The Long-Term Bullish Case for Ethereum (ETH)

Imagine a world where you can perform your usual activities on the internet like watching videos, connecting with friends, or running a quick search without a central network like Google, Facebook, or YouTube collecting your information. This is the potential that the Ethereum Network offers.

Ethereum is not a payment system like Bitcoin. However, similarly to Bitcoin, it uses blockchain technology to provide a platform for developers to build and deploy decentralized apps (DApps).

These DApps deliver all kinds of products and services just like the apps on your mobile phone. Both developers and users of DApps enjoy many of the benefits that a cryptocurrency provides, including data privacy (partial or full anonymity), decentralization, network security, and uninterrupted 24/7 service just to name a few.

Because of these features, Ethereum has been heralded as the web 3.0 and we believe it has the potential do so. Nevertheless, potential is never a sufficient reason to invest. It must also come with progress. In the cryptocurrency space, Ethereum is second to none in this department.

Due to the potential to become the next generation of the internet as well as the altcoin’s impressive progress, we are long-term bullish on Ethereum.

Strong Infrastructure Development

If Ethereum is to become web 3.0, it must have a good number of developers working on the infrastructure. In the best case scenario, the altcoin should have the most number of developers working on its core protocol (Ethereum) in addition to the number of developers contributing code to Ethereum’s repositories. Fortunately, Ethereum gives us the best of both worlds as it is ahead of all cryptocurrencies in both categories.

A research of developer activity from January 2018 to February 2019 conducted by Electric Capital shows that Ethereum is king in developer activity. It has the largest developer team in the crypto space.

An average of 216 developers contribute code every month to Ethereum’s repositories. The study emphasized that this count is conservative as developers from ecosystem projects like Truffle were not included.

Ethereum leads all cryptos in number of active developers per month

Source: Electric Capital

In addition, Ethereum has the most number of developers working on its core protocol. The same study also revealed that an average of 99 developers contribute to the Ethereum protocol per month.

Ethereum leads all cryptos in number of active developers per month

Source: Electric Capital

If that’s not impressive enough, Ethereum also lead all cryptocurrencies in terms of developer growth throughout the bear market. Cryptoslate reveals that the altcoin has eight times more commits than Bitcoin. That figure is over 20 times higher when compared to the number of Ripple commits.

Ethereum leads all cryptos in terms of developer growth

Source: Electric Capital

With so many developers actively contributing, it is not surprising to see the dramatic growth in DApps being deployed on the Ethereum platform.

Growth of Ethereum DApps per month

Source: State of the DApps

All in all, there are 2,391 DApps on the Ethereum platform according to State of the DApps. To give you a better perspective of that number, EOS comes in second with 10 times less DApps of 234.  

Total DApps

Source: State of the DApps

To quickly sum it up, these figures show that there’s a lot happening behind the scenes relating to Ethereum. Even though the altcoin has lost so much value in the bear market, significant progress is still being made. The infrastructure for the next generation of the internet is being established regardless of Ethereum’s market value. This tells us that the people who work closest to the altcoin believe in its long-term potential.

Transition from Proof-of-Work (POW) to Proof-of-Stake (POS)

On top of infrastructure developments, Ethereum is also making huge changes that will affect both miners and investors. On February 28, 2019, Ethereum finally implemented the Constantinople hard fork which features several improvements and changes in the core protocol.  The most controversial change is the proposed shift from the Proof-of-Work to the Proof-of-Stake model.

This proposed change in mining model is bullish. It not only reduces ETH supply in the market but also makes the Ethereum Network stronger. Here are the reasons how:

Thirdening

The Constantinople hard fork introduces the Thirdening or the reduction of block mining rewards from three ETH to two ETH. The reduction from block rewards by 33% is bullish. It translates to lower inflation rates. This can also help stabilize Ethereum’s price or even give it a healthy boost.

Delay in Difficulty Time Bomb

For those who are not aware, Ethereum has a difficulty bomb that significantly increases the difficulty of mining blocks over time. Eventually, the time comes when the difficulty level is so high that mining becomes impossible. Developers included this tool to encourage miners to move from POW to POS.

Now, the Constantinople hard fork put a 12-month delay in the detonation of this time bomb. This is to give miners more than enough time to make the transition. This is incredibly bullish.

Key differences between Proof-of-Work and Proof-of-Stake

Source: Coin Central

First, the pending implementation of the POS model forces miners to start building up their ETH holdings. That’s because in the POS system rewards are given in proportion to a miner’s stake. Theoretically, if a mining pool holds 2% of the coin as their stake, they have 2% chance of mining or validating the next block of transactions. Therefore, many miners will have to buy on exchanges to increase their stake.

Now, the bullishness is magnified if you consider the initial minimum staking deposit of 1,500 ETH. With the current value of Ethereum (ETH/USD) at $140.3, each miner must be willing to shell out over $210,000 to participate. That’s a lot of ETH and a significant part of that will be bought from exchanges.

In addition, miners who are building up their stake take a significant portion of Ether out of circulation. This reduces Ether supply, which is beneficial to both miners and investors. Scarcity is a good bull market catalyst.

Lastly, miners will think twice before dumping their coins. If they do, they hurt their chances of validating new blocks once the network shifts to the POS system.

With these measures, Ethereum addresses its supply problem. Keep in mind, the altcoin has no official cap. Thus, the proof-of-stake model along with the thirdening helps to alleviate the supply bleed.  

Bottom Line

Ethereum has been dubbed as the Web 3.0 and our research supports the hype. The strong developer growth and activity helps build the Ethereum infrastructure. On top of that, there are changes that can affect the long-term stability and value of Ethereum. For these reasons, we are long-term bullish in Ethereum.  

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.

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