Ethereum Retakes Second Position

After more than a month behind Ripple, ethereum has finally retaken its second position today as the crypto seemingly turns quite bullish.

Ethereum has risen more than any other top crypto today, up 10%, with its volumes rising to $2.7 billion, one of the highest level for quite some time.

The reason is probably because of the Constantinople hardfork which is now in two weeks on January the 16th.

That will provide some efficiency gains in gas usage and for smart contracts, with new issuance to be reduced by 33% from 3 eth per block to 2 eth per block.

Ethereum’s hashrate has plunged recently to 165 Terahashes from a high of 300, recovering slightly to 174 currently.

That suggests miners are probably insta selling block rewards – as well as whatever they may have hoarded during the bull-run that begun about two years ago – as most of them are probably bankrupt or near bankrupt.

Hobby miners, of course, might keep on at a loss, meaning they are probably holding new supply. Such miners however probably account for only 10% if we had to pick an estimate. The vast majority of mining occurs in vast industrial farms that run as a businesses.

Such industrial farms have considerable costs to cover. During the run-up in 2017, they may have been able to cover the costs by selling a small portion. As price crashed and kept on crashing, that smaller portion may have become bigger and bigger to the point at least some of them may have sold all their cryptos.

No miner is publicly traded, so we have to operate on guesswork. From what data is available it appears Bitmain may have sold all their one million BCH or the vast majority of it. That would explain the November crypto crisis.

In these sort of situations you usually get new miners entering the scene as the network effectively punishes the current miners for failing to withdraw new supply while price was falling. Instead miners bring extra new supply – whatever they’ve hoarded – while price is falling. Effectively crashing their own business.

Thus new entrants appear funded through fiat with sufficient fiat runaway. They have seen the inefficiency and the opportunity, or at least they’re betting on it. Their aim would be to hold the new crypto, and so the cycle perhaps repeats.

That incredible unknown percentage is very new, noticed by us in just the last few days. They have come to the scene with almost as much hash as Bitmain’s two known pools, AntPool and BTC.com. Suggesting they must have vast industrial farms.

The relevance here is that the lower the new issuance, then the less miners have to insta-sell or hold and then extra-sell.

The dynamics would probably remain the same as long as Proof of Work (PoW) mining continues in eth. They may play, however, at a different level.

Demand of course is the other factor. About $3 million has to come in daily to maintain eth’s current price level assuming all the 20,000 daily mined eth are insta-sold. That will fall to $2 million. If demand remains constant, there will be $1 million of extra demand a day after January 16th. With that demand and supply balance constantly on the move for the traders’ pleasure.

March may then be the beginning of the Beacon chain launch. As this is a space where deadlines are expected to be missed, it may well be autumn, if this year at all.

Once it does launch, the Beacon chain itself will be fully Proof of Stake (PoS). It will be linked to the PoW chain with the two running in parallel, but as one network, for quite some time.

Once the Beacon chain launches, issuance will be more than halved from 2eth per block to 0.86 according to last numbers. 0.6 for PoW miners and 0.26 for stakers per block. Giving stakers an interest rate of circa 5%-8% if 10%-20% of all eth is staked.

A recent new development suggests that ethereum’s capacity may increase by 10x by this summer. That would mean around 14 million transactions a day. Again disclaimer about estimates, not least because in this case there are some difficult decisions to be made.

On a more general upside for ethereum, eth developers probably have some sense of urgency for this new year, so we might expect them to move faster if they can.

The one foreseeable downside for eth, although with some silver linings, is the potential launch of Polkadot sometime this year. That’s from a small group of eth devs themselves, the ones that run Parity. So eth may face some real competition for the first time.

That makes the similarities to bitcoin 2015-16 far too many. Poolkadot is not quite a chain-split, but conceptually it isn’t very much different in as far as a team of eth devs themselves are launching a new chain.

A team of bitcoin devs launched a fork client in 2015. Minus the ferocious debates which occurred there, which here wouldn’t be necessary, we might expect things to play the same – although note BSV where they played to the opposite of what was expected.

Unfairly or otherwise we might summarize it thus. Lazy bitcoin devs got to work – with “unpaid” extra time – to get out segwit as soon as possible in a then race between two competing teams. They then managed to get the Lightning Network out too.

They prevailed, with a new chain then launched on August 1st 2017. BCH failed to gain traction in usage. Bitcoin had a superior… what can succinctly be called as knowledge monopoly or mindshare. That is, as a simple example, the bitcoin logo was in far more places in shops. It was and remains – by far – the most known crypto.

BCH simply did not have sufficient differentiation and due to its nature it had to be described to a new potential cryptonian by describing what is bitcoin and what they think is wrong with it.

Winners, of course, focus on winning. Those that come in second position focus on winners. In marketing they long discovered that criticizing your competitors makes your competitors more popular. In BCH they refused that simple dictum intentionally or because they had no choice.

In a potential race between ethereum and polkadot, for the latter to succeed they would need to offer a categorical invention.

If we look at the top coins, bitcoin is of course bitcoin. The very first. Ethereum invented smart contracts, a very new thing which allowed it to create perhaps the biggest coding ecosystem in crypto. Ripple, for all its faults, is categorically different in being a fairly centralized corporate coin where admin nodes need permission from the current 21 or so corporate admin nodes. The rest then are somewhat copies with little improvements here or there. Then there are tokens which are a different category.

It would take quite a bit more than a small improvement for a transition from one coin to another. The many dapps, projects and so on are not going to just pack their bags and move as soon as a new coin arrives. They’ll need considerable enticement.

Complacence, however, isn’t something ethereum can afford any longer. Polkadot may be somewhat similar with small differences, so it might not pose a real challenge, but it could.

Those are the knowns. The known unknowns are a potential hack of MakerDAO’s DAI. Any other hack probably wouldn’t matter, within reason. MakerDAO’s DAI  is special because it may prove that such a thing as unhackable smart contract code can exist. Here, what would be surprising is if it isn’t hacked because in this space a hack of such a new thing is to be expected.

Other unknown knows are some company launching some product on eth, or futures, or perhaps even an ETF. SEC might surprise perhaps, in both good and bad ways.

The unknown unknowns are naturally unknown, but this is just code so there wouldn’t be anything existential to the network in that it literally ceases to exist because whatever the challenge some code will be written to address it.

Meaning 2019 is a down to work year with unpaid extra time because there are many things on the line and not quite enough hours in a day. Health and long life may god give us all, the rest should be exciting as the new year now begins.

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