Ether

Operations

How did the idea of Ether come about?

The idea of Ether, the native cryptocurrency of the Ethereum network, emerged alongside the development of Ethereum itself. Ethereum, conceptualised by Vitalik Buterin in late 2013 and early 2014, was designed to be more than just a digital currency like Bitcoin. Buterin envisioned a blockchain platform that could execute smart contracts and support decentralised applications (DApps), expanding the scope of blockchain technology beyond mere financial transactions.

The concept of Ether arose as a fundamental component of this expanded blockchain framework.

What's the mission of Ether?

The mission of Ether is closely tied to the broader goals and vision of the Ethereum platform. Ethereum was conceptualised to expand the possibilities of blockchain technology beyond just a medium of exchange, like Bitcoin. Its co-founder, Vitalik Buterin, and other developers envisioned a platform that would enable decentralised applications (DApps) and smart contracts, thereby creating a more versatile and programmable blockchain.

Within this context, the mission of Ether can be understood as follows:

1. Facilitating Transactions and Smart Contracts: Ether's primary mission is to act as the fuel for the Ethereum network. It enables users to conduct transactions, execute smart contracts, and interact with DApps on the Ethereum blockchain. By requiring Ether for these operations, the network ensures that resources are used efficiently and helps to prevent spam transactions.
2. Supporting Decentralisation: Ether plays a critical role in maintaining the decentralised nature of the Ethereum network. By compensating miners (and, following Ethereum's transition to Ethereum 2.0, validators) for processing transactions and executing smart contracts, Ether helps to secure the network and distribute its operational workload across a global community.
3. Encouraging Innovation: By providing a platform for DApps and smart contracts, Ether fuels innovation in the blockchain space. Developers can build a wide range of applications on Ethereum, from decentralised finance (DeFi) to non-fungible tokens (NFTs), and Ether is used to power these applications.
4. Creating a Digital Economy: Ether also aims to be a key component in a new, blockchain-based digital economy. This economy transcends traditional financial boundaries, offering a more inclusive, transparent, and secure financial system.
5. Promoting Financial Accessibility: Ethereum and Ether are part of a broader movement in the cryptocurrency space that seeks to provide greater financial accessibility. By offering a decentralised platform free from the control of any single entity, Ethereum aims to lower barriers to financial services and empower individuals globally.

In summary, the mission of Ether is multifaceted, aligning with the broader objectives of the Ethereum network. It's designed to enable and secure a wide range of decentralised applications and financial transactions, fostering innovation, decentralisation, and accessibility in the digital economy.

What's Ether and what makes it unique?

Ether (ETH) is the native cryptocurrency of the Ethereum blockchain. It serves several key roles within the Ethereum ecosystem, making it unique in comparison to other cryptocurrencies like Bitcoin. Here's an overview of what makes Ether distinctive:

1. Fuel for the Ethereum Network: Ether is often referred to as the "fuel" for the Ethereum network. It's used to pay for transactions and computational services on the Ethereum blockchain. Every transaction or execution of a smart contract on Ethereum requires payment in Ether to cover the computational cost, known as "gas fees." This mechanism helps to prevent spam and allocate resources efficiently on the network.
2. Enabler of Smart Contracts and DApps: Ethereum was the first blockchain to introduce smart contracts – self-executing contracts with the terms of the agreement directly written into code. Ether is crucial for deploying and running these smart contracts. Developers use Ether to create and run decentralised applications (DApps) on Ethereum, spanning various sectors like finance, gaming, and social media.
3. Transition to Proof of Stake: Ethereum's transition from Proof of Work (PoW) to Proof of Stake (PoS) through its Ethereum 2.0 upgrade further distinguishes Ether. In PoS, Ether is used for staking – a process where users lock up their tokens to participate in network validation in exchange for rewards. This transition aims to make Ethereum more energy-efficient and scalable.
4. Economic Model Changes: Ethereum has introduced several changes to its economic model over time, affecting the supply and demand dynamics of Ether. Notably, the EIP-1559 update introduced a mechanism where a portion of the gas fees paid in Ether is "burned" or permanently removed from circulation, which can affect its scarcity and value.
5. Wide Adoption and Ecosystem: Ether benefits from the broad adoption of the Ethereum platform. It's the backbone of a burgeoning ecosystem that includes DeFi (Decentralised Finance), NFTs (Non-Fungible Tokens), DAOs (Decentralised Autonomous Organisations), and much more. This ecosystem supports a wide range of use cases and has a substantial developer community, contributing to Ether's value and utility.
6. Flexibility and Programmability: Ethereum, and by extension Ether, is known for its flexibility and programmability. This allows for continuous innovation and development, enabling the network to adapt and incorporate new features and improvements over time.

Market

Total Addressable Market (TAM)

For Ether, the TAM would be the entire potential market for blockchain applications, smart contracts, and cryptocurrencies. This includes:

• The global cryptocurrency market, which encompasses not only individuals and entities interested in digital currencies but also those interested in decentralised finance (DeFi), non-fungible tokens (NFTs), and other blockchain-based financial services.
• The broader market for digital contracts and decentralised applications across various industries such as finance, healthcare, real estate, and supply chain management.
• The potential market for blockchain as a service (BaaS) and infrastructure for companies and developers.

Serviceable Available Market (SAM)

SAM for Ether is narrower and represents the portion of the TAM it can serve under current conditions. This includes:

• The current cryptocurrency market that is willing or able to transact in or use Ether, considering factors like regulatory environments and platform compatibility.
• The market for decentralised applications and smart contracts that are currently feasible and practical to be built on Ethereum.
• Sectors actively adopting blockchain technology where Ethereum’s offerings (like smart contracts) are applicable and competitive.

Serviceable Obtainable Market (SOM)

SOM is the portion of the SAM that Ether can realistically capture. This depends on:

• Ethereum's competitive positioning against other blockchain platforms and cryptocurrencies.
• Adoption rates, network effects, and the growth of the Ethereum ecosystem including DApps, DeFi, and other services.
• Technological advancements and scalability improvements, especially post-Ethereum 2.0 upgrades, which might increase Ether's market share.

Quantifying these markets in precise financial terms is challenging due to the rapidly evolving nature of the blockchain industry, regulatory uncertainties, and the speculative nature of cryptocurrencies. The values can fluctuate significantly based on market sentiments, technological advancements, and global economic conditions. Moreover, as a decentralised and open-source project, Ethereum's market potential is also influenced by community and developer participation, making precise market estimations complex.

Competition

Ether (ETH), the native cryptocurrency of the Ethereum blockchain, has several peers or competitors in the cryptocurrency and blockchain space. These peers offer similar functionalities, such as smart contracts and decentralized applications (DApps), or they compete in the broader cryptocurrency market as alternatives to Ether. Here are some of Ether's closest peers:

1. Bitcoin (BTC): Although Bitcoin's primary purpose is to act as a digital currency and store of value, it's often compared with Ether due to its prominence and role as the first and most valuable cryptocurrency.
2. Binance Coin (BNB): Initially launched on the Ethereum blockchain, Binance Coin now operates on Binance's own blockchain, Binance Smart Chain (BSC). BSC is known for its high transaction throughput and low fees, attracting many DApp developers and users.
3. Cardano (ADA): Cardano is a blockchain platform that, like Ethereum, focuses on running smart contracts. It aims to provide more advanced features than Ethereum, primarily through its emphasis on a research-driven approach to design and development.
4. Polkadot (DOT): Polkadot aims to enable different blockchains to transfer messages and value in a trust-free fashion; sharing their unique features while pooling their security. It is considered a competitor due to its focus on interoperability and scalability.
5. Solana (SOL): Solana is a high-performance blockchain supporting DApps and crypto-currencies. It's known for its fast transaction speeds and low costs, making it a competitive alternative for developers and users seeking performance efficiency.
6. Tezos (XTZ): Tezos is another blockchain that facilitates smart contracts and DApps. It has a unique self-amending cryptographic ledger which allows the network to upgrade itself over time without having to fork the blockchain.
7. Avalanche (AVAX): Avalanche is a blockchain platform that focuses on high throughput, low latency, and scalability. It's gaining popularity for DApps, particularly in the DeFi space.
8. Algorand (ALGO): Algorand is a blockchain platform that aims to deliver decentralization, scalability, and security for a wide range of applications, including financial tools and services.
9. EOS (EOS): EOS is a platform for developing DApps. It's designed to be more scalable than Ethereum, with an emphasis on user-friendliness and efficiency.
10. Tron (TRX): Tron is another blockchain platform that enables the development of smart contracts and DApps, with a particular focus on digital content and entertainment.

These platforms are considered peers of Ether because they offer similar functionalities or compete for market share in the crypto and blockchain space. Each has its unique features and focuses, but they all contribute to the rapidly evolving landscape of blockchain technology and cryptocurrency.

Feature/Cryptocurrency	Ether (ETH)	Bitcoin (BTC)	Binance Coin (BNB)	Cardano (ADA)	Polkadot (DOT)	Solana (SOL)	Tezos (XTZ)	Avalanche (AVAX)	Algorand (ALGO)	EOS (EOS)	Tron (TRX)
Smart Contracts	✓	✗	✓	✓	✓	✓	✓	✓	✓	✓	✓
Decentralized Finance (DeFi) Support	✓	✗	✓	✓	✓	✓	✓	✓	✓	✓	✓
High Transaction Throughput	✗	✗	✓	✓	✓	✓	✓	✓	✓	✓	✓
Low Transaction Fees	✗	✗	✓	✓	✓	✓	✓	✓	✓	✓	✓
Proof of Stake (PoS)	✓	✗	✓	✓	✓	✓	✓	✓	✓	✓	✓
NFT Capabilities	✓	✗	✓	✓	✓	✓	✓	✓	✓	✓	✓
Large Developer Community	✓	✓	✓	✓	✓	✓	✓	✓	✓	✓	✓
Interoperability with Other Chains	✗	✗	✗	✗	✓	✗	✗	✓	✗	✗	✗
Advanced Scaling Solutions	✗	✗	✓	✓	✓	✓	✓	✓	✓	✓	✓
Established Track Record	✓	✓	✓	✓	✓	✓	✓	✓	✓	✓	✓

Note:

• The "High Transaction Throughput" and "Low Transaction Fees" rows are relative and may vary based on network conditions and ongoing upgrades. For example, Ethereum's transition to Ethereum 2.0 is expected to improve its scalability and reduce fees.
• "Advanced Scaling Solutions" refers to unique or innovative approaches to handling a large number of transactions, which goes beyond basic blockchain functionality.
• The presence of a tick or cross is based on the general capabilities or features of each blockchain as of my last update in April 2023. These aspects can evolve with technological advancements and network upgrades.

Risks

Investing in Ether, like any cryptocurrency, carries several key risks that potential investors should be aware of:

1. Volatility: Cryptocurrencies, including Ether, are known for their high price volatility. Prices can rapidly increase or decrease within a short period, influenced by factors like regulatory news, technological developments, market sentiment, and broader economic factors. This volatility can result in significant gains or losses.
2. Regulatory Risk: The regulatory environment for cryptocurrencies is still evolving and can vary significantly by country. Changes in regulations, such as those related to trading, taxation, or the legality of cryptocurrencies, can impact the value and legality of holding or using Ether.
3. Technology and Security Risks: Ethereum, like all blockchain technologies, faces risks related to security breaches, hacking, or software flaws. While the Ethereum network is considered secure, vulnerabilities have been exploited in the past, particularly in DApps and smart contracts built on Ethereum.
4. Market Liquidity: While Ether is one of the most liquid cryptocurrencies, cryptocurrency markets can still experience liquidity issues. During periods of extreme market volatility, it might be difficult to buy or sell large amounts of Ether without affecting the market price.
5. Dependency on Ethereum’s Success: The value of Ether is closely tied to the success and adoption of the Ethereum platform. Issues like delays in network upgrades, scalability problems, or a failure to sustain developer and user interest could negatively impact Ether's value.
6. Competition: The blockchain and cryptocurrency space is highly competitive. The emergence of newer blockchain platforms offering similar or superior features could potentially diminish Ethereum's market share and impact the value of Ether.
7. Scalability and Network Congestion: Ethereum has faced challenges with network congestion and high transaction fees, particularly during periods of high demand. While the ongoing upgrades (Ethereum 2.0) aim to address these issues, there is a risk that these problems could limit adoption and use.
8. Environmental Concerns: Prior to Ethereum's transition to Proof of Stake (PoS), its Proof of Work (PoW) consensus mechanism raised environmental concerns due to the high energy consumption. Although PoS significantly reduces this concern, the perception and regulatory implications of environmental impact could still pose risks.
9. Macro-Economic Factors: Cryptocurrencies can be influenced by broader economic factors, such as inflation rates, interest rates, and economic downturns. These factors can affect investor appetite for risk and lead to increased volatility in the crypto market.
10. Lack of Traditional Investment Protections: Unlike traditional investments, cryptocurrencies typically do not offer dividends, voting rights, or other protections. The regulatory framework is still evolving, which means there might be less recourse for investors in cases of fraud or theft.