#2 Ethereum, Elon, a dog, and skinless avatars
The main topic in this newsletter is Ethereum, but it's true Elon Musk is mentioned even more
Welcome to Crypto Digest’s #2 issue. It just makes sense that the number two is dedicated to Ethereum. Crypto’s #2 most relevant asset has been through some things recently. Let’s see what went on.
But while it’s safe to say Ether is #2 most relevant asset, when someone asks me whether they should buy a cryptocurrency or not, lately it’s always Dogecoin what they ask about. Memes are one of this week’s angles in crypto digest, as well as history, collectibles and Elon Musk. Because, yes, Elon is a himself a whole category in crypto.
I hope you enjoy!
Raúl (@raulmarcosl)
Ethereum is cool again.
If you're new to crypto, you probably know Ethereum is the other cryptocurrency to check out once you've entered the space.
If you're not so new, you're aware that Ethereum and Bitcoin have so much in common it is impossible to explain the former without understanding the latter. Still, they are also so different that understanding Bitcoin doesn't guarantee you know your way into Ethereum. Their price is quite correlated, but sometimes, like in the last weeks, they behave very differently.
If you've been around for quite a while and you follow crypto Twitter to the minute, you know that Ethereum is trendy again, after a few months of hearing people point out its flaws, praising its competitors, and claiming that institutional investors would never waste their time in ETH.
So, for all of you, let's make a small recap. What is Ethereum, how does it differ from Bitcoin, and why all the noise recently?
Let's start with the basics because Ethereum is a little more complicated to explain than Bitcoin. Bitcoin with a capital B is the blockchain, the technological platform, and bitcoin with a lowercase B is the currency. Ethereum has a similar differentiation: Ether or ETH is the coin, and Ethereum is the platform. But Ethereum calls itself "a programmable blockchain.” This means it is not meant to run only one currency but to be the structure for any initiative that needs to have a blockchain beneath it.
Let's try a metaphor: if Bitcoin with a capital B is the railroad where the currency runs like a train, Ethereum would be some sort of railroad company. A weird kind of railroad company that owns a railway network, runs trains, and allows anybody to put their own trains on them and create a business out of it. Any entrepreneur can create their own initiative and make it run on Ethereum, and Ethereum will charge for maintaining the network in Ether.
Ethereum has been the facilitator for many of the most interesting crypto innovations, good and bad. In 2017 it allowed the ICO boom to happen. But a few years later, it is the backbone of decentralized finance, stablecoins, and NFTs. And all these projects pay fees in Ether and very often use it as their currency.
That is why it is said that Ether is a productive token. It is an asset that can be traded, but it is also the currency used to make businesses run.
The following chart shows the percentage of Ether that is stored in smart contracts. In the last year and a half, it has almost doubled. If you don't understand what a smart contract is, know that smart contracts are where ETH is actually being used. Not just traded, held, or stored for future profit, but used in actual projects attempting to create value. And what the graph shows is that the proportion of ether that's being actually put to work is growing steadily.
Ethereum has many supporters. It is definitely not perfect, and its foes do a great job pointing out the weaknesses. But one of Ethereum's main virtues has always been its ability to adapt. There are great obstacles on Ethereum's horizon. There are problems with fees, with inflation, with scalability... But if you've been in the space long enough, you've seen them overcome even more ominous predictions. One of them used to be "no one will use this,” and nobody would dare say that today.
Now comes the answer to the last question: why all the noise recently? There are many reasons, but EIP 1559 is one of the most relevant ones. EIP 1559 is the name of an upcoming update in Ethereum's protocol that will greatly change the incentive structure that holds the system together, making it more stable and reducing the inherent inflation of the protocol. We are looking at an update that's being compared to Bitcoin's halving because of its relevance in the historical timeline of Ethereum.
Again: if you didn't understand a word in the last paragraph, bear with us. The main takeaway is that Ethereum is, once again, proving its ability to overcome its flaws. While it keeps doing so, it will keep being the home for DeFi, NFTs, and whatever comes next. Being home for innovators in crypto.
⬡ Six Angles
We select six topics to illustrate the very different angles crypto can be approached from. We could choose dozens, but six is the atomic number of carbon…and otherwise we'd be writing for ages.
1. Energy Consumption | NFTs
NFTs are under the spotlight, bringing visibility to the good, the bad, and the ugly within them. Things have been hot recently around NFTs and energy consumption, with some artists canceling drops because of the criticism received on Twitter.
Blockchain technology has always been criticized for its energy consumption. And as NFTs are crypto's next big thing, they are attracting some of the old hate. But here's why we think things are being blown out of proportion.
Energy consumption is an issue to be taken seriously. And it is actually one of the best things Proof of Stake will bring. But as Sterling Crispin writes, the outrage sounds "like complaining about an ant walking across your toe while the whole house is on fire.”
First, NFTs are not consuming energy that was not already going to be put to use. The Ethereum blockchain doesn't really care if an NFT is being minted or not. An increase in demand doesn't involve an increase in capacity but in the price of the fees charged for writing them. You could say that with more demand, fees get higher, and there are more incentives to mine....but NFTs are a tiny fraction of the transactions on the Ethereum blockchain (most of them being related to DeFi or trading).
And secondly, there's the availability bias. We can make good estimations about the energy Bitcoin, or Ethereum consumes because the ecosystem is open and transparent. But why not take some time to look at traditional banking? Or can we estimate the consumption produced by the latest streaming star on Twitch broadcasting Fortnite gameplay to hundreds of thousands of devices worldwide? Did you know Netflix was taking almost 13% of the world's internet traffic?
So...yes, the energy consumption needs to be taken seriously. And yes, NFTs are getting a little annoying a little too fast. But can we look back at the serious bits? There are a lot of exciting things happening around them. Cancel culture is not one of them.
2. Elon Musk | Tesla
Yes, Elon Musk is an angle in and of himself. Get used to it. When Elon speaks, which he usually does through playful tweets, he sends shockwaves in the cryptosphere.
This time it's more than just a pun. In February, Tesla rocked the space when they bought $1.5B worth of BTC and announced plans to accept it as payments. They claimed it was a way to "maximize returns on our cash.”
Well, returns are in. Tesla's Q1 earnings showed $101M profits from the sale of 10% of their BTC holding. Headlines all around say that Tesla has made more money from BTC than from actually selling cars or batteries. Some go even further and claim there's fraud behind or accuse Iron Man of "pump and dump" strategies. Did they get this correctly? This is Elon's reply.
Every big company has its money working for them in financial markets. Tesla only happens to be innovating in this space too. Whether it’s a test to find out if bitcoin was liquid enough or not, the sale proves that cryptocurrencies are finally reaching institutions. We are sure this won't be the last giant following their path.
3. History | Ten years since Satoshi vanished
April 26th marks the moment of the final disappearance of Satoshi Nakamoto. One of the few selected dates in Bitcoin's own mythology. On that date, 10 years ago, the anonymous Bitcoin creator sent his last mail to collaborators. A few months before (December 10th, another date to remember), he had left his last comment in the official Bitcoin forum. Quite an uneventful one if you are expecting grandiose statements from crypto-messiah.
He continued exchanging messages with Bitcoin developers until his, once again abrupt, disappearance. April 26th can be seen as the exact day Bitcoin stopped belonging to Nakamoto in any way and was left in the hands of the community. The project could have died without its leader because regardless of his intentions, Satoshi was perceived as the authority of the project. But as we've been able to see, Bitcoin survived his departure. And this is the story of how decentralization prevailed.
4. Memes | Dogecoin
Beware of the memes. Jokes are a compelling means of expression for the generations that are gradually coming to power. They are the youth's middle finger to the establishment. When the UK government purchased a $287M polar research ship and asked the internet for a name, they expected Shackleton, Explorer, Icebreaker... and got Boaty McBoatface. This was 2016. Fast forward to 2021: Reddit pushes Wall Street against the ropes by backing up reject Gamestop. Dogecoin is crypto's version of this culture: everyone could create a new coin, and too many people did. Billy Markus created even one more altcoin named after the popular doge meme, with no intention whatsoever to create or capture any real value. For the lulz.
Dogecoin has undergone its ups and downs: it has channeled charity donations, it has sponsored Nascar racing cars and Jamaican bobsled teams, and it has been used maliciously by fraudsters (is there anything in the world that hasn't?), but after +7 years, the spirit remains alive. In February 2021, Dogecoin hit an all-time high after tweets by celebrities like Elon Musk, Snoop Dogg, and Kiss's own Gene Simmons. A month later, Dallas Mavericks owner Mark Cuban announced his NBA team would allow purchasing tickets and products with it. And this week has broken its all-time high again, as Elon Musk will appear at Saturday Night Live promoting it.
Some see it as proof of crypto's disconnect with the normal economy and with common sense in general. But jokes on the internet are a very serious matter. Plus, normal is not a word we should be using anymore, is it? We still haven't grasped the full power of the internet. We are talking of billions of interconnected people behaving in ways we've never seen before, motivated by things like having a little laugh. When the world screams, "this makes no sense!" the internet replies, "yeah, we know,” and walks away giggling.
5. Collectibles | Meebits
Larvalabs did it again. The design studio created in 2017 Cryptopunks, the most valuable NFT collection, and broke the hype machine again in 2019 with Autoglyphs. Now they've come up with yet another contribution to NFT mania, covered in their trademark gaming style.
Meebits are 20.000 unique polygonal characters that were first minted and shaped in real-time by a generative algorithm. 10.512 were awarded for free to cryptopunk and autoglyph owners, and 9488 were randomly sold for 2.5 ETH each in an auction that lasted hours.
There are humans, elephants, pig Meebits... all of them unique. And 5 of them belong to the "dissected" category, a weird Meebit species with skinless parts of the body. The most valued among them is offered for +$10M as we write this and will likely find a buyer willing to pay millions.
You could say Larvalabs has managed to make a success out of Meebits thanks to their reputation. And it wouldn't be a lie. Being the creators of Cryptopunks and Autoglyphs was certainly a good reason to believe Meebits would be (and will be) a profitable investment, the same way it happens in any other art form.
But how have they managed to pull it off three times already? Well, they have apparently put their finger on the sweet spot between art, collectibles, gaming, speculation, and memes. Expect more to come.
6. Crypto toolkit | Coingecko
Let’s be honest: most people disconnected from crypto after suffering a few 80-90% drops in 2018. Since then, crypto has kept evolving rapidly, so it’s necessary to update everyone’s toolkit.
In 2017, everyone was using Coinmarketcap to check cryptocurrencies’ prices, but today the cool kid is Coingecko. It’s a data platform where you can check prices, stats, and all types of data that help the general picture of what's going on in crypto every minute.
Why would we recommend Coingecko, then? The green lizard company, we believe, has adapted better to the current state of affairs in crypto. Back in the day, let's say 2017, exchanges were everything. Tokens needed to be listed before they could be taken seriously, and Coinmarketcap did a great job covering that. But now, the relevant tokens are not only the ones that are listed but the ones that are traded, and that can happen on many platforms. Coingecko made the classic move: do the same as the market leader, but better: they are connected to decentralized exchanges and show prices there, they offer metrics like TLV (Total Locked Value) for every protocol, and they even have a section for DeFi farming.
You’ve reached the end of #2. Thanks for coming this far :P If you enjoyed the content, don’t forget to share it!
Carbono is an advisory firm specialized in cryptocurrencies that helps clients navigate the economic and financial innovations derived from the rise of digital assets.
Our investment fund, Abacus Carbono, is designed to be an on ramp for investors interested in cryptocurrencies and projects born under the crypto-economy principles.
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