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Ethereum Annual Report: Looking back at 2020, the market value surpasses Bitcoin and sees hope in Ethereum
Ethereum is the new frontier of the digital industry.
Because it is open and programmable, Ethereum provides a vast unknown space, full of opportunities.
In the past few years, this new frontier attracted the first major settlers. The decentralized financial market (DeFi), which has been soaring all the way, has developed into an industry that has begun to compete with Silicon Valley. This year, the second ecosystem began to take root: the creator economy of encrypted art, music, and media.
At the same time, the Ethereum community is preparing to make the most significant upgrade to the core protocol in its short history. This new frontier area has finally begun to pave the roads.
Just like the 2018 and 2019 annual reports, our goal is to push the lens farther and show you a bigger picture. This article is not comprehensive (it is almost impossible to write a comprehensive overview of Ethereum). Instead, we focus our attention on some of the trends that we consider most important.
In our opinion, these are the biggest developments in 2020:
1. Exceed the scale of Bitcoin. Ethereum has surpassed Bitcoin to become the blockchain with the most valuable block space and the blockchain with the greatest value for transactions;
2. The creator economy of Ethereum. Artists, musicians and creators of all types have come to Ethereum, where they control the value of their works;
3. Revenge of the decentralized trading platform…and more. The decentralized trading platform has changed the trading methods of the cryptocurrency industry, up to 16% of the trading volume of the centralized trading platform;
4. The expansion of Ethereum is in progress. Eth2’s first upgrade project (beacon chain) was launched on December 1, starting a multi-year process with the goal of allowing Ethereum to grow into a global clearing layer.
In 2020, the ether has reached a critical value. From a high enough point of view, it is obvious that the focus of this industry has shifted. This year will be remembered as the year when the entire cryptocurrency industry began to surround Ethereum.
Exceed the scale of Bitcoin
What is the most popular blockchain in the world?
For the first time in history, the answer is not “Bitcoin”.
The answer is: “Well… according to which indicators?”
In 2020, Ethereum surpassed Bitcoin’s two most important indicators commonly used to compare blockchains. First, Ethereum is used to trade the greatest value. Ethereum has traded assets worth 1.6 trillion dollars, which is 60% more than Bitcoin’s 1 trillion dollars.
The most successful application of Ethereum (stable currency) is the main driving force for the growth of Ethereum’s transaction volume. A stable currency is a cryptocurrency with a fixed value of fiat currency (usually US dollars), so as a store of value or a medium of exchange, it is more useful than unstable assets like BTC or ETH.
Throughout the year, Ethereum’s transaction volume has grown, and since July, its settlement value has been higher than Bitcoin.
Second, another key indicator used to compare and measure the actual use of cryptocurrencies is the total transaction fee. Whenever someone uses Ethereum or Bitcoin (remittance or use application software), they have to pay a small fee. Charging is a useful metric because it shows the real needs of paying users.
In 2019, the total transaction fee paid in Bitcoin is 4 times that of Ethereum.
In 2020, this situation has reversed. The fees paid using Ethereum are almost twice that of Bitcoin.
Another way is to illustrate this trend based on the value of the block space. Each blockchain has limited capacity. Throughout the year, the “block space” available for transactions is limited. In 2020, the block space value of Ethereum will be approximately twice the value of Bitcoin block space.
If we look at the accumulated fees in 2020, we will find that the demand for Ethereum increased in August, and the fees started to rise. This is an obvious change.
It is worth noting that even applications built on Ethereum (temporarily) have more paid usage than the entire Bitcoin blockchain. For example, on August 10, the cost of using Uniswap was comparable to the cost of using Bitcoin, and since then, it has occasionally exceeded the 24-hour Bitcoin payment.
Of course, Bitcoin still leads in other indicators. The market value of Bitcoin is still higher than the market value of all Ethereum-based assets. Moreover, Bitcoin has a higher reputation among people outside the cryptocurrency industry.
But when you look at the actual usage of these platforms, Ethereum is clearly ahead of Bitcoin, and other blockchains are more than orders of magnitude behind.
The creator economy of Ethereum
Beeple is a digital artist, his real name is Mike Winkelman.
His work ranges from visual effects for concerts (where he worked with One Direction, Eminem, Justin Bieber and many others), to 3D animation design work for clients such as Apple, Nike, Activision and other companies .
For the past 13 years, Bipp has created and published a 3D artwork every day to hone his skills and attract a large number of fans on Instagram.
He heard of Ethereum for the first time in 2017, but did not observe closely. Then this summer, he noticed some artists working in his industry and started selling art on Ethereum.
These artists sell unique digital artworks in the form of “heterogeneous Token NFT”. They made a lot of money in this way. In July of this year, Trevor Jones sold a digital artwork for $55,555, setting a record at the time. Bipp decided to try it himself.
Until this time, Bipp’s “daily” works had not been sold at a good price, or had not been sold at all. Instead, Bipp’s art makes money for Instagram and Twitter, which sell ads to his millions of fans. You can say that on these platforms, Bipp (and all other artists) just make money from exposure.
Ethereum gave Bipp an opportunity to withdraw from the existing system. On Ethereum, thirteen years of art works are no longer just the assets of Instagram and Twitter, but the assets of Bipp. He is able to put his work on an open market and discover its value.
In December last year, Bipp auctioned a set of his daily works with a total price of 3.5 million U.S. dollars, setting a new record for encrypted art sales. In that auction, he sold three versions of the artwork in five minutes, with a total value of $582,000.
2020 is the year when the creator economy of Ethereum reaches a critical value. If 1CO’s first Token issuance is the first breakthrough application of Ethereum and DeFi decentralized finance is the second, then the creator economy will soon become the third.
Other artists, musicians, fashion designers, writers, etc. have also begun to use tools to help Bipp obtain ownership of artworks. But art is the most obvious growth part of encrypted works.
In 2020, the total sales of encrypted artworks are approximately $23 million. Although this number is still small compared to the broader crypto market, it is not trivial compared to other creators’ platforms. In 2019, Patreon paid the creators 500 million US dollars, and the early encrypted artwork on Ethereum is about 5% of its volume.
The eye-catching feature of the creator economy is not in absolute numbers, but in the incredible relative changes offered to artists. For Bipp, the art of encryption is not just a little better than his previous way of working. This is a leap from zero to 3.5 million dollars.
This is why most artists enter Ethereum and are not long-term believers in the crypto industry. They are well-known artists with existing followers, and they are attracted by what Ethereum offers: a better way to make money, and an unexplored experimental canvas.
To give a few examples: Murat Pak is probably best known for his Archillect twitter account. He recently started to create and sell NFTs and explain in detail to his followers on the beautiful portal. Pak’s NFT will earn more than $1 million in 2020. Mario Klingemann used artificial intelligence and machine learning to create bizarre and surprising generative artworks. He also participated in NFT games (Mario’s super rare page). Or Joanie Lemercier, whose works range from large-scale light protection installations to climate activism to silk-screen prints. Please see Joanie’s beautiful portal page.
Making Ethereum the same tool for the new frontier of art also provides a better model for musicians. In the past 6 months alone, musicians have sold more than $1 million in NFT and social tokens.
One of the favorite voices among musicians who embrace Ethereum is RAC, whose real name is andré Anjos. In October last year, he released a RAC for its holders, providing exclusive souvenirs, access to new works and more. Other artists, such as 3LAU, Tokimonsta and Portugal. The Man, are also experimenting with similar ideas.
The growth of the creator economy is empowered by a new generation of platforms, tools and markets.
In the past few years, a large number of “creator economy” market platforms have emerged. Some are platforms of any type of NFT (Rarible, Niftygateway, Opensea), while others focus on a certain type (cryptographic art AsyncArt, KnownOrigin, MakersPlace, Foundation and Superrare) or a certain aesthetic, almost like a brand or label (Zora). The recently released Mirror aims to become a user-owned content publishing platform, and Cent is trying to tokenize and sell tweets. Audius, a music streaming platform based on encryption technology, had more than 1 million monthly users in October.
For most of its history, the field of encryption has been synonymous with money. However, the frontier field of Ethereum is much larger than the financial field. At the same time, creative websites are at a turning point, because artists, musicians, writers and creators of all kinds are increasingly dissatisfied with these platforms. These platforms exclude them, censor them, control their relationship with the audience, and charge fees with this privilege.
The new digital frontier of Ethereum is an exit for creators to escape the old platform.
DeFi: Revenge of the decentralized trading platform
In 2018, many people concluded that the decentralized exchange platform (DEX) was a failed experiment.
In our review of that year, we included a brief description about Uniswap, which is a new DEX launched in November 2018. In 2019, Uniswap has grown substantially, with daily transaction volume increasing by 6000%.
In 2020, Uniswap was used to trade assets worth more than $58 billion. In September, Uniswap’s business volume once surpassed Coinbase. This growth is not limited to Uniswap.
In October, the trading volume of all DEXs reached 16% of the trading volume of all centralized trading platforms (CEX).
This is another year of incredible growth for the DeFi decentralized financial system. DeFi is a network of financial services and protocols being established on the Internet, expanding the ways in which everyone on the planet can access basic financial services. Today, you can use DeFi applications to save money, get loans, pay around the world, earn interest on assets, or speculate in the crypto market.
In February, the total value locked in the DeFi agreement reached the $1 billion milestone. By the end of December, this number had grown to $15 billion.
By November, the number of unique addresses that had used the DeFi protocol exceeded 1 million.
It is impossible to summarize all the things that happened in DeFi this year, but there are four developments that are particularly worth mentioning:
1. In January, Aave launched a flash loan. Flash loans allow anyone to borrow an asset, do something with the asset, and then repay the original loan in the same space transaction block. In fact, this makes it possible to provide unsecured loans. The risk of the lender is protected by the fact that “loan and repayment happen at the same time.” In fact, if the borrower cannot repay the loan, the loan is not issued from the beginning. This is decentralized arbitrage. In Ethereum, if you find that the market is inefficient and have some technical acumen, then you can profit from it. You don’t need to be a multi-million dollar institution to take advantage of this arbitrage.
2. This summer, Compound introduced liquidity mining and started a protocol arms race. Compound introduces the governance Token COMP, and users can earn (mine) this Token by adding liquidity to Compound or borrowing from it. This strategy was quickly imitated by other agreements, especially those very new agreements with no depositors, which need to provide high interest rates to “liquid miners” to quickly gain market share
What is lost in the noise is that the protocols no longer learn how to use the tools provided by Ethereum, grow up to gain a place, and compete with established protocols in a cruel free market.
3. Uniswap has set off a trend of rewarding old users with Token. When Uniswap launched 15% of Token UNI, it was allocated to early users of the agreement. These include users who have previously provided liquidity, and anyone who has used Uniswap before-even if only once. Unlike liquid mining, this is a new thing.
Imagine if AirBnB or Uber allocated 15% of the equity to early landlords, drivers and users. Encryption protocols like Uniswap are experimenting with new models, which blur the boundaries between users and owners. If our most valuable market platforms are owned by the people who use them, what will the world look like?
4. Bitcoin has gained new life on Ethereum. When a Bitcoin is locked in a certain place (such as the TBTC protocol, or a custodian like BitGo), and then an IOU Token is issued on Ethereum, this Token will be redeemed into Bitcoin on the blockchain.
Why should Bitcoin holders transfer their Bitcoins to Ethereum? Because on Ethereum, in addition to holding Bitcoin, you can also do other things with Bitcoin.
You can use your Bitcoin as collateral for a loan, or you can borrow it to earn interest.
At the beginning of this year, there were about 1,000 packaged bitcoins on Ethereum.
By November, about 154,000 Bitcoins were put into use on Ethereum, which is close to 1% of the total Bitcoin supply.
Ethereum’s performance upgrade
After years of research, planning, development, and testing, the Ethereum community has laid the foundation for a multi-year, multi-step Eth2 upgrade.
This marks the beginning of a new phase. In the next few years, the Ethereum community plans to implement multiple interdependent upgrades to the core protocol to fundamentally expand the network’s capacity and security.
You may have heard of this project, called “Eth2”, but it has always been a bad name. “Eth1” and “Eth2” are not the front and back versions of the same thing, but the two components of a whole, which will be merged together to become “Ethereum.” This broader project is actually a set of independent but related upgrades. The first upgrade project is the beacon chain launched on December 1, 2020.
1. Start the beacon chain
The beacon chain is the backbone of Ethereum’s new PoS consensus mechanism. Today, the Ethereum protocol does not use the beacon chain-it just runs smoothly, and the community is fine-tuning and strengthening it in preparation for supporting a network worth hundreds of billions of dollars.
Ethereum’s PoS consensus mechanism is unique. No other blockchain community, like the Ethereum community, prioritizes “decentralization” to the extent that anyone has the ability to run a node using even consumer-grade hardware.
What will happen next? In the near future, there are two main tasks. One task is to merge the Eth1 chain and the Eth2 chain and replace PoW with PoS of the beacon chain. Another task is to add data shards, which will open a new path for instant scalability through aggregation.
2. A road map centered on summary
In October, Vitalik proposed to adjust Ethereum’s roadmap. This plan will prioritize the use of “aggregation” to expand, in order to bring huge scalability benefits to the Ethereum ecosystem in the near future.
Summarization is a second-tier extension technology. Our idea is that we can keep the data on the chain, and at the same time move the execution “off the chain” to an environment that can handle faster performance, but still maintain the unique security guarantee of Ethereum transactions “on the chain”. For a detailed explanation, please check Vitalik’s guide.
The key to an aggregation-centric roadmap is that aggregation becomes more powerful when combined with a specific Eth2 upgrade (data sharding). Data sharding allows anyone to pay transaction fees and publish data to several different shard chains. Today’s summary (without data sharding) provides the throughput of Ethereum with 3000 transactions per second, but with data sharding, the throughput can reach 100,000 transactions per second.
We currently have aggregations running on the mainnet (though not using Eth2 data sharding). Loopring, Fuel and zkysnc have enabled ETH and Token transmission. They are capable of processing thousands of transactions per second, and their security assumptions are similar to transactions on the Ethereum main network.
In 2020, the testnet with Solidity/EVM support has successfully conducted an optimistic summary. In 2021, we will see developers start to port their applications to the optimistic summary (in fact, this blog post is too late, we have already started to see it). Therefore, although the demand for Ethereum block space continues to grow, transaction fees for end users will decrease.
3. The pledge group of amateurs continues to grow
As the start of the beacon chain gets closer and closer, a group of amateurs grow up around it. This is a direct result of the decision of the Ethernet community to prioritize the PoS consensus mechanism and enable consumer hardware to participate.
Before the arrival of ASICS, which concentrated PoW mining in large companies, such a community once appeared, and now it appears again. Readers who entered the encryption industry in 2014-2016 will remember that being able to contribute to the consensus of the network on an individual basis is an important part of the encryption spirit. This spirit has mostly disappeared. Now, Ethereum brings it back.
This is another example of making the Ethereum community great. Education, resources, and technical support are needed to help people learn how to build their clients and invest successfully. The largest of these communities is Ethstaker, a Discord community of approximately 6,000 people. If you are interested in staking, this is a good starting point.
What does all this mean?
Ethereum is growing.
The new digital frontier of Ethereum is no longer an experiment, no longer a blank canvas. It is an economy, a continuously developing city-state. Still very rough, of course. But this has always been part of its charm.
Since 2015, Ethereum has been at a disadvantage. But after 5 years, it has become the most valuable block space with the largest transaction volume. There are other indicators to conquer-but you can feel that the goal of the Ethereum community is no longer just a simple comparison with digital gold.
If the encryption technology itself fails, if it cannot solve the real problem, or if it cannot scale, then as the most commonly used cryptocurrency, there is not much value. The next challenge for Ethereum will be even greater because they will be a challenge for the entire crypto market.
So, what are you waiting for? Winter has passed and we still have work to do. The new border will not be built by itself.