Messari Ethereum: The Parallel Financial System

In Messari’s “Crypto Theses 2021” report, industry analytics has taken a deep dive into the Ethereum ecosystem and its properties as a parallel financial system.

The report begins by saying that Ethereum has come a long way in its short six-year existence. Furthermore, Ethereum is now home to thousands of developers, decentralized applications, and protocols.

However, Ethereum’s ecosystem is currently near-maximum capacity and needs to scale to meet demands. Also, it needs to maintain its market share, and stay ahead of rivals and newcomers. Here are some current metrics of ethereum:

Ethereum metrics

Source: Messari

10 Reasons to Not Consider ETH as Money

According to the report, researchers do state that ETH is a “commodity that secures transactions on the world’s most valuable computing platform”. However, they didn’t describe ETH as “money”.

Additionally, they mentioned ten reasons to dispute the premise that ETH is money.

  • Bitcoin competition is still strong and it has very few rivals, unlike Ethereum.
  • Ethereum is no longer used as a reserve for ICOs (initial coin offerings).
  • Institutions are not buying as much ETH as they are purchasing BTC.
  • Ethereum is more complex than BTC with a constantly shifting narrative.
  • Wrapped assets will continue to increase for DeFi purposes.
  • Bitcoin holders have stronger funds than Ethereum investors.
  • ETH 2.0 demand may be degraded by moving assets to layer-2 networks.
  • Competing networks like Polkadot devaluate Ethereum’s value.
  • DeFi applications with a lot of liquidity could capture more fees.
  • Stablecoin explosion could further “demonetize” Ethereum.

As you can see, these are all negative conclusions of Ethereum’s development as being detrimental to the growth of Ethereum as money. However, there are many positive statements too.

Why ETH is Money?

On the other hand, the report state that Ethereum is a “defensive” and “triple-point” asset, by saying: “ETH is valuable because it’s a commodity (necessary for transaction usage), a capital asset (for network staking), and a form of money (reserve).”

Nowadays, anyone that uses Ethereum has to pay network fees. Additionally, the network has surged in terms of the daily transaction value. As a result, Ethereum has surpassed Bitcoin by far. However, those fees have skyrocketed making layer-1 Ethereum impractical for daily use for all, but the whales. Also, this is proof of how much the network has grown and is in demand.

Moreover, the report also talks about the roadmap of Ethereum and its next upcoming upgrades. However, the detailed specifications regarding “the merge” and ETH 2.0 are beyond the scope of this article.

The merge is expected to occur in the first half of this year. This means when the Ethereum 1 chain docks with the Ethereum 2 Beacon upgrade. As a result, this effectively ends proof-of-work mining.

At the time of writing this article, there was almost 8.9 million ETH valued at around $28 billion staked on the Beacon Chain according to the explorer. Stakers are enjoying a 5% APY.

More About Ethereum

The supply of this blockchain is also set to become deflationary in 2022 with more being destroyed than being created. As a result, this is one of the best reasons for investing in Ethereum as a long-term hedge against inflationary fiat currencies.

Since the London upgrade introduced the EIP-1559 gas-burning mechanism in early August 2021, around 1.42 million ETH has been burned. This is equivalent to around $4.5 billion at current prices.

The burn tracker has simulated an issuance rate of -2.4% following the merge. This means that the supply will decrease over time making the asset more attractive in terms of monetary properties. Furthermore, once scaling occurs with the next phases of its upgrade rollout, the blockchain will to consolidate as the industry standard for smart contracts, DeFi, and dApps.

Finally, most of the report was negative, the author views co-founder Vitalik Buterin as a “philosopher-king” who has the network’s interest at heart and is followed by millions who share his vision.

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