The world’s largest programmable distributed supercomputer network From Eth
The following is the The world’s largest programmable distributed supercomputer network From Eth recommended by recordtrend.com. And this article belongs to the classification: Brokerage Report, Bitcoin.
1. Eth relies on the smart contract mechanism to build the blockchain world bottom operating system
1.1. Ethereum: decentralized digital assets driven by blockchain Technology
Ethereum is a decentralized digital asset
Ethereum network adopts the form of proof of work (POW, proof of work), that is, the computer “mining” behavior to carry out the account book bookkeeping of Ethereum network transactions. Decentralization means that Ethereum network distributes servers among countless computer mining nodes around the world, and there is no third-party authority to endorse the credit of all parties, rather than relying on the centralized server owned and managed by institutions and companies to process transaction data like the traditional financial system.
Ethereum’s price on June 28, 2021 is about US $2050. The total amount of Ethereum increases linearly with time. About 115 million have been dug up in June 2021. When the price reached about $4000, Ethereum once approached the market value of $500 billion.
Ethereum is driven by blockchain technology
The generation difficulty of each Ethereum block is dynamically adjusted by the algorithm to ensure that a new block is output every 13 seconds. Each block is connected with the previous block and forms a chain in sequence, that is, a blockchain. The contents recorded in each block include the number of the previous block, the output time of the block, the number of transactions and other non modifiable information. As of 17:16:28 on June 28, 2021, the latest block is block 12721665. Finally, all blocks can be traced back to the genesis block on July 30, 2015. All transactions in the history of Ethereum exist in the chain of more than 120 blocks.
1.2. Ethereum breaks through the limitations of bitcoin’s simple ledger and establishes a smart contract system to realize complex value transmission
Bitcoin gives value to data, which is based on a simple ledger. Bitcoin has created a precedent for decentralized cryptocurrency. The 12-year practice has fully tested the security and feasibility of blockchain technology. However, the bitcoin mechanism is not perfect, and its biggest limitation is the lack of scalability, that is, the bitcoin network can only construct a value transmission system, but can not construct a complex application layer according to its network.
Simple value transfer of bitcoin: Bob calls Sally a certain amount of bitcoin at a certain time, and the adjustable parameters are only the number of bitcoins at the time of transfer.
Complex value delivery of Ethereum: relying on the programming language solidity and blockchain technology, Ethereum has launched a smart contract development environment, so that developers can carry out more complex data processing, complete the development of decentralized applications, and break through the limitation that bitcoin only realizes simple value delivery.
For example, suppose Bob has 100 bitcoins. Bob wants to leave a legacy to his child, but he is afraid he will squander it. Bob can write a simple program through the smart contract on Ethereum to make the smart contract give a bitcoin to the child on his birthday every year. The program is triggered once a year and automatically terminated after repeated 100 times. Bitcoin network itself cannot realize logic driving functions such as timing transfer and trigger conditions.
Of course, the application layer function of the intelligent contract of simultaneous interpreting is not only there, but also the centralized application developers can recombine the traditional application of the field with the block chain, and have achieved good convergence in the fields of centralization of finance, games and cloud storage in recent years. Ethereum allows value to circulate in the blockchain network in the form of smart contracts in complex preset smart contracts. Therefore, Ethereum smart contracts solve the development needs of the application layer. With the continuous improvement of the application layer, the number of users finally shows an exponential growth.
Due to the Ethereum framework, the underlying protocol is designed as simple as possible and easy for developers to understand, while taking into account the principle of universality, a large number of developers and users pour into the Ethereum network, and the strong demand stimulates the rapid rise of Ethereum price. According to aicoin data, Ethereum completed crowdfunding at an average price of US $0.308 from July 24, 2014 to September 3, 2014. As of 22:30 on May 12, 2021, it reached a historical peak of US $4380, and the peak price increased by more than 10000 times compared with the average price of crowdfunding.
1.3 vitalik buterin founded Ethereum to build the underlying technology of the second generation blockchain
1.3.1. The writing journey helps vitalik buterin enter the blockchain world
Just two years after the emergence of bitcoin, my father introduced the characteristics of bitcoin to vitalik buterin. Due to his advanced views on the future development of the blockchain field and optimistic about the broad prospects for the development of the application layer in the blockchain field, vitalik buterin found that bitcoin only realized the payment function through the blockchain. Based on his strong interest in blockchain technology, In September 2011, vitalik buterin, as a co-founder, founded bitcoin magazine with Romanian programmer Mihai alisie and became the chief writer of the magazine. The magazine is an entity and online parallel publication, with about 1.5 million readers until it was acquired in 2015.
1.3.2. Independently create a team and publish Ethereum white paper
For security reasons, Nakamoto, the founder of bitcoin, stipulates that only a complex and single scripting language is used to write bitcoin protocol. However, the blockchain is essentially a decentralized distributed ledger database. Decentralization, security and high performance (scalability) constitute the “Impossible Triangle” of the blockchain. In the design, the three features cannot be achieved at the same time, but only two of them can be met. As a decentralized digital currency, bitcoin sacrifices performance scalability on the premise of meeting the design requirements of decentralization and security, which makes it difficult for developers to hatch more application layer projects based on bitcoin network.
Vitailk buterin believes that a platform with more concise programming language and easy for developers to understand should be developed, so that anyone can freely build blockchain applications on the network. Vitalik buterin wrote the idea into a white paper and proposed the concept of “Ethereum” for the first time. It is envisaged that Ethereum will be used as a platform for developers to write applications on the blockchain. In addition to the simple transfer function that can be realized as a cryptocurrency, Ethereum has also launched a smart contract development environment using the programming language solid in combination with blockchain technology, so that developers can use smart contracts to develop blockchain based distributed applications, such as games, games, decentralized finance and so on.
1.3.3. From zero to the second largest cryptocurrency in the world
As an innovative change of Ethereum to the traditional cryptocurrency, the development environment of smart contract is easy to be mastered by developers. Developers flock to it because of its open source, free and simple algorithm. After being recognized by a large number of developers, Ethereum has become synonymous with the second generation blockchain technology. The market value of Ethereum tokens issued by Ethereum has rapidly become the world’s second largest cryptocurrency after bitcoin. According to the real-time data of glassnode, in 2021, the number of active addresses of 2 TaiFang exceeded 500000 every day, and the daily transaction volume on the chain was stable at more than 2 million eth. The Commission consumption caused by the creation and transfer of smart contract exceeded the ETH equivalent to US $15 million per day.
1.4. Ethereum mining behavior record book and service fee mechanism encourage miners to maintain network operation
Ethereum operation and mining mechanism: establish workload proof mechanism to “mine” through high-performance computer
The mining principle of Ethereum is similar to that of bitcoin, that is, it is produced through “mining”. “Mining” is to use a computer with high computing power to continuously carry out high-intensity hash collision calculation and violently solve mathematical problems through exhaustive method. If you guess the miner’s address correctly, you can get the block reward of the block and the bookkeeping right of the block. Eth is generated by mining, with an average of 2 blocks generated every 13 seconds. During mining, miners use the computer to calculate the answer to a function calculation question until a miner calculates the correct answer, that is, completes the packaging information of the block. As the first calculated miner, he will be rewarded with 2 additional eth in the block.
If miner a takes the lead in calculating the correct answer, miner a will be rewarded by Ethereum. At the same time, all miners will be notified to verify the answer and update the correct block information in the whole network broadcast. Other miners will stop the current problem-solving process, record the correct answer, start the next problem and repeat the process.
At the same time, it is difficult for miners to cheat in the mining process, that is, they can’t disguise to get the correct answer. For example, they lie that they get the answer and broadcast it to the miners in the whole network. However, the process requires more than 51% of the computing power of the whole network to jointly verify and approve the answer in order to confirm the miner’s bookkeeping right. The computing power among miners is relatively scattered, and there is a competitive relationship between miners, Therefore, it is difficult to manipulate more than 51% of the computing power together and pretend to get the answer to deceive all Ethereum users. Of course, the fraud process also faces high default costs and losses. Therefore, the mining process of Ethereum is called “proof of workload” (POW), that is, the income of mining depends on the computational power invested, which means that the more computers, the higher the computational power mastered, the higher the probability of correct answer, and it is easier to obtain block rewards through mining.
Ethereum handling fee mechanism: adopt POW consensus algorithm and establish contract execution and transfer charging mechanism through handling fee
In the Ethereum network, ETH is used to pay the handling fee. The initiators of transactions, executing smart contracts, or paying data storage fees all need to consume the handling fee. This handling fee is called gas in Ethereum and flows to miners who contribute their computing power to verify, confirm and maintain the normal operation of the eth network, so that miners can get corresponding rewards. Therefore, gas fees play two roles for miners and users. First, let miners get something from their work, so as to encourage miners to maintain the normal operation of eth network; Second, the handling fee mechanism can be used to prevent the saboteurs from arbitrarily transferring money, resulting in the abuse of the Ethereum network and congestion, so as to ensure the smooth and sustainable operation of the Ethereum network.
1.5. Eth currency issuance mechanism has a long-term linear growth, and the inflation rate decreases year by year
1.5.1. Long term linear growth of monetary aggregate
As a cryptocurrency fuel to promote distributed applications on the Ethereum platform, Ethereum is issued in a constant number every year in the form of mining. The total amount of bitcoin is fixed at 21 million. The output is halved every four years. The last halving is completed in 2140. The block reward is only 0.00000001 bitcoins. Unlike bitcoin, Ethereum does not have a mining halving mechanism. At this stage, the mechanism of destroying miners’ fees in eip-1559 proposal is not adopted temporarily. Therefore, Ethereum has no total amount limit in theory.
1.5.2. The monetary inflation rate decreases year by year
Ethereum will adopt POS mining mechanism in the future to boost the reduction of money supply
The full name of pow mining is proof of work. Most virtual currencies, such as bitcoin and Wright coin, are cryptocurrencies based on POW mode. The key point is that the higher the computing power and the longer the mining time, the more corresponding token rewards will be obtained.
The full name of POS mining is proof of stake, i.e. proof of interest. The benefit degree of pow mining is closely related to mining time and computing power. Under the POS mining mechanism, the income obtained by miners is not directly related to the calculation power, but depends on the number and time of money held, which is similar to the pledge income system. Under the POS mode of equity certificate, there is a term called currency age, and each currency produces one currency age every day. For example, if miner C holds 100 coins for a total of 30 days, the currency age is 3000, When a new block is found, the proportion of miner C receiving new token reward is (miner C coin age 3000) / (total coin age of the whole network). After receiving the block reward, the coin age will be cleared to 0 and recalculated, that is, the coin age is the key factor for miners to obtain income, and the increase of coin age is closely related to the number and time of coins held.
Eth2.0 will completely adopt POS mining mechanism to reduce money supply
Ethereum POW mining will issue an additional 4.2 million eth every year. After eth2.0 goes online in the future, Ethereum’s fee structure will be changed by optimizing the transfer fee mechanism, eip-1559 and other mechanisms, and the destruction of basic fees will be introduced. The existing rule that miners obtain all transfer fees will be changed to that part of the fee income will be destroyed, which will reduce miners’ income and limit the supply of new Ethereum in the market.
Constantinople and Byzantium bifurcation reduce inflation
Although Ethereum issues a fixed number of Ethereum every year, the mining mechanism has been continuously optimized in history, so the growth rate of Ethereum’s total money is not fixed. In 2017, the block reward obtained by Ethereum through Byzantine network upgrading mining was reduced from 5 eth to 3 eth. After Ethereum 1.0 Constantinople bifurcation in 2019, the block reward obtained by mining was reduced from 3 eth to 2 eth. Therefore, the annual money supply was reduced by 40% and 33% in 2017 and 2019 respectively, Reducing Ethereum’s new money supply reduces the annual inflation rate.
The annual money supply decreases year by year to limit the inflation rate
In the future, ETH will open the 2.0 era, fully introduce POS mining mechanism, and replace the traditional computing power mining by pledge mining. The pledge demand will further significantly reduce the inflation rate; At the same time, as the total amount of money increases year by year, the proportion of the number of newly issued money in the total amount will decrease year by year. Based on the two points, Ethereum 2.0 has the property of decreasing inflation rate year by year.
Ethereum’s inflation rate in 2021 is less than 5%
The inflation rate of Ethereum can be obtained by dividing the new amount of money issued each year by the current total supply. The inflation rate of Ethereum is decreasing year by year. From the first issuance, the inflation rate of more than 10% has been less than 5% by June 2021, down by nearly half, After the eip-1559 mechanism is introduced, the annual inflation rate of Ethereum will be further reduced due to the inclusion of the handling fee burning mechanism.
1.5.3. The issuance mechanism shall prevent excessive concentration and give full play to the incentive mechanism
The inflation rate decreases year by year, and the added value storage function
Ethereum’s inflation rate decreases every year, which makes Ethereum have the basis to fight against legal currency inflation. The decreasing inflation rate also means that Ethereum will replace some bitcoin value storage functions, so that Ethereum can enhance its competitiveness in the field of cryptocurrency through the value storage attribute while having the function of “blockchain world bottom operating system”.
Prevent excessive concentration and improve the incentive mechanism
The number of new coins in bitcoin is decreasing year by year, which leads to the risk that bitcoin is prone to excessive concentration of wealth. Ethereum gives all participants a fair opportunity to obtain money and maintains the incentive for miners who earn income through mining and users who hold Ethereum.
Gather community consensus and promote ecological development
Through the gradual growth of money supply, whether developing smart contracts on Ethereum or encouraging miners through mining, users’ participation enthusiasm in Ethereum ecology can be improved and the ecological value of Ethereum can be further improved.
1.6. Bitcoin benchmarking is the digital gold in the blockchain field, and Ethereum benchmarking is the underlying operating system in the blockchain field
1.6.1. Bitcoin halving effect brings value storage demand
As mentioned earlier, Ethereum obtains token rewards through computer “mining”, and bitcoin also adopts the same mechanism. However, the number of bitcoins obtained through mining will be reduced by 50% every four years. For example, in 2020, the third mining reward will be halved, so that the block reward will be reduced from 12.5 to 6.25, and bitcoin will be halved for the last time in 2140, This makes the block reward only 0.00000001 bitcoins.
Bitcoin has the attribute of monetary deflation through the halving effect of a four-year cycle. Similar to gold, bitcoin has anti risk, anti inflation, value storage and other attributes. With the halving cycle and global water release, institutional configuration, user demand and other factors, bitcoin’s “digital gold” attribute is more prominent in the case of synergistic resonance of various factors, It is a decentralized asset based on workload proof and without the guarantee of the central bank.
1.6.2. Building underlying application platform for Ethereum smart contract
Compared with the same period last year, Ethereum is not designed as a four-year halved cycle, that is, its essential attribute does not have the value storage function of benchmarking gold. However, although bitcoin realizes the reliable value storage function through the decentralized mechanism, it does not solve the extension of money, that is, what mechanism enables the blockchain to break the limitations of value storage and simple value transmission, Apply blockchain technology to fields other than currency to create a powerful application ecosystem similar to IOS and Android operating systems.
1.6.3. Smart contract builds a bridge for the vigorous development of blockchain application layer
If bitcoin is compared to the digital gold of the blockchain world and the demand for stored value is benchmarked through scarcity, Ethereum is the underlying operating system of the blockchain world. Most of the early applications built through Ethereum were mainly games and games, or a combination of the two. With the expansion and development of the blockchain application layer, the open source based on smart contract is free and the algorithm is simple Low cost and other advantages bring about the continuous precipitation of users, and the application of Ethereum smart contract is becoming more and more widely. At this stage, the ecology of Ethereum application layer involves games, guessing, decentralized finance, exchanges, encrypted collections, social media and other fields.
A. NFT non homogeneous token plate – decentralized collection
The important characteristics of NFT are: each NFT has a unique and unique identification;
In the cryptokitties game, each cat corresponds to an NFT on the chain and has a unique ID and gene. More importantly, it has independent value. The secondary market of cryptokitties is very active, and the most expensive cat sold 750000 yuan;
On the evening of March 11, 2021, a NFT digital art “every day: the first 5000 days” by the artist beeple of Christie’s online auction in New York finally ended up with a hammer of US $60.25 million and a commission of about US $69.3 million (about 450 million yuan).
B. Sports and entertainment sector
The network open platform based on blockchain technology creates sports game entertainment services, combines the application and business scenarios on the sports industry and sports ecological chain, opens up the sports virtual games carried out by the whole sports industry chain and realizes a wider ecological connection of the sports industry.
C. Decentralized Finance (defi)
Defi is decentralized finance. With the rapid development of blockchain, its application scenarios are constantly enriched, and the financial industry is one of the more promising directions. Defi is active in Ethereum network ecology. After nearly two or three years of exploration and development, it has derived a variety of financial innovation functions such as stable currency, lending platform, derivatives, forecast market, insurance, payment platform and so on.
Defi moves traditional finance to the blockchain network, but compared with traditional finance, it realizes decentralization through the blockchain, that is, it removes the endorsement process of centralized institutions and reduces the trust cost caused by intermediate links. In June 2021, the total number of users of defi has exceeded 2.8 million, showing a broad user prospect in the field of decentralized finance.
D. Decentralized exchange (DEX)
The original intention of the invention of bitcoin is to solve the problems caused by “centralization”. However, in the decentralized world of cryptocurrency, users generally use centralized exchanges for asset trading, which implies uncontrollable risks brought by many centralized mechanisms. The decentralized exchange is more transparent, and the assets are not controlled by a third party. Therefore, the dilemma of running away and stealing from the traditional centralized exchange platform is avoided.
On the other hand, DEX does not need to go through the review of centralized institutions, and anyone can provide liquidity trading pairs to become a market maker. As the key underlying technical facility of the defi network, DEX uses the AMM automatic market making algorithm to provide a lot of basic liquidity and accelerate the maturity and popularization of the defi network.
1.7. Ethereum vision: build cryptocurrency application layer ecosystem based on the underlying operating system of blockchain
1.7.1. Google cuts into the field of mobile Internet through Android and successfully seizes development opportunities
Android has been released for 12 years since 2008. The changes of Android in these 12 years are extremely amazing and rapid. With the powerful development function of its mobile operating system and the simplicity of application development, it has finally attracted a large number of users and developers. In the field of mobile operating system, Android does not adopt a closed operating system similar to IOS, but open source sharing. Once launched, it quickly seizes the market share of IOS operating system. With its competitive advantage in the operating system and the precipitation of users for a long time, Android has established a very high industry barrier in the field of mobile operating system; As the leader of Android development, Google has entered the field of mobile Internet with Android’s competitive advantage, constantly infiltrating Google products and services to users, making Google one of the super giants of mobile Internet Ecology.
Without Android, Google’s original mobile search and advertising revenue business territory may be eroded by apple. In addition, Google’s control over the Android system prevents apple from developing mobile search apps independently and avoids the possibility of directly spawning another mobile search giant. Through the underlying operating system, Android has successfully entered the mobile Internet Ecosystem, which has laid a certain foundation for Google’s development in the next decade.
In fact, Android successfully entered the field of mobile Internet, allowing Google to maintain its competitive advantage in mobile search, and finally occupied most of the market share; At the same time, through the combination of operating system and Google search, as well as pre installed Google store, inbox, Google map and other applications, it has brought great mobile Internet entry value to Google.
1.7.2. Ethereum complies with the needs of underlying application development and takes the development express of blockchain application layer
In the field of blockchain, Ethereum also has the development potential similar to Android in the mobile Internet. Like Android operating system, Ethereum belongs to an open source mode without license. Its scalability, ease of development and decentralized mechanism continue to attract a large number of developers to develop decentralized applications through smart contracts, Around Ethereum, the most powerful and top ecosystem in the field of cryptocurrency has been established. Ethereum just copies the importance of the operating system in the mobile internet field to the blockchain field, repeats the path of Android, opens up another battlefield in the blockchain world, and is expected to eventually become the underlying operating system in the blockchain world.
However, the money security smart chain BSC launched by the world’s largest centralized cryptocurrency exchange in 2020 poses a certain challenge to Ethereum. The BSC has low transaction cost and fast transaction speed, and the user growth has exceeded that of Ethereum. On February 9, 2021, the number of transfers on the money security smart chain exceeded that of Ethereum for the first time, with more than 300 projects on the chain, If Ethereum fails to change the contract processing mechanism, enhance its scalability and reduce the network operation cost in the future, its market share may be gradually swallowed up by the coin security intelligent chain.
1.7.3. meet as equals of traditional distributed applications, simultaneous interpreting of distributed computers in the Ethernet field.
Different from the traditional centralized application, Ethereum can be compared to a distributed computer system, adopt the blockchain mechanism, introduce workload proof, and complete the automatic execution of smart contracts without strong third-party arbitration or records, avoiding human intervention and ensuring openness, fairness and impartiality as much as possible, It reduces the trust cost in the process of contract execution. In addition, the decentralized mechanism can fairly solve the problem of true credit records. The blockchain can truly present the credit history of both parties without the help of a third party, which can effectively solve the credit problem in the contract; Similarly, for example, credit problems caused by information asymmetry are common in financial asset securitization in traditional industries, such as bills, letters of credit, enterprise accounts receivable, factoring creditor’s rights, etc. the introduction of blockchain technology can enable each transaction on the chain to be entered and opened to all participants, ensuring the transparency and traceability of information. The preference of popular asset securitization projects in 2020 for the risk dispersion of underlying assets coincides with the characteristics of blockchain. Blockchain technology has the advantages of decentralization, encryption security and tamper proof. It does not need the guarantee of a third party to complete the contract creation, and the data on the chain cannot be modified, which also enhances the credibility of the contract, Users can participate in multiple processes and links of asset securitization from pre establishment to post establishment duration management.
2. Ethereum transformation history & major events
2.1. Vitalik released Ethereum white paper (December 31, 2013)
At the end of 2013, vitalik released the Ethereum white paper. In July 2014, the Ethereum pre-sale began for 42 days. Through the pre-sale of 60102216 ethereums, the Ethereum team raised more than 30000 bitcoins. According to the overall development plan released by Ethereum, the release of Ethereum is divided into four stages, namely frontier, homestead, metropolis and serenity.
2.2. Frontier release, smart contract application milestone (July 30, 2015)
Kraken, the cryptocurrency exchange, was launched for the first time (August 7, 2015)
The first recorded historical price of Ethereum began on August 7, 2015, when Kraken, the cryptocurrency exchange, was the first to put eth on the shelves at $2.77/piece. However, ETH was not recognized by investors three days before it was put on the market, and the price once fell to US $0.68. The sharp decline in the price of eth tokens is likely to be affected by the panic selling of early investors.
Eip-20 proposal enables Ethereum to issue digital assets or interests through smart contracts (November 19, 2015)
As the initial experimental stage of Ethereum, the software infrastructure in this stage is not mature. There is only command operation interface and no UI, but basic mining, learning and testing can still be carried out. This stage is the starting point of Ethereum development. After the eip20 proposal was implemented, the smart contract system began to operate. As an application platform, Ethereum continuously has developers developing applications in the smart contract in order to realize its own value. In this process, Ethereum gradually accumulated popularity and its value was recognized by the market.
At the beginning of 2016, the gradual implementation of smart contract application made Ethereum’s technology recognized by the market. Ethereum announced that it would launch a more stable second-generation network protocol version homestead, and its value was gradually recognized by investors. On March 13, 2016, ETH’s price reached a high of $15, which also made Ethereum’s market value exceed $1 billion for the first time. The rising price of Ethereum drives investors to discover the advantages of smart contracts, attracting a large number of people other than developers to enter the world of Ethereum and participate in the operation of Ethereum network.
2.3. After the release of homestead version, Ethereum suffered setbacks and was reborn (March 14, 2016)
This stage is the first formal product release version of Ethereum, which follows the cutting-edge stage. POW mechanism is 100% adopted. This version also adopts command-line interface without graphical interface UI. In addition to increasing the computational power, the difficulty of mining also adds a “difficulty bomb”, which will increase the difficulty of mining geometrically and reduce the mining income of miners.
The Dao was attacked by hackers and Ethereum faced the theft crisis (June 17, 2016)
The full name of Dao is decentralized autonomous organization, that is, “decentralized autonomous organization”, and the Dao is one of the largest decentralized autonomous organizations. The whole community is completely self-made and realized through the intelligent cooperation of coding. The project completed crowdfunding on May 28, 2016, raising a total of 11.5 million Ethereum, with a value of $149 million at that time.
On June 16, 2016, hackers took advantage of the vulnerability in the Dao code to steal about $60 million worth of eth from the project. This negative news had a serious impact on the market price of eth, halving its market price to $11.
Etc hard bifurcation, tracing stolen tokens (July 20, 2016)
In order to quickly deal with the negative impact of eth theft, vitalik buterin team proposed to restore the Ethereum network to the pre attack state through hard bifurcation and return the stolen funds to users. On July 20, 2016, Ethereum implemented hard bifurcation in the controversy of community users. After that, the network was divided into two, becoming Ethereum and Ethereum classic 。
Enterprise Ethereum alliance EEA was established to develop enterprise blockchain (February 28, 2017)
On February 28, 2017, a group of global enterprises representing the oil, gas, finance and software development industries officially launched the enterprise Ethereum alliance, which is committed to developing Ethereum into an enterprise blockchain. Enterprise Ethereum Alliance (EEA) is a collaborative organization officially established in March 2017 by more than 30 enterprise giants such as JPMorgan Chase, Microsoft and Intel. The number of members has reached hundreds in June 2021. The initial vision was to jointly develop standards and technologies to make it easier for enterprises to use Ethereum blockchain code, so as to move towards the era of distributed ledger system. The organization is committed to improving the privacy, security and scalability of Ethereum blockchain and making it more suitable for enterprise applications. The establishment of enterprise Ethereum alliance EEA marks that the application of Ethereum smart contract has penetrated into traditional industries and has gradually been recognized by a wide range of users and enterprises.
2.4. The metropolis version was released, and the two bifurcations significantly reduced the money supply (October 16, 2017)
Ethereum metropolis is divided into two stages: Byzantium upgrade and Constantinople upgrade.
Byzantine version upgrade (eip-649 October 16, 2017)
On October 16, 2017, after several delays, Ethereum’s “Byzantine” network made a hard bifurcation in block 4370000. This time, it was called “metropolis”. When the 4370000 block of Ethereum’s main network was born, a hard bifurcation was executed through the “Byzantine” code, “metropolis” The phase of is regarded as an important cornerstone to improve the overall availability of Ethereum platform. At the same time, after this block, the mining reward for miners decreased from 5 eth to 3 eth, reducing the annual new supply of Ethereum by 40%.
Constantinople version upgrade (eip-1234 2019-03-01)
The main function of Constantinople hard bifurcation is to smooth out the problems caused by the upgrading of “Byzantine” network, introduce the mixed chain mode of POW and POS, and experimentally add the POS mechanism to Ethereum network. In addition, the block reward for miners was reduced from 3 eth to 2 eth per block, and the annual new supply of Ethereum was reduced by 33%. This measure is known as “1 / 3 reward reduction”.
2.5. Serenity version, opening a new phase of Ethereum 2.0 (2020-12-01)
Vitalik has proposed a specific plan for the road map of Ethereum phase IV upgrade, but it will take quite a long time to launch. The main reason is that under the premise of ensuring the safe operation of the network, changing the underlying mechanism of Ethereum is a challenging task, so the launch of Ethereum 2.0 will not be completed at one time. Eth2.0 phase will be released in three phases. Each phase has its own unique functions to ensure the successful upgrade of new Ethereum. The completed phase in June 2021 is phase 0, that is, the release of Ethereum beacon chain.
Phase 0 starts and the Ethereum 2.0 process is one step closer
Phase 0 beacon chain is considered to be the backbone and core of eth 2.0. The goal is to introduce the basic POS mechanism, make Ethereum smoothly transition from pow (proof of workload) to POS (proof of equity) consensus mechanism, and fundamentally change the underlying mining mechanism and monetary based economic model.
Phase 0 beacon chain sets the tone for the new consensus of the whole system. That is, the Ethereum deposit stacking contract is opened. By pledging a certain amount of eth, users can become verifiers, participate in network operation and maintenance, and gain relatively stable stacking income.
The start of phase 0 is triggered by an eth 2.0 deposit contract. The contract address was previously announced on November 4, 2020, which stipulates that when the number of pledged eth received reaches 524288, the beacon chain phase start threshold will be triggered, and the genesis block of eth 2.0 will be officially opened on December 1, 2020. It shows the number of eth received since the opening of the deposit contract. According to the data, a large number of eth were pledged to this address on November 23, 2020, marking that eth 2.0 successfully reached the release threshold. As of June 28, 2021, the total number of eth in the contract has reached 5.68 million, more than 10% of the ETH circulation, and the number of pledges is still growing.
Investors should pay attention to: before the implementation of the fragment chain phase is completed, the operations of all registered node verifiers pledging eth are irreversible. This means that in this stage, the ETH assets of the node verifier will be locked until the next stage is opened. At the same time, the rate of return obtained through pledge will show a decreasing trend with the increase of the total amount of Ethereum in the deposit contract.
The follow-up stage was carried out steadily to promote the new transformation of Ethereum
In the final stage, Ethereum will completely abandon the pow mechanism. At the same time, Ethereum network will no longer need miners to mine through strong computing support. While completely changing to the POS mechanism, it will bring a large number of miners to mine by locking the warehouse eth, and the pledge has a certain pledge return rate, which will limit the flow of a large number of pledged Ethereum into the secondary market and reduce the market selling pressure, At the supply side, reduce eth supply and increase the intrinsic value of Ethereum. At the same time, it is more in line with the policy requirements of American energy conservation and environmental protection and China’s vision of “carbon neutrality”.
Eip-1559, which will be implemented in early August 2021, will fundamentally change the handling fee structure of Ethereum, leading to the deflation mechanism of money supply in the future. The core of the proposal is to take out a certain proportion of the gas cost originally earned by miners in each transaction and destroy it. In this way, the total amount of Ethereum will be controlled, and with the continuous implementation of smart contract applications, the trend of the number of transaction requests will increase steadily. The increase of gas costs will lead to the destruction of more eth, resulting in the reduction of eth money supply, which is conducive to the formation of money supply deflation mechanism, and theoretically has a certain impact on the short-term supply-demand balance of Ethereum.
3. Ethereum value core and killer – Smart contract
3.1. Introduction to smart contract: electronic contract in blockchain world
Smart contracts are similar to contracts in the physical world. They are digitized and saved and run by programs stored in the blockchain. A smart contract can be regarded as a program or simpler code. The code behind the smart contract contains specific terms that are executed when triggered by a specific contract event. In short, the emergence of smart contracts enables two people based on blockchain not only to carry out simple value transfer, but also to set complex rules, which can be executed automatically and autonomously by smart contracts, which greatly expands the possibility of practical application of blockchain. Due to the special advantages of blockchain, smart contracts can break through the barriers of traditional centralized platforms and the monopoly behavior of third-party institutions, which is expected to eliminate the limitations in the centralized system.
3.2. Smart contract breaks the limitations of centralized application and gives play to the advantages of decentralization
Decentralized, tamper proof
Smart contracts allow trusted transactions without a third-party centralized organization. These transactions are recorded on the chain and cannot be modified, so that they can be tracked and irreversible. Once these data points are placed on the blockchain, they become unchangeable records, and time stamps are added to the block data, which greatly reduces the inspection cost. In addition, the data on the blockchain can also be tracked through unchangeable block data clues, and the risk of information loss and the probability of tampering with the information on the chain without being found will be greatly reduced.
Automatic execution, open and transparent
For a long time, there are two huge problems in the current legal system: first, there may be ambiguity in the process of expressing legal provisions in words; second, the cost and cost of enforcing contracts or laws are large. In the contracts created by traditional centralized institutions, the settlement agreed between multiple parties is agreed in the contract, and there is no way to complete it automatically by digital means, resulting in no strong payment collection guarantee for financial institutions to participate in the supply chain in multiple links. In Ethereum’s smart contract, the settlement process can be automatically completed through smart contract control, reducing human interaction, improving execution efficiency and reducing operational errors.
Multiple backup, data security
As a distributed ledger (distributed ledger is a database shared, copied and synchronized in real time among network members), blockchain provides all participants with an equal platform for cooperation and reduces the risk of inter agency credit cooperation. At the same time, the information on the chain can be tracked and tampered with. The data between multiple institutions can be synchronized in real time to facilitate real-time reconciliation.
Anonymous protocol, privacy and reliability
Anonymity is another feature of blockchain assets. Through the blockchain, we can query the data publicity of each transaction, but we can’t know the specific identity information of the trader. For example, the blockchain blacklist sharing system launched by Suning finance at the end of 2018 effectively realizes anonymity and hides the true identity of some financial institutions involved in sensitive data transactions. No one can know who uploaded a blacklist. It can be seen that the blockchain protects users’ privacy to a certain extent through its anonymous protocol.
3.3. The large-scale outbreak of smart contract projects has promoted the vigorous development of Ethereum ecology
The number of dapps (decentralized applications) surged, highlighting the siphon effect of Ethereum’s underlying operating system
One of Ethereum’s unique features is to program and build decentralized applications on top of this technology. The real-time data of dapps state on June 28, 2021 lists 3549 real-time dapps in the blockchain ecosystem. The data shows that 2812 of these dapps are based on Ethereum, accounting for nearly 80%. It can be seen that eth has built a solid industry barrier in the field of decentralized public chain.
With the rapid growth of defi in 2020, the number of smart contract triggers on Ethereum network surges. According to Etherscan real-time data, since the beginning of 2020, the number of contract calls initiated by external accounts has more than doubled, from less than 500000 times a day to more than 1 million times in June 2021.
The number of smart contracts increased steadily and promoted the ecological implementation of Ethereum
The total number of Ethereum smart contracts and the general trend of development cost have been growing steadily. The development cost has increased from US $43000 in December 2020 to US $150000 in June 2021. The number of deployed smart contracts has remained stable at around 1.51 million, doubling compared with the beginning of 2021, The open-source Ethereum decentralized smart contract platform continues to attract developers to carry out project development, complete the realization of knowledge, and put ideas into practice through the Ethereum platform. The surge in development costs and the steady growth in the number of smart contracts show that the demand of developers is steadily increasing, and it has not lost its competitiveness in the public chain field with the rise of Ethereum price.
“Ethereum killer” is full of gimmicks and eth siphon effect is obvious
During the bear market period from 18 to the first half of 19, the whole cryptocurrency field was in an extremely depressed state, and the industry was full of news that was not conducive to cryptocurrency, such as a large number of currencies off the trading platform, usdt was subject to compliance review, BTC fell below the mining cost price, causing a large number of mine closures, etc. at the same time, it was also accompanied by the collective collapse of once “Ethereum killers” The price has been cut several times. In contrast, the number of Ethereum contracts has increased year by year. When the cryptocurrency market recovers, it quickly recovers, leading the vigorous recovery of the application ecology in the blockchain field.
Basically speaking, the competition between the public chain and Ethereum from 2017 to 2018 has fallen into a bottleneck area. In 2020, these public chains can be hyped through the so-called main network online. Now the concept of main network online has long been outdated, and there are no new hot spots that can attract attention. If many public chain projects can not solve their own internal problems, If there is no outstanding highlight in technology, the final result must be gradual silence. On June 28, 2021, EOS ranked second in the number of dapps on the chain, but it could only barely get a 15% share of eth. For the once popular public chain, the total number of projects developed on the public chain based on other than Ethereum can not exceed 1 / 4 of the number of dapps developed based on eth, which shows that Ethereum has siphoned a large number of funds, talents and projects in the blockchain field through first mover advantage and continuous iterative updating, so as to firmly take the lead in the public chain.
3.4. At this stage, the limitations of smart contract POW mechanism are prominent, which limits the rapid development of Ethereum
Gas fuel costs have risen sharply, resulting in increased application development and operation costs
Unfortunately, with the vigorous growth of Ethereum, the problem of scalability becomes more and more serious. One of the reasons for the poor scalability is that with the increase of network transfer cost, the cost of contract creation and contract execution becomes higher, resulting in the low efficiency of Ethereum smart contract execution. This trend will reduce the use of Ethereum network by users and developers, Limit the wide use of Ethereum in the future.
If Ethereum itself is not economical, it will not be widely used by users, but to find cheaper public chain alternatives. In June 2021, the total gas fee has exceeded the peak in 2017, an increase of 4.5% compared with the beginning of 2021. It fully reflects the strong demand for Ethereum ecological network, and also shows the necessity of eth’s urgent need to optimize the cost rate structure through eth2.0.
The network utilization is capped, highlighting the upper limit of Ethereum load capacity
Network utilization can be said to be one of the most basic indicators to measure the operation of any public chain. It means users’ demand for Ethereum block space and whether users are willing to use eth as the settlement layer to complete the creation and development of smart contracts. This indicator has risen steadily since the beginning of 2020. Whether it is decentralized finance or games, various applications built on Ethereum smart contracts are inseparable from the demand for Ethereum network. It has obviously become the largest “settlement layer” in the whole blockchain network. As of June 28, 2021, 96.01% of eth networks are active. When the network utilization reaches the upper limit, the load capacity of the whole network has tended to the upper limit. In order to meet the vigorous development of blockchain and the demand for efficient operation of applications, in the era of 2.0, the network utilization can greatly break the current upper limit to ensure that the network can be fully used and meet the growing needs of users.
4. The implementation of Ethereum eip-1559 is imminent, and the handling fee burning and destruction enables Ethereum’s “production reduction” market
4.1. Ethereum is expected to carry out London hard bifurcation in early August 2021, and eip-1559 proposal will be finally implemented
Ethereum improvement proposal #1559 (eip-1559 for short) proposes a new pricing mechanism of service charge on the chain: the original transaction service charge (collectively referred to as gas fee in the industry) is changed from “auction” pricing to “market exchange rate” pricing mechanism. By linking the fluctuation of service charge to the block capacity, the gas fee is divided into basic fee and miner’s fee, Its purpose is to transfer the fee pricing power from the initial miner to the user.
Over the years, the factors stimulating the rise of eth value have been upgrading and changing. From the financing demand driven by ICO in the early stage, to the underlying asset as the pledge loan of defi (decentralized Finance), to the stacking of eth 2.0 in the future and the substantial destruction of upcoming handling fees, the value, purpose and connotation of eth are constantly enriched. The adoption of eip-1559 handling fee destruction mechanism to be implemented in early August 2021 will add a new narrative to eth, which will directly reduce the daily supply of eth in circulation, and is expected to shrink the supply of eth in the secondary market from the supply side and improve the intrinsic value of eth.
4.2. Eip-1559 service charge burns up and reduces market supply, with the utility comparable to the “difficulty bomb”
Every time bitcoin experienced a “halving” event in history, the reduction of miners’ income led to the reduction of miners’ supply of bitcoin in the market. At the same time, the mechanism immediately switched the mining reward mechanism from the halving date to temporarily reduce the mining reward by half. Similarly, ETH also experienced a similar “bitcoin halved” Byzantine bifurcation mining reward reduction of 40% and Constantinople bifurcation mining reward reduction of 33%. However, unlike bitcoin’s halving day, which immediately reduces mining rewards, the two Ethereum reward reductions are not completed “instantaneously” on the bifurcation day, but gradually increase the mining difficulty through the “difficulty bomb” mechanism (the difficulty bomb is explained below), so as to passively reduce the mining revenue, and finally determine the final reward reduction through bifurcation. That is, in essence, ETH’s “production reduction” market does not reduce the mining reward immediately according to a certain proportion on the upgrading day by bifurcation upgrading, but gradually increases the mining difficulty during the outbreak of the difficulty bomb through the difficulty bomb mechanism, and finally confirms and updates the mining reward reduction mechanism for miners through bifurcation upgrading.
4.2.1. Reduce mining incentives, reduce eth supply in the market and promote benign resonance with prices
From the perspective of whether the supply of eth in the market decreases or not, it may be possible to explain the sharp rise in price in a short time after the reduction of mining incentives. After the reduction of two incentives in history, the supply of eth in the market decreases, and its price increases rapidly in a short time; At the same time, from the perspective of bitcoin market, all previous major waves have been dominated by the reduction of mining incentives, that is, the “halving market”. The bitcoin halving event itself has become a positive event affecting the market price of cryptocurrency. In addition, some evidence can also be obtained through the ICO and defi lock mechanism. In a sense, the issuance of ICO in 2017 also reduced the supply of eth in the market. Most projects need to lock eth during issuance, and the project party cannot sell eth raised in a short time, From this perspective, the lock up mechanism leads to the continuous reduction of eth supply in the market for a period of time, and finally has a certain impact on the balance of short-term supply and demand; Similarly, since the prevalence of profi in mid-2019, a large number of eth have been locked in DAPP (decentralized application) to obtain mining income. Both ICO and profi’s lock in of eth have finally reduced the selling pressure of eth in the market. In essence, the eip-1559 to be conducted by eth in early August 2021 also reduces the supply of eth in the market by reducing mining incentives for miners, which is expected to have a certain impact on the balance of short-term supply and demand in the short term.
4.2.2. Eth’s “difficulty bomb” is as effective as the “bitcoin halving market” once every four years
The difficulty bomb refers to a code embedded in the initial release version of eth when it was officially released in 2015. The function of this code is to increase the difficulty coefficient of processing and mining at a certain time point. At the same time, there is a difficulty factor that increases exponentially per 100000 blocks, that is, the mining cost and difficulty of miners will increase sharply during the outbreak of eth difficulty bomb. The purpose of its introduction is to solve the problem that when eth is transitioning from POW mechanism to POS mechanism, the mining revenue is reduced by increasing the mining difficulty. Finally, the mining difficulty increases sharply, resulting in a surge in mining costs, forcing miners to give up making profits through POW mining mechanism, making the smooth transition of eth consensus mechanism to POS verification block node mode, and completing the switching of consensus mechanism.
However, the conversion of eth from POW to POS was delayed, and the difficulty bomb broke out again and again on the ETH network. The ETH network was congested, which greatly reduced the processing efficiency of intelligent contracts in the ETH network, forcing developers to compromise by delaying the time of the difficulty bomb through network upgrading, so as to maintain the normal operation of the ETH network, At the same time, the explosion of eth difficulty bomb in history led to the increase of mining difficulty, which formed a benign resonance with the price.
4.2.3. The outbreak of difficulty bomb shows obvious correlation with eth price
In history, ETH network has erupted three “difficulty bombs” in total. The duration of the third difficulty bomb is too short, and there are no subsequent measures to substantially reduce rewards. Therefore, this paper only analyzes the first two difficulty bombs and subsequent bifurcation upgrades.
Miners can greatly affect the supply of eth in the market. Before April 2017, the total daily supply of eth mining reward was stable at about 30000. However, with the outbreak of difficulty bomb, the height of the block was about 3.7 million at the end of March 2017, and the time of block withdrawal was extended to 30 seconds. The difficulty of mining caused by difficulty bomb increased until the end of September, During this period, the daily supply was gradually reduced. At the end of September, the daily supply of mining reward was reduced to around 15000, and the difficulty bomb gradually broke out, which finally forced eth developers and the community to compromise. On October 16, 2017, the difficulty bomb was finally postponed and the network state was restored through Byzantine network upgrade, but the mining reward was reduced, After that, ETH’s daily mining reward was stable at about 20000. From the outbreak of the difficulty bomb in March to the Byzantine bifurcation, the ETH mining reward finally decreased by about 33%, and the ETH price increased from $46 to $369 during the reduction of mining reward. After the Byzantine bifurcation confirmed the reduction of mining reward, the price increased from $300 to $1570; In the history of eth, another mining reward was reduced to Constantinople bifurcation, and its mechanism was similar to Byzantine bifurcation. After the difficulty bomb was triggered, the mining reward gradually decreased over a period of time until the number of mining rewards was fixed through network upgrade. The second difficulty bomb explosion reduced the daily mining reward of eth from 20000 to 13000, The reward is reduced by about 33%, which is close to the reduction of Byzantine bifurcation reward. During the difficulty bomb period, its price also increased rapidly in a short time, rising from the bottom $115 to $288 in six months. However, the periods of the two bifurcations are different. During the first reward reduction period, the overall cryptocurrency market is in a bull market cycle, which enlarges the ETH market value and makes the price more volatile. At the same time, the short-term cumulative increase is also greater. During the second reward reduction period, the overall market is at the end of the bull market in the cryptocurrency market, and there is not too crazy speculation in the market, Eth price did not digest the supply reduction in the market in a short time; In the light of COVID-19’s influence, the liquidity crisis in the global financial market broke out, and the encrypted money market, including Eth, was severely damaged. After the second difficulty bomb burst, prices were positively feedbacks only during the period of increasing difficulty, but prices did not get any boost in the short term after the reduction in the award of the fortunning branch.
4.3. Eip-1559 “instantaneous” reduction of mining incentives is expected to have an impact on the balance of short-term supply and demand
4.3.1. Eip-1559 reward reduction is comparable to two difficulty bomb explosions
The developers set the time for upgrading the Ethereum main network in London in early August 2021 and released the update of eip-1559 proposal. As mentioned earlier, 70% of the transaction costs on the ETH network will be burned (the supply will be deleted from the circulation), and the remaining 30% will be delivered to the miners as a reward for the mining behavior verification network. Both Constantinople bifurcation and Byzantine bifurcation reduce eth supply in the market by directly reducing miners’ mining incentives and total income. Although eip-1559 burns the transfer handling fee, the handling fee is also regarded as a part of eth miners’ income. Therefore, eip1559 also has a similar mechanism for the reduction of mining incentives in the previous two bifurcations, In essence, it is to reduce the market selling pressure by reducing the total income of miners. The income of miners consists of mining reward and network handling fee. Therefore, to analyze whether the handling fee burning has the effect of reducing the mining reward in the previous two times, it is necessary to analyze the proportion of the mining reward obtained by handling fee and block verification in the total income of miners.
The utilization rate of eth network surged rapidly after the large-scale outbreak of defi application in mid-2019, and the handling fee showed an exponential increase. At this stage, the handling fee and mining reward showed a ratio of nearly 1:1, that is, half of the total income of miners came from the handling fee paid by users, which was lower than that in the previous two rewards, The handling fee accounts for only less than 10% of the total income of miners, so the impact of handling fee on the reduction of the total income of miners after the first two difficult bombs can be ignored. Eip-1559 reduces 70% of the total income of miners through the handling fee burning mechanism, resulting in the reduction of the total income of miners by about 34.4%. From the analysis of the reduction degree of the total income of miners, Eip-1559 is about the same as the reduction of the previous two awards.
According to the assumption of eth2.0 analyst Justin Drake (@ drakefjustin), the selling pressure in the market is 22.3k eth every day. Under the same assumption, Nikhil shamapant (@ nshapant) calculates that the selling pressure after eip-1559 but before the POS consensus mechanism will drop to 15.7 eth every day, which is verified by the reduction of mining revenue of about 34.4% in the previous article, In addition, the analyst also gave a more optimistic view that after eth turned to POS consensus mechanism through eip-1559 and POW, miners’ mining position restrictions increased and the amount of locked positions increased gradually, and the market selling pressure will be further reduced to 10% of the supply at the end of June 2021. However, the market environment is different, and we prefer a more conservative assumption, That is, 34.4% is adopted as the reference value of this market selling pressure.
4.3.2. Across the difficulty bomb “waiting time”, eip-1559 market supply “instantaneous reduction”
The fee burning mechanism is very different from the previous two mining incentives, that is, the mechanism without difficulty bomb increases the mining difficulty over a period of time, and finally leads to the reduction of miners’ income through bifurcation upgrading. It took about 200 days from the first difficulty bomb outbreak to the final Byzantine bifurcation to confirm the reduction of mining reward, and about 90 days from the second difficulty bomb outbreak to the Constantinople bifurcation, that is, the first two reward reduction markets gradually reduced the daily supply of eth in the market over a long period of time, so as to have a certain impact on the price “Delay” boost, while eip-1559 handling charge burn-up is more likely to be described as a “instantaneous” After the eip-1559 proposal is passed, the fee burning mechanism will be immediately added to the ETH network without going through the transition period of the difficulty bomb. After the mechanism is passed, the daily selling pressure of eth in the market will be reduced by 34.4% compared with that immediately before. Because the reduction of the previous two awards is about the same as the reduction of the total income of eip-1559 miners, the instantaneous total income The reduction may be more effective in terms of time than the reduction of “transitional” incentives. Deflation and production reduction are expected to have a greater impact on the balance of short-term supply and demand.
But at the same time, it is worth noting and vigilance that eip-1559 focuses on changing the handling fee mechanism to reduce miners’ income. However, one of the main objectives of eth2.0 era upgrade is to optimize the handling fee. Therefore, the usage of eth network handling fee in the future has certain uncertainty, which needs to be verified according to the actual situation of network utilization and other indicators after the implementation of the protocol. In addition, from the perspective of developers, if eth can not significantly optimize the handling fee consumption after completing the era of 2.0, it will limit the scalability of eth network, that is, it can not significantly reduce the handling fee consumption, which must go against the original intention of developers and communities to carry out eth2.0. From this perspective, with the continuous implementation of eth2.0 in all stages, The average probability of handling charges will also be reduced in proportion. However, at this stage, due to the limitations of community consensus, miners’ resistance and technical development difficulties, the use of the total amount of network handling charges cannot be significantly reduced after the completion of eip-1559. Eip-1559 optimizes the cost model by flattening the cost peak and limiting the number of transactions with high gas charges, However, reducing gas costs mainly depends on eth 2.0 and layer 2 capacity expansion solutions; According to Etherscan real-time data, the ETH block load has remained above 95% since the summer of 2020, and the overall network utilization rate of eth will remain above 95% in 2021. That is, according to the analysis of the data on the chain, the subsequent eth handling charges are high and sustainable for a long time. That is, after eip-1559, until the deployment of the next stage, it still can not significantly reduce the total handling fee, that is, the reduction of mining revenue brought by eip-1559 has a relatively deterministic dividend period for the secondary market, which has an impact on the balance of short-term supply and demand.
4.3.4. If the activity of Ethereum network decreases, it will inhibit the burning of eip-1559 service charge
Total consumption of Ethereum service charge = average cost of each transfer (Gwei / time) * total transfer times. One of eth2.0’s visions is to reduce the user’s use cost. Therefore, in the long run, the average cost rate of service charge shows a downward trend. If the follow-up 2.0 stages cannot be followed closely, Ethereum network will continue to flourish, The total amount of service charge consumption in the future is highly uncertain. If the average service charge decreases and Ethereum ecology does not significantly follow up the total amount of contract processing and total transactions in its network due to market downturn or other external reasons, In this case, it can be predicted that in the long term, the probability of the reduced dividend in the secondary market brought by eip-1559 through the destruction of handling charges will gradually disappear, that is, the reduction of network activity will have a certain inhibitory effect on the total destruction of eip-1559 handling charges, accompanied by the lack of corresponding reduction of market supply; However, with the gradual follow-up of each stage of 2.0, we are confident that Ethereum can still maintain its core competitiveness and accelerate the siphoning of other competitive public chain users, resulting in a significant increase in the total number of network transactions, The increase of the total handling fee brought by the increase of network participation can offset the inhibitory effect of the reduction of the average handling fee on the eip-1559 burning mechanism to a certain extent.
4.4. Disputes among miners in eth2.0 era resulted in short-term decrease in income and long-term increase in mining income
4.4.1. The miner’s income decreased and opposed eip-1559
The fee auction charging mechanism in is optimized. The miners prove that the direct income will be reduced by participating in the workload. On the other hand, destroying the base fee in the transaction cost is not fair to the miners, because it means that the income share will be reduced by 50%. Therefore, although the eip-1559 proposal has been determined to be implemented in the London upgrade in the second half of 2021 on March 11, 2021, the proposal has been opposed by the majority of miners. In March 2021, some eth miners were trying to emphasize their opposition to the upcoming implementation of eip-1559 through “computational demonstration”. According to the previous statistics of rhythmic blockchain, when there was a great dispute in early March 2021, the calculation power of the ore pool against eip-1559 was as high as 62.88%.
4.4.2. The short-term results in the reduction of miners’ income, and the long-term reduction of supply is good for eth value, driving the increase of mining income
Although it will harm the interests of miners in the short term, it is beneficial to the whole ecology to look at the development of this proposal from a slightly long-term perspective. On the one hand, there was no upper limit of inflation before. Eip-1559 can improve investors’ expectations of eth price through monetary deflation mechanism and truly capture the ecological value of eth; After the implementation of the mechanism, the increase of currency price caused by lower inflation will eventually benefit miners. The income of miners depends more on the price of eth than the amount of mining shares. The increase of currency price may bring this result: the increase caused by eth value capture will far exceed the mining income of eth miners without the implementation of eip-1559, Make up for the decrease in revenue caused by base fee share. On the other hand, from the perspective of cost, miners need to compete for computing power through POW mining mechanism, which requires strong mine pool support, which not only wastes resources, but also is limited by the problems of computing power renewal and mine maintenance. Through POS mechanism, miners can obtain block rewards at lower cost, although the total income of miners is reduced, However, due to the huge decline in costs, miners still maintain a high profit margin, which is a win-win mechanism for miners, users and developers, making the ETH network a better virtuous circle and maintaining the dominant position of the public chain in the blockchain field.
4.4.3. Eip-1559 enhances user experience and facilitates developers to make effective use of the network
At the same time, the foundation of the whole eth network is supported by a large number of users, not dominated by miners. With the gradual increase of mining difficulty, it also drives the ore pool to be more concentrated, which increases the tendency of centralization and the risk of computer attack on the network to a certain extent. The pricing mechanism of eip-1559 can improve user experience and enhance network value, so as to attract more projects, users and assets to the ETH ecosystem and form an endogenous positive cycle. Only when users get value from the network can eth ecology be sustainable. Therefore, it may be short-sighted to focus on the reduction of miners’ income at present.
5. Eth2.0 era opens a new chapter of cryptocurrency: scarcity leads eth value
5.1. Optimize the rate structure and improve the network efficiency, showing the advantages compared with the “eth1.0 era”
As can be seen from the above, with the surge of mining costs and high transfer costs brought by pow, and the network capacity at this stage is not enough to support the blueprint of eth’s future ecological development, the network utilization continues to break through the peak, which also limits the potential of eth to efficiently process a large amount of data.
The upgrading of Ethereum network is mainly to solve the problems of high project operation and maintenance cost and scalability of smart contract. These improvement directions are in sharp contrast to the existing eth1.0. In the future, eth2.0 can solve the problem of network congestion, make value flow more freely on the network, improve network utilization efficiency, carry more high load projects, enhance the scalability of smart contracts, and reduce the pressure on eth ecology caused by competitors through advantages such as “low cost” and “high efficiency”.
5.2. The demand of developers on the chain is rising
The support of eth smart contract project has increased year by year, indicating that developers gradually recognize eth project. Among the top 100 cryptocurrencies calculated by market value, 86% are built by eth underlying protocol, and among the top 1000 cryptocurrencies, more than 80% are smart contracts built by eth. At the same time, with the gradual implementation of the project and the wide application, the support of eth smart contract project is also gradually improving. According to the statistical data of GitHub, an open source platform, in June 2021, the support of eth has reached 312000 and maintained a growth rate of 5% per month. The strong support of developers shows that eth network has strong competitiveness, Bring more users and landing applications to eth network, and establish a strong application ecological network.
In addition to value trading and transfer requirements, the deployment of smart contracts on eth blockchain is also increasing steadily. According to Etherscan data, in 2020, developers created a total of 10.7 million smart contracts, an increase of 55% compared with 6.9 million in 2019. Since the end of 2017, the number of successful calls of smart contracts has been maintained at more than 200000 times a day. From the developer activity of the open source platform GitHub, we can also see the timeliness of the update of the ETH development team. It remains active for development activities every month, which increases the stability, security and sustainability of eth ecology to a certain extent.
5.3. The audience grew steadily, and the acceptance of the public and institutions increased significantly
5.3.1. Eth search index broke through the new high in early 18, and the public paid close attention to eth
On the whole, the trend of search data is in line with the current market performance, which to some extent reflects the change in the public’s attention to blockchain and cryptocurrency. On the other hand, due to the wide application of eth smart contract, ETH technology has been widely concerned and applied more and more, and the attention has gradually increased. Numerically, the index has exceeded the peak value at the ETH price peak in 2018, indicating that the public has continuously increased their attention to eth with the passage of time, and the recent attention is still further increasing with the advent of eth 2.0 era. This trend is conducive to popularizing eth audience, attracting more users to understand eth value and invest in Ethereum.
5.3.2. Mainstream financial platforms are beginning to be inclusive, and their acceptance is gradually increasing
With institutional investors entering the cryptocurrency market and the popularity of the market, cryptocurrency continues to be accepted by the mainstream media. Since the beginning of 2020, the keyword “cryptocurrency” has been popular on microblog for many times. The domestic mainstream financial media platforms such as Jinshi data, tonghuashun, sina finance and Caixin have also included the cryptocurrency market into the statistical scope, and updated the price and news in real time, Recently, Google Finance has added the price of cryptocurrency to the domain name finance.google.com. The section titled “crypto” appears in the “compare markets” category along with traditional stock and money markets. The acceptance of traditional news media can expand the influence of cryptocurrency in a wider range, attract potential traditional investors to enter this field, inject liquidity into the market and promote more professional investment in cryptocurrency market.
5.3.3. The number of active addresses on the chain increases steadily, and the price follows Metcalfe’s law
The number of daily active addresses is a very useful indicator of network growth. According to Metcalfe’s law, the value of the network is directly proportional to the square of the number of users (this law was used to measure the value of Facebook). In June 2021, the number of eth active addresses remained stable at more than 400000.
5.3.4. The number of new addresses on the chain continues to increase, and new users may further promote the value of eth
The continuous expansion of eth application layer provides a solid support for eth’s market performance. According to the statistics of etherescan, in 2020, the number of independent addresses on the ETH chain increased from 59000 at the beginning of the year to 234000 at the end of June 2021, with an annual increase of about 300%. It shows that new users continue to participate in eth application ecology. From the trend, the increment is significant and has certain sustainability.
5.3.5. Eth positions are obviously concentrated, and long-term value investors are widely optimistic
The increasing number of eth new user addresses does not mean that the total position proportion of retail investors is gradually increasing. On the contrary, the cash concentration of eth head address has increased significantly in the long term, indicating that investment institutions and investors with a large number of positions are not selling a lot because of the rise of eth price, but increasing their holdings, Concentrated position distribution is more conducive to the stability of prices and reduce the trading proportion of short-term speculative chips in the market. Since June 2020, nearly 40% of the quantity has been concentrated in the top 100 wallets.
5.3.6. Assets on eth chain accelerate siphoning bitcoin, and the utilization of TaiFang network is enhanced
Wbtc, one of the derivative assets of bitcoin, is bitcoin issued on eth network. Each wbtc is supported by a BTC, which can also be understood as 1 wbtc = 1 BTC. Just like usdt is linked to the US dollar, wbtc can be indirectly used on the ETH network by anchoring with bitcoin, so that the value of bitcoin can circulate in the ETH ecology and realize the value circulation in the ETH ecology.
BTC’s access to eth ecology and defi by erc20 is a win-win choice for both bitcoin and eth ecology. Once the scenario and demand appear, on the one hand, BTC liquidity will be reduced, on the other hand, the transfer demand on eth chain will be increased, the utilization of eth network will be improved, resulting in the consumption of gas fee. Since the great outbreak of the defi ecology on eth, BTC has significantly accelerated the process of participating in defi across the chain (cross chain means that through technical means, value can cross the obstacles between chains and carry out direct value circulation. Cross chain is essentially similar to the currency exchange mechanism).
As of June 28, 2021, about 245000 BTCs have been pledged and encapsulated on the ETH chain. According to the estimation of wbtc real-time price (US $34500) included in coinmarketcap, this is equivalent to about US $8.45 billion, about 3.38% of eth’s total market value. Erc20 bitcoin represented by wbtc, renbtc and HBTC also broke out, becoming an important way for bitcoin to enter the defi ecology. These cross chain channels attract BTC’s capital to eth, which further proves the potential of defi and the advantages of eth ecology. If eth2.0 successfully implements the fee burning mechanism in the future, it will realize the transfer (transaction) bitcoin burning eth, reduce eth money supply to a greater extent, reduce eth inflation rate, and highlight the attribute of money value storage.
5.4. Demand side expansion releases value growth potential
5.4.1. Eth2.0 mining and liquidity pledge create demand
POS mechanism locks eth liquidity through pledge to increase the demand of miners with low cost and high income.
In the era of eth2.0, the complete switch to POS mechanism can provide token holders with a right to obtain rewards by verifying blocks. This is in contrast to pow, which is a consensus model used in the eth1.0 era. POW assigns block confirmation permissions to miners who show the highest computing power. One of the benefits of switching from POW to POS mechanism is more energy-saving. In recent years, it has faced competition from mining hardware with higher computing power and more complex. Cryptocurrency mining, including BTC and eth, has heavily relied on a few large mining pools, increasing the risk of centralization and pool collusion in computing attack.
Osho JHA, a data research scientist, believes that pledge is the key to making eth a value store. In essence, pledge will encourage nodes to hold eth as much as possible and use it to participate in node verification behavior. For investors, the motivation of pledge comes from systematic incentive, which is similar to obtaining pledge income. According to the estimation of matrix encyclopedia, the return on investment varies with the network performance and utilization rate. When there are 524288 eth, the annual rate of return of stacking is 21.6%. When the pledge amount reaches 10 million eth, the annual rate of return is 4.9%. At present, the pledge income is around 7%. In the global low interest rate environment, ETH’s cash bearing interest generation mechanism may attract more people to participate in the pledge, which is expected to make eth a “positive arbitrage asset”. Different from the storage cost of holding gold, holding eth will get a more positive return. In the long run, this will stimulate the market demand of Eth and attract investors to borrow to invest in the asset to earn arbitrage opportunities. In other words, positive returns will improve the stability of eth prices and expand the base of long-term holders and investors.
The amount of eth held in eth pledged ore pool has recently reached a record high, with a value of US $11.6 billion on June 28, 2021. This stable amount accumulation shows that most miners have confidence in eth 2.0 mining mechanism, and also shows the gradual increase of eth demand for eth mining.
The minimum threshold for participating in the pledge is 32 eth. After the verifier agrees to pledge his token, the pledged token will be locked, which will attract some miners to mine by locking Eth and release the demand for block rewards through mining. In fact, investors have been aware of this trend. Participating in eth pledge requires at least 32 eth. In 2021, the number of addresses holding more than 32 eth continued to reach a new high. At the same time, according to the correlation with the price, since 2016, the number of addresses with 32 or more Ethereum is consistent with the overall trend of the market price. The increase of this value indicates that there are more and more POS mining participants in the ETH ecosystem in the future, because users must have 32 eth if they want to become eth2.0 verifiers, Therefore, the significant increase in the number of addresses holding more than 32 eth means that the gradual increase of verifiers will promote the demand for eth in the market.
The third-party pledge pool provides convenience for retail Mining and access channels for Retail mining.
In addition, the POS mechanism will also accelerate the development of eth2.0 POS pledged ore pool. Eth2.0 POS pledged ore pool means that all parties participate in the pledge together as a verifier, and finally share the mining income according to the share of the number of eth held in the total number of ore pools. For example, exchanges such as binance, crypto.com and Kraken run the pledge pool program. These exchanges deposit users’ eth into a wallet and then uniformly use it for pledge. The advantage of the pledge pool is that it can concentrate the user’s tokens, so that it has a greater chance to be selected as the verifier and obtain the pledge reward. The reward will be distributed to all participants according to the holding proportion. Users do not need to set authentication nodes in the network in the third-party pledge eth2.0pos ore pool (that is, users can join eth mining through the third-party eth2.0pos ore pool without having at least 32 eths). Users participating in pledge eth2.0pos ore pool is also a good choice to earn pledge income, The progress of pledged ore pool will boost the demand of POS lock mechanism for eth to a certain extent. From the beginning of 2021 to June 28, 2021, more than 200000 eth have been pledged in eth 2.0 POS ore pool, indicating that the pledgor is optimistic about the future mining value in eth 2.0 era for a long time.
Since the launch of beacon chain in early December 2020 (a mechanism that allows the verifier to become the builder of the chain to obtain mining power by participating in the pledge system and locking the position ratio), the deposit of eth2.0 has been growing steadily. Beaconcha real-time data show that in January 2021, about 1 million eth were locked, while the total number of eth2.0 verifiers increased from 46191 to 177874, an increase of 285%. According to the statistics of etherescan in June 2021, a total of more than 5 million eth are locked in the contract, and the number continues to grow gradually.
5.4.2. Institutional and retail investors promote demand side diversification
Since the beginning of the year, the price of bitcoin has increased from US $28880 to US $64829. With the rising market value of the cryptocurrency market as a whole, institutional investors and retail investors have increased their investment in cryptocurrency, which has also enabled investment institutions and professional investors in traditional fields to understand Eth and have great interest in eth as an operating system in the blockchain field. On March 18, 2021, Morgan Stanley became the first large bank in the United States to provide cryptocurrency investment channels to wealth management customers. On March 8, 2021, PayPal, a payment giant, said that it had acquired curve, an Israeli cryptocurrency custody company, and said that the acquisition of curve was one of its initiatives to support cryptocurrency and digital assets.
According to the real-time data of asset dash on June 28, ETH’s market value ranked 37th in the world, about US $240.5 billion, surpassing many well-known global enterprises such as Intel, meituan, pinduoduo, McDonald’s and Citibank. In terms of institutional assets, investors can use more eth based financial instruments, such as gray eth trust fund in the United States and 3iqeth fund in Toronto Stock Exchange, which will promote the diversification of investors, facilitate institutions to enter the field of cryptocurrency for investment, and promote the diversified development of Ethereum investment demand side through institutional and retail investors.
5.4.3. CME launched eth futures to expand investment channels
CME’s eth futures is a strong signal for traditional financial institutions to gradually enter the cryptocurrency field
The ETH futures launched by CME will also drive new funds to flow into the ETH market and increase the overall liquidity of the cryptocurrency trading market. Moreover, the form of futures trading can break through the barriers between the traditional investment community and cryptocurrency investment. Investors can invest in eth without directly buying and keeping eth.
One of the significance of CME eth futures is that it is the first eth futures product for financial settlement
At the same time, CME futures are also regulated products in the United States, which means that the expiration of any futures contract is equivalent to trading in US dollars, not eth spot. In this way, it will increase the selectivity of financial institutions for the subject matter of cryptocurrency investment, which can not only bypass the threshold of asset custody tools such as digital wallet, but also avoid the compliance and security problems caused by financial custody, and broaden the channels for institutional professional investors to invest in eth through the launch of CME futures.
5.4.4. Institutions represented by gray scale continue to buy Ethereum
Grayscale investment trust was established by digital currency group in 2013. DCG is the most powerful cryptocurrency investment institution in the world. Both BTC trust (GBTC) and eth trust (ethe) have been registered with the US SEC. The compliance qualification makes grayscale have no competitors in similar markets, and grayscale enjoys a certain monopoly competitiveness in the market with institutional investors as customers. At the same time, grayscale is not intended to sell to small retail investors. Its target objects are “qualified investors”, that is, individuals with a net asset value of more than US $1 million or an income of more than US $200000 in two years, as well as institutional investors with assets of more than US $5 million. According to the report of grayscale Q3 in 2020, 90% of customers are institutional investors. In fact, in addition to bitcoin, ETH, as the second largest blockchain project in the market value of cryptocurrency, is the preferred investment of institutional investors in the cryptocurrency field in addition to bitcoin. In the past few months, ETH’s institutional capital inflows have surged. The gray eth trust products manage assets worth $5.7 billion, accounting for more than 12% of its total encryption portfolio.
Ethe in the secondary market has been in a premium state for a long time, and the premium ratio once reached 798% in the middle of 2020, that is, the market circulation value of each ethe is greater than the intrinsic value of eth. Although in the case of long-term premium, OTC institutional investors still show strong demand, resulting in high gray position.
There are two main reasons for this. The first reason is that the market is in short supply. Investors do not need to worry about the security of eth storage, avoiding the impact of non-compliance, theft, price decline and so on when buying at the exchange. It is similar to marketable securities and can be easily transferred to beneficiaries according to the inheritance law. Gray ethe is based on the above advantages, and institutional investors gradually push up gray positions under the demands of interest driven and legal compliance.
The second reason is mainly based on the ethe arbitrage mechanism. Due to the long-term positive premium, institutional investors borrow ethe on the cryptocurrency lending platform and give it to the gray level to replace the primary market share. After the lock-in period, they sell it at the right time and return it to the lending platform. The premium income deducting interest and other expenses is the profit. Based on the demand of arbitrage, By locking premium arbitrage, institutional investors can push up ethe positions and obtain considerable price margin.
As of June 28, 2021, the total positions of gray ethe were 3.155 million, an increase of 8% compared with 2.93 million in early February 2021. Although the ethe premium rate is no longer obvious, the total positions of ethe have not been significantly reduced. On the one hand, the position locking mechanism restricts the unlocking of positions, In addition, it also reflects that the demand of institutional investors to invest in eth has not been reduced due to the failure of the OTC arbitrage mechanism.
5.5. Supply side tightening highlights scarce storage properties
5.5.1. The ETH supply ratio of the exchange hit a new low since 2018
Recently, the balance of eth in the exchange wallet has continued to decrease. As of June 28, 2021, the total balance of eth in the exchange wallet is about 20.73 million eth, a decrease of about 9.61% compared with 22.78 million eth on January 1 this year. From the perspective of trend, the ETH balance in the wallet of the exchange has shown a significant downward trend since mid August 2020, which is basically consistent with the time point of the explosion of defi. With the sharp rise of eth asset price this year, this trend has not changed, and the outflow rate of eth from the exchange has accelerated after the middle and late January of this year.
The outflow of eth quantity in the exchange indicates the reduction of investors’ demand for selling. Withdrawing cash from the exchange to the wallet or pledge platform with poor liquidity can reduce the total supply of eth in the trading market and limit the supply of eth in the exchange.
5.5.2. Defi boom drives TVL (total value lock-in ratio) to record growth
With the vigorous development of decentralized Finance (defi), many defi projects run on the ETH blockchain. Over the past few years, the market has been looking for applications that can attract a large number of users and have potential for sustainable development. In 2017, the concept of ICO was rampant in the market. ICO’s popularity was closely related to the development of block chain technology. It promoted the innovation in this field, and made Eth value discovered in 17 years. Facts have proved that conceptual innovation alone can not bring sustained prosperity to the cryptocurrency market, nor can it bring a sustainable dividend period to the ETH market. Sustainable projects need real user, flow and financial support. Most of the projects have no content on social media for more than two months, and the code has not been updated. Of the 985 projects from June 18, 2017 to November 30, 2017, 585 activities, 80 stalled, 171 lost contacts and 149 abandoned. On the whole, the ICO market is seriously chaotic, lack of order and fraud is very serious.
The ecology on eth chain needs more landing applications to support its value. Now defi seems to have handed in a satisfactory answer. By the end of June 2021, the value of defi lock in tokens has exceeded $83 billion, 1400% higher than the total amount of funds raised in the projects accumulated by ICO in 2017 of $5.4 billion, Facts have proved that defi can provide a certain driving force for eth’s ecological sustainable development. ICO is the rapid decline of eth ecological development caused by the gradual thunderstorm caused by the internal crisis, while the development of defi is more an internal choice. With the help of the approval mechanism, it helps users avoid the risk of non-conforming projects, and cooperates with investors to identify the application of sustainable development through a series of indicators such as total lock up volume, While being more decentralized, it largely avoids the intervention of external forces and promotes the development of eth by endogenous forces.
Decentralized financial services enable users to complete lending, accumulate pledge income and exchange assets without going through a centralized third-party financial institution. According to the data of defi pulse, indicators such as the total value of stable currency on defi, DEX trading volume and the amount of funds in loan agreements show an overall growth trend, which means that the whole ecology is moving forward together, and defi is also rapidly maturing, which is expected to gradually develop towards the goal of institutional level.
It is worth noting that since the release of eth, the development of decentralized applications (dapps) and other new technologies in the form of blockchain has been growing. More importantly, many of these technologies are based on eth network, and a considerable number of projects in decentralized financial projects operate through eth smart contracts. Through the development of the defi market, it is not difficult to see that the ETH ecological chain is more and more widely used, promoting more projects to reduce the liquidity in the market by locking positions, and reducing the supply of tokens in the market from the supply side.
5.5.3. Era of POS “mining 4.0” drives eth ecological prosperity
Through the hard bifurcation in Constantinople in 2019, ETH has reduced the supply of Eth and increased the demand for eth. According to the relationship between supply and demand, it will have a positive impact on the price of eth, which has been shown in the previous price changes. It has increased nearly three times from US $136 on March 1, 2019 to US $363 on June 26, 2019.
Meanwhile, take the bitcoin halving cycle as an example. Every time bitcoin passes through 210000 block miners, the reward will be halved, about once every four years. There have been two halving in history, namely, 2012, 2016 and May 12, 2020. At each time point of halving, the block reward will be halved, and in 2020, the reward will be halved from 12.5btc to 6.25btc, It is equivalent to a sharp decrease from 54000 new BTCs per month to 27000 new BTCs per month, which means that the supply in the market is greatly reduced. As long as the demand remains unchanged, the supply and demand in the BTC market can be unbalanced. Finally, the excess demand will reflect the relationship between supply and demand to the target price, It has been proved that the previous halving can lead to a sharp rise in the price of bitcoin. The first halving price increases by 92 times, the second halving price increases by 29 times, and the latest halving price increases by 5.6 times. After eth2.0 is successfully switched to POS mechanism, due to the change of monetary mechanism, the annual currency issuance is expected to continue to decrease sharply, If it succeeds in causing a sharp increase in deflation ratio, its impact may be similar to the effect of halving the output of special currency year-on-year, and then have an impact on the short-term supply-demand relationship.
5.5.4. The loss of private key leads to the decline of supply (the annual loss rate is nearly 1%)
According to the Research Report of eth Foundation: every year, ETH is sent to the address where the private key has been lost, which will cause about 1% of eth loss. The owner of eth accidentally sends eth to an address that does not generate a private key, or causes personal accidents, which will reduce the supply. Key loss increases the annual decline of eth inflation rate, which is conducive to eth becoming an anti inflation currency.
5.6. Eth2.0 era outlook
5.6.1. Use BNB’s recent surge logic to verify the importance of high-performance 2.0 public chain
Through the soaring price of BNB over the past year, it is not difficult for us to find the importance of public chain 2.0. At the same time, we can also realize the limitations of the current eth ecosystem and the prospect of breaking through the limitations of the 1.0 era and moving towards the 2.0 era.
Compared with eth1.0, bnb2.0 has entered a fast-growing channel since it was launched in September 2020, and the daily trading volume on the chain has exceeded eth, which ranks second in the total market value. Eth is undoubtedly still the first public chain and the most complete and prosperous public chain in ecology, but the congested transactions and high costs make investors and developers unable to bear the increasingly expensive development and operation costs. Thanks to the compatibility of BSc (coin security intelligent chain) with mainstream projects and applications in eth ecology, developers can easily realize the migration and deployment of eth DAPP and save development energy. At the same time, compared with eth1.0, it has low transfer cost and efficient network processing speed. BNB has increased by more than 10 times in a short time, far exceeding the average increase in the cryptocurrency market. If the logical valuation of BNB is eth, with the comprehensive shift of eth2.0 to POS mechanism, it will have the same efficient network processing efficiency as BNB, greatly reduce the transfer and project operation costs, have strong scalability, and make the development of eth ecological network more prosperous.
5.6.2. “Bottom operating system” precipitates user value, and eth2.0 reform brings “stored value”
In the depth report of eth value, the world’s largest encrypted digital asset management organization, released on February 4, 2021, it is pointed out that the profound changes brought by eth 2.0 will rebuild eth’s valuation framework through currency attribute + stored value attribute.
The currency attribute gives eth the function of currency exchange
Whenever a user deploys a smart contract on the ETH network to provide liquidity for applications, or when making transfer transactions, ETH will be used to pay network fees, so eth is endowed with the function of currency exchange attribute; At the same time, ETH as a monetary application scenario is driven by applications on the ETH network and smart contracts. For eth, the vigorous development of the application scenario is conducive to promoting the aggregation of eth as a monetary commodity value.
At the same time, as the use of eth as collateral in the defi ecosystem continues to expand, mortgage loan is a common financial product in the traditional financial field. The collateral can be houses, cars or even goods, which can be used as a guarantee for borrowing; In the field of blockchain, a new model has emerged: mortgage cryptocurrency lending. Take Venus protocol as an example. If users want to borrow $100, they need to transfer eth worth at least $150 to the platform and take away digital currency worth $100. The usage of stable currency (mainly cryptocurrency linked to the US dollar) and bitcoin as collateral on eth network shows an upward trend, increasing the use of TaiFang as a settlement network. This positive trend may continue to strengthen eth’s position as a currency circulation in the blockchain ecosystem.
Hedging attribute endows eth with stored value function
Bitcoin is the preferred value storage target in the cryptocurrency field, and eth has become a leading application infrastructure, with an average daily settlement transaction volume of more than US $5 billion in June 2021. At the same time, with the arrival of eth2.0 era, it is likely to assign values similar to bitcoin’s stored value and hedging functions on the basis of the strong ecology of the formed smart contract. In the era of eth1.0, each transaction on the network will have handling charges, which are priced in eth. These transaction costs are distributed to miners and increase the total amount of money circulation; However, eip-1559 protocol stipulates that only eth can burn, that is, it ensures that eth is the primary economic unit on the Ethereum network, that is, it cannot replace eth with other tokens to complete the process of fee burning. If this proposal is implemented, the consumption of eth will exceed its new currency issue with the gradual strengthening of eth ecology. This combustion method can also be used as a deflationary mechanism. If the increase of network activity leads to the decrease of eth supply, the supply-demand curve will be reflected in the increase of eth unit value. Therefore, if eip-1559 is successfully implemented in the future, it will establish a consumption mechanism to reduce money supply from the supply side, form a money deflation mechanism, make it have the attribute of value storage, and help guide the positive feedback cycle of eth value.
The added value storage attribute of the underlying operating system of the blockchain drives eth to build a new valuation framework
Eth has built the most widely used underlying operating system in the blockchain field through smart contracts, and has attracted a large number of developers and users. In the future, blockchain applications will gradually penetrate into the traditional centralized field. According to the development of defi in recent years, the decentralized application on eth is becoming more and more grounded “, is a process from virtual to real. The ecological future of eth application layer will gradually get rid of the embarrassing situation of only talking about vision but not landing. With the support of the underlying architecture of smart contract, the development prospect of eth will gradually become brighter with the number of landing applications; with the transformation of mining mechanism in the era of eth2.0 and the implementation of eip-1559 proposal, users will be promoted to enhance the environment through eth For the demand for value storage, this will change the valuation system that only serves as the underlying operating system in the eth1.0 era, add value storage, commodity circulation intermediary and other monetary functions to the ETH valuation system, and finally form a double reform of “blockchain world underlying operating system” + “digital gold”, so as to jointly strengthen the intrinsic value of eth on the supply side and demand side.
5.6.3. In the 2.0 era, the total energy consumption of Ethereum is reduced by 99.95%, and “green Ethereum” is about to emerge
Bitcoin with soaring prices highlights the plight of excessive consumption of mining energy
Bitcoin has been born for more than 11 years and is gradually gaining wider institutional and market recognition. However, since the beginning of 2021, bitcoin has been criticized for mining and wasting energy. The energy consumption of bitcoin is already equivalent to that of the Netherlands. If the price of bitcoin rises to $100000, its energy consumption may double.
Galaxy digital, a cryptocurrency company, released a report entitled “energy consumption of bitcoin”. In the report, it is estimated that the annual power consumption of bitcoin is 113.89 TWH, including the energy consumption of miners’ demand, miners’ power consumption, mine pool power consumption and node power consumption. Compared with the gold industry, it uses about 240.61 TWH every year, and the total annual energy consumption of the banking system is estimated to be 263.72 TWH, This means that bitcoin mining consumes nearly 50% of the total energy of the gold industry every year.
Bitcoin mining is against China’s carbon neutral goal and faces double sniping from the political requirements of western environmental protection
Tesla founder Elon Musk tweeted on May 13, 2021 Beijing time, saying that bitcoin consumes too much energy, uses too much non renewable energy and causes adverse environmental impact. Therefore, Tesla stopped bitcoin as a means of payment. On the same day, bitcoin fell 15% and the whole network broke its position of more than $2 billion. After the price of bitcoin plummeted on May 12, 2021, many financial media such as Xinhua news agency, people’s daily, Tencent finance and economics published articles and forwarded the energy consumption of bitcoin mining, severely criticizing the miners’ behavior of “breaking away from reality to emptiness”. With the mainstream market constantly criticizing POW mining behavior, which leads to huge waste of resources, considering environmental protection issues, mining high energy consumption and high carbon emissions may become a stumbling block for western mainstream institutions to enter the cryptocurrency market.
On May 21, 2021, the financial stability and Development Commission of the State Council issued a voice to crack down on bitcoin mining and trading, resolutely prevent the transmission of individual risks to the social field, and said to deepen the reform of financial institutions, return to the origin, adhere to the positioning, and carry out investment and financing in accordance with the green concept; At the general debate of the 75th United Nations General Assembly, China announced that it would adopt more effective policies and measures to strive for carbon neutralization by 2060. At the same time, at the two sessions this year, “carbon peak” and “carbon neutralization” were written into the government work report for the first time. With the limited number of bitcoins, more and more individuals and organizations are attracted to spend a lot of digital resources and energy to mine. With the increasingly prominent problem of energy consumption, local governments and relevant enterprises are already taking action. On May 27, 2021, Inner Mongolia Autonomous Region will severely crack down on the “mining” of virtual currency, and the official will punish industrial parks, data centers If self owned power plants and other entities provide site and power support for virtual currency “mining” enterprises, strengthen energy-saving supervision and reduce energy consumption budget indicators in accordance with relevant laws and regulations; For those who deliberately hide, fail to report, fail to clear and close in time, and fail to supervise and approve, they shall be seriously held accountable in accordance with relevant laws and regulations and inner-party regulations. It can be seen that the high energy consumption of bitcoin mining is contrary to the government’s long-term goal of carbon neutralization. The increasingly stringent carbon emission policy will increase the uncertainty of mine operation; Secondly, it will reduce the competitiveness of the domestic mining market and reduce the growth rate of computing power. Therefore, mining with cryptocurrency will be more and more severely restricted for a long time in the future. At the same time, it will add more uncertainty to the future price trend of bitcoin secondary market.
POS replacing energy mining is expected to be realized by 2022, and the era of 2.0 promotes the upgrading of “green Ethereum”
Ethereum tends to strengthen ecological scalability and public chain performance, and is experiencing faster protocol upgrade than bitcoin. In other words, Ethereum is actively exploring and preparing to implement the transition from proof of work (POW) to proof of equity (POS) verification method at this stage.
The advantage of the equity certificate is that it greatly improves the energy efficiency of the system, because it determines the distribution of mining reward according to the number of Ethereum miners choose to hold, rather than their computing power, which will end the competition of power burning for miners’ reward. Vitalik, founder of Ethereum, said: “POS should be used to replace POW in the upgrade of Ethereum 2.0, and only 1% of the energy consumption before the mechanism change should be used to complete the transaction.” according to vitalik, POW is based on the concept of a large amount of power and mining hardware. POS consensus mechanism in the era of Ethereum 2.0 will avoid the huge waste of energy mining and enhance the processing efficiency of Ethereum network, It is a win-win result for both users and miners. Carl beekhuizen, developer of Ethereum 2.0, published an article on May 19, 2021, saying that Ethereum will complete the transition to proof of equity (POS) in the next few months. The energy efficiency of POS will be increased by about 2000 times, indicating that the total energy consumption will be reduced by 99.95%, boosting the green, clean and efficient development of Ethereum in the future.
On April 30, 2021, Ethereum developer Trent told all Ethereum miners on Ethereum’s official microblog that it was conservatively planned to end POW mining by the end of 2021. However, in view of the difficulty of technical development, miners’ resistance and community consensus, most Ethereum market analysts and mining industry generally expect that it will take longer for Ethereum to turn to POS mining, and it is highly likely that it will not be written into the Ethereum agreement by the end of 2021. However, once the Ethereum POS consensus mechanism is implemented, it will fundamentally change the consensus verification mechanism. While abandoning POW energy mining, it is expected to become a “green Ethereum” that meets the requirements of international carbon neutralization goals.
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