Exploring Ethereum & The Competition
Deep dive into the world of decentralized applications on Ethereum and its top competition in other blockchains
Dear Sunday Investors:
Welcome to this week’s edition of the Sunday Investor! To our new members, the format of this weekly newsletter will be a deep-dive into one investment-topic. This week, we will focus into Ethereum, the 2nd most popular cryptocurrency behind Bitcoin as well as some other alternatives to Ethereum. We will discuss the history and technology behind Ethereum, more on ETH’s surge of usage with DeFi and NFTs, as well as more on ETH’s competition with other blockchain protocols Avalanche and Solana.
Read, enjoy and share with your network. Let’s all build wealth together.
Weekly Market Recap
Let’s dig into some of the most important events that happened in the markets in the last week:
The crypto market hit $3 trillion market cap for the first time ever this week. The global crypto market cap has grown fivefold since November 2020, when it was $578 billion.
Electric Car maker Rivian (RIVN) went public this week and ended the first day of trading with a market cap of nearly $86 billion. This is more than Ford (a Rivian shareholder) and Nio and nearly the same valuation as General Motors.
U.S. consumer prices spiked 6.2 percent in past year, highest inflation rate since 1990. From September to October, prices jumped 0.9 percent, the highest month-over-month increase since June.
New Bitcoin and Ethereum All-Time-Highs! Ethereum touched over $4700 and Bitcoin over $68,000 before a minor pullback later in the week.
What is Ethereum?
According to BlockGeeks, Ethereum is a global, decentralized platform for money and new kinds of decentralized applications. On the Ethereum blockchain, developers are able to write code in the form of smart contracts which controls money, as well as build applications which are accessible from anywhere in the world.
Like Bitcoin, Ethereum is a distributed public blockchain network. The most important difference between Bitcoin and Ethereum is based off of their according token purpose and capability. Bitcoin offers one particular application of blockchain technology which is a peer to peer electronic cash system that enables online Bitcoin payments. While Bitcoin is used to track ownership of digital currency, Ethereum focuses on running the programming code of any decentralized applications that are created the blockchain.
In the Ethereum, instead of mining for bitcoin, miners work to earn Ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, Ether is also used by application developers to pay for transaction fees and other services like token swaps on the Ethereum network.
Should you mine Ethereum? Even if you do not have a full-fledged Ethereum miner, you can take a look at this profitability calculator to see if your PC set-up would be profitable mining Ethereum.
Ethereum is known as a leader in the space for both developers and users to create and interact with decentralized applications. Since the beginning of October, the Ethereum network address activity gained 48% according to on-chain data provided by Santiment. Over that same period, the value of Ethereum has hit a new record high growing by over 50% to new all-time-highs this last week to over $4,800.
This surge in network activity potentially reflects Ethereum’s prominant role in the crypto ecosystem as the dominant blockchain used for building thousands of decentralized applications (dApps).
So Why Use Anything But Ethereum?
Transaction fees or gas prices have been surging because of increase in network utilization which causes ETH network congestion. But what exactly is gas? Gas is the transaction fees that you pay on the Ethereum blockchain is called Gas (or gwei) which is required to successfully conduct a transaction or execute a smart contract on the Ethereum blockchain platform. These gas prices below have caused users to search for alternatives for decentralized applications.
Etherescan.io has a gas tracker which shows the estimated current fees for sending or swapping ETH on the Ethereum blockchain. Right now an ETH token transfer would have a fee of almost $29 while a token swap on a decentralized exchange like Uniswap would be $89.
What is The Future of Ethereum?
In 2022, Ethereum will go through a major transition where it will move from from functioning off of a proof-of-work (PoW) system over to a proof-of-stake (PoS) one. Proof-of-stake is a far more environmentally-friendly method for a blockchain to function off of, and many users including myself are excited for this transition because of promises of faster transaction speeds, higher scalability, and lower gas fees.
As we have went over in two previous editions of the Sunday Investor, Ethereum has accelerated growth and has been the predominant blockchain for both DeFi and NFTs which are the top two the hottest sectors that are currently worth billions of dollars.
I am excited for the future on how much more these two sectors will grow over the coming years with the ETH 2.0 upgrade to PoS. Having an scalable and efficient ecosystem will empower developers for even more innovation in the decentralized application industry.
What other Cryptos are ETH’s Competition?
Ethereum has been the #1 blockchain for decentralized applications, and has been the the blockchain the majority of users have interacted with for the surging interest in DeFi and NFT’s. But with high transaction fees and average transaction speeds, there has been a shift of users moving to ETH alternatives to use the same technology, but quicker and with less fees.
Other blockchains that can facilitate smart contracts are taking center stage as there is speculation over the future of which network will host the fast-growing businesses that developers are building on these blockchains, from decentralized finance to non-fungible tokens (NFTs), and to the metaverse.
Solana (SOL)
According to the Solana Labs website, Solana is one of the fastest blockchains in the world with a fast growing ecosystem in crypto with over 400 projects spanning DeFi, NFTs, Web3 and more.
Solana was built by developers at San Francisco-based Solana Labs. Solana has gained traction by offering something that the Ethereum blockchain has so far being unable to deliver this year; faster transactions and lower transaction fees.
Unlike Ethereum, Solana is already a PoS (proof of stake) blockchain, making it more environmentally friendly than the popular PoW (proof of work) blockchains like Ethereum and Bitcoin.
The native coin for Solana has the ticker SOL is up over 15,000% since the beginning of the year. SOL is currently ranked #5 in the top cryptocurrencies by market cap.
The Solana network processes up to 60,000 transactions per second, surpassing that of Bitcoin, Visa, XRP and Ethereum combined.
In addition to the transaction speed, costs are significantly lower on the Solana blockchain. As we mentioned above, one of Ethereum’s major challenges is its high gas fees. Users pay up to $50 to process a transaction and over $100 for a token swap on the Ethereum network, but with Solana, the fees are significantly lower and are typically around $0.00025 per transaction.
Click here to view the top projects being built on Solana. The current leader is Raydium (RAY) which is a decentralized exchange comparable to the Uniswap of Solana.
Avalanche (AVAX)
According to CoinTelegraph, Avalanche was developed by Cornell computer science associate professor Emin Gün Sirer and Ava Labs in 2018. The Avalanche protocol is another fast-emerging crypto and Ethereum competitor that promises to deliver similar features of Solana, faster transactions and lower transaction fees.
The Avalanche platform processes 4,500 transactions per second. According to Decrypt, Bitcoin completes just 7 transactions per second and Ethereum can only handle 14. AVAX can close a transaction within 3 seconds, whereas the current Ethereum standard is up to 1 minute, according to Cointelegraph magazine.
The native coin for Avalanche AVAX is up over 2,300% since the beginning of the year. AVAX is currently ranked #13 in the top cryptocurrencies by market cap.
In the last few months, the Avalanche Foundation has announced Avalanche Rush, which is a $180M liquidity mining incentive program to introduce more applications and assets to its growing DeFi ecosystem. A program like this is something that is becoming more common in the cryptocurrency space where users and developers are incentivized by this funding to use and develop on the AVAX blockchain.
Trader Joe (JOE) is one of my favorite top projects that is a decentralized exchange built on the Avalanche blockchain. Click the link here to go into more features on JOE including liquidity pools, yield farming, and staking tokens in addition to token swapping with minimal fees.
Investing in SOL or AVAX:
The easiest way to invest in SOL or AVAX is to buy these tokens on a crypto exchange like Coinbase, Voyager, or Crypto.com. If you would like to take a look at the differences between these exchanges, you can take a look at an earlier newsletter where we go into this linked here.
What if you want to experiment/invest directly into tokens on the Solana or Avalanche ecosystem?
For AVAX:
This article will go into how to add the Avalanche blockchain onto a self-custody wallet like Metamask. Since we already use Metamask for Ethereum, these directions will show how to add AVAX to this wallet as well as interact with any of your favorite protocols on Avalanche like Trader Joe.
For SOL:
This article will go into how to add a Phantom wallet as a browser extension like Metamask. Think of Phantom as “the Metamask of Solana”. With Phantom, you are able to send SOL that you bought on an exchange like Coinbase, and you can interact with any protocols like Raydium which is a decentralized exchange on the Solana blockchain.
Next Week
Next week, we will continue our learning journey into a different investment topic! We will take a week break during Thanksgiving before a new post the first week of December!
What do you want to see next? More on Crypto, NFT’s, or Stocks? Comment here what you want to see and I will make it happen:
Not financial or tax advice. The content in this newsletter is for informational purposes only. Every investment and trading move involves risk. Do your own research when making a decision.
Nice news letter Chris. DeFi is changing how we spend, invest and interact. I am interested in web3, and the sentiment around the NFT space. OS has ~450k users and the nft market as a whole is able to hold a trillion dollar market.. how much money will Coinbase bring to the table with over 6.5x the inflow of users expected this Dec? And, honestly what is the best solution to reduce gas prices? As you know gwei is up 100 fold since August. Will it be a shift to PoS or utilizing L2s to conduct tx?