alliance (EEA) Rolls Out Real Estate Industry Guidelines

The EEA Real Estate Special Interest Group (SIG) recently released a set of use cases around blockchain and real estate. The group, which is made up of 50 international real estate leaders known for championing technology in the field, developed the document to highlight areas in which blockchain can improve customer interactions, speed up transactions, and create more efficient business models in the industry. The publication features use cases covering:

  • Token Securitization
  • Land Registries and Cadastrals
  • Token-Enabled Marketplaces
  • Standardized Property Data
  • Tokenization of Real Estate
  • Sales Process Optimization
  • Real Estate Management
  • Property Identification, Listings, and Data

To read the full report, click here.