Vitalik Buterin has claimed that Ethereum will support 3,000 transactions per second after the upcoming Istanbul fork.
Will this unleash a new wave of Ethereum creativity? Might we expect a surge in traffic on the Ethereum network? Could its increase influence the price of ETH?
Ethereum is slow
The conventional wisdom is that Ethereum is too slow. But for what purpose is it too slow? It seems to be sufficiently fast for financial services. But the mistake people are making in saying “Ethereum is slow” is misunderstanding what a great thing, counterintuitively, it is to be slow. ETH works because users want to pay (in the form of “gas”) to perform computations.
If Ethereum is congested, it means that there are more people who want to pay to have Ethereum computations than there are the capacity to allow it.
To put it in another way, let’s say that you own an Apple Store and there is an ever-growing line of customers waiting to buy the newest iPhone. The more customers you have, the more the profit. If you are having trouble accepting the amount of money people want to give you in order to use your service, you are doing well. You wouldn’t complain in that situation.
The “world computer” isn’t a thing
So, it turns out that achieving consensus over computation is very expensive — and therefore, as slow as molasses. Istanbul will make Ethereum’s consensus a bit faster, but the term “world computer” seems hyperbolic, as it suggests there could be a singular device that handles the world’s computational needs. It doesn’t even get close at 3,000 transactions per second. Ethereum’s current state is more akin to a “Trust Machine” — to borrow the name of Alex Winter’s blockchain documentary — than a “world computer.”
DApps are also not a thing
What is a “decentralized application”? It’s a mixed metaphor that is prone to confusion. The word “app” is inseparable from the rise of smartphones and naturally the rise of the “App Store.” So, as soon as you say “DApp,” you are depicting a similar world of endless possibility and creativity. This flawed reasoning is compounded by talk in the original Ethereum white paper about the creation of a Turing complete “World Computer.” This suggests that there are an infinite number of applications that are able to run on Ethereum. But since running computations under consensus comes with a cost, it will always be greater than the cost of running computations without consensus — even if the cost of consensus is greatly reduced.
Vending machines are a thing
The cost of consensus is why it makes more sense to talk about what Nick Szabo calls “Vending Machines.” If a line of code is not handling value, then why not execute it in a faster, cheaper, more centralized environment? This reduces the practical applications of storing, transmitting, buying, selling, splitting, sharing or otherwise manipulating value. This means practical applications would naturally be pragmatic value-in, value-out smart contracts like decentralized exchanges, token swaps, nonfungible token vending, token-issuance (ICO or STO) contracts, and lending and arbitrary financial products (DeFi). If we had a “World Computer” (we don’t), it might make sense to talk about DApps, but until then, what we have are vending machines.
Lending machines are also a thing
Smart contracts relating to collateralizing and lending digital assets are getting a lot of attention these days. Concerning this, ETH in particular is well positioned, as it has a relatively large liquidity pool and a very high degree of programmability. DeFi means that there are vastly diverse sets of programmable digital financial products, but at the moment, the idea of a “Lending Machine” is one that is getting the most attention. In particular, lending seems attractive because current DeFi protocols are producing up to 10% interest rates. This could be seen as a “killer app” for crypto because traditional banks have been so close to 0% interest for so long — and it’s a compelling reason for new users to come to crypto. Currently, almost $700 million in value is locked in DeFi contracts. It remains to be seen whether such high rates will hold up as more and more money floods into the market seeking high returns.
Another obvious application is gambling apps. This is a variation on the “decentralized exchange,” but instead of exchanging a predictable amount of one token for another, users essentially exchange tokens for unpredictable returns. One of the advantages of smart contract-based gambling over other forms of online gambling is that scrutinizing the smart contracts can enable players to determine if the gambling machine is “provably fair,” unlike the centralized exchanges that are only demonstrably unfair.
The need for speed
If all we are building are vending machines, lending machines and slot machines, do we really need performance? Purveyors of “decentralized exchanges” insist that once they are fast enough, they will achieve the liquidity of “centralized exchanges.” But historically, liquidity has always moved toward high frequency trading venues — and trusted computing will always confer a performance edge versus trustless.
One of the great things about the increase in performance is simply to increase the capacity of existing apps, and to enable more similar apps to run on Ethereum. But the performance increase from Ethereum Istanbul seems unlikely to produce as-yet-unseen types of applications.
Miko Matsumura is a general partner with venture capital fund gumi Cryptos Capital. He is also a co-founder of Evercoin, a wallet and exchange. He has been working in Silicon Valley for 25 years on open-source software projects, starting with the introduction of the Java programming language, for which he was the chief evangelist.
Published at Sat, 07 Dec 2019 22:49:00 +0000
Ethereum: Is the HODLing in yet?
When it comes to the altcoin market, the past few months have shown how important a cryptocurrency Ethereum is. With DeFi growing substantially in 2020, the gains have been felt by ETH in many ways. While ETH has miles to go before it can challenge the market cap and dominance of Bitcoin, its remarkable growth thanks to DeFi and the proposed ETH 2.0 shift cannot be overlooked. With Ethereum’s use cases diversifying, users and investors within the ecosystem are reaping its benefits too.
According to recent network data provided by Glassnode, Ethereum balances on centralized exchanges have fallen substantially over the past few weeks. In fact, the aforementioned data showed a drop from over 18,750K to around 16,750K, resulting in Etherum balances on exchanges falling to their lowest level for the year 2020, at the time of writing.
While this drop may seem alarming to some, it also illustrates a silver lining of sorts for the cryptocurrency. A fewer number of users are now holding their Ethereum on exchanges. Instead, they are moving them to cold storage or cold wallets – a sign commonly associated with increased hodling sentiment. As more users hold on to their Ethereum, the price of the cryptocurrency is also likely to be positively impacted.
One of the reasons why many users are feeling inclined to do so can be due to its recent performance, as well as its ability to derive growth from a booming DeFi ecosystem that is based on its platform.
In fact, it is also interesting to note that over the same timeframe, Ethereum addresses with greater than 10 ETH have also seen a significant rise. According to network data provider Glassnode, such addresses have risen from 275K to 283K in the last three months alone.
One of the key reasons behind the aforementioned drop in Ethereum stored on exchanges ties back to increased hodling sentiment within the Ethereum community, as highlighted above. This, coupled with a rise in Ethereum locked in smart contracts (Since investors are looking to generate greater returns at a time when Etherum’s price is consolidating on the charts), bodes well for the cryptocurrency’s ecosystem.
Brace for it – Bitcoin Futures may be nearing a tipping point
What’s the tipping point for Bitcoin Futures on top derivatives exchanges like the CME, an exchange that has recorded a daily trading volume of over $300M and Open Interest of over $400M, consistently, for the past 3 months.
Well, a small shift in Open Interest or trading volume can have a cascading effect on Bitcoin Futures’ performance in the next 180 days. Such a shift will be influenced by several factors, and it begins at the tipping point. Three factors, to be more specific.
In the current phase of Bitcoin’s market cycle, these factors are more relevant for traders on derivative exchanges. This becomes more evident when the Liquidations chart for BitMEX is observed. Over the past 3 months, sell liquidations have paid for buy liquidations. However, over the last few days, this trend has been reversed, and buy liquidations have covered for sell liquidations on BitMEX.
The point here is to detect the source of the domino effect before the dominoes start falling. In the case of Bitcoin Futures, the tipping point may be closer than anticipated.
One of the top factors influencing the tipping point is the Law of the Few.
The Law of the Few states that “the success of any kind of social epidemic is heavily dependent on the involvement of people with a particular and rare set of social gifts.”
In the case of Bitcoin, institutional investors, derivatives traders, and whales fit the bill. The success of Bitcoin Futures in the global trading community heavily relies on institutional investors trading on CME. In fact, the daily trade volume and Open Interest on CME influence the trading sentiment across spot exchanges as well.
The last time a cascading effect was witnessed was when BTC Futures’ Daily Trading Volume hit $445M on CME and there was a rally all the way up to $614M. At the time of writing, the Daily Trading Volume was up 63.3%, when compared to the figures 6 months ago, and it has the potential to hit $614M with one move in the right direction.
This effect heavily relies on another key factor – The Stickiness Factor.
Back in 2017, when Google search results for “Bitcoin” and “Crypto” broke the record, the trading community witnessed a historic Bitcoin bull run and altcoin rally. Institutional interest and growth of Bitcoin derivative products ensued. A similar event transpired when Bitcoin Futures’ aggregated daily volume hit $184B on 27 July 2020. This event was a unique occurrence, and it made Bitcoin Futures stick in the portfolio of the average institutional investor and the derivatives trader.
The aggregate trade volume hasn’t dropped to pre-July 2020 levels since then. Despite drops in Bitcoin’s price on spot exchanges, Futures contracts continue to trade at a premium and there is more optimism. Volume is not directly impacted by Bitcoin’s price and when the spot market is riddled with bearish sentiment, long contracts continue feeding shorts on BitMEX. This stickiness is a driver of the aforementioned tipping point.
Inching closer to the tipping point, the powerful context is the rise of stablecoins and their instrumental role in lowering the barrier to entry on spot and fiat-crypto exchanges.
Over the past three months, stablecoins like USDT have added $100M in volume every day and their market capitalization and dominance have risen tremendously. In fact, Tether has also crossed a market capitalization of $15B.
This directly influences the tipping point for Bitcoin Futures as it makes Futures trading more accessible to traders. Bitcoin held on exchanges has nearly doubled over the past month, corresponding to an increase in Tether’s market capitalization and circulation. This resonates with derivatives traders who opt for physically-settled Bitcoin Futures contracts on exchanges like Bakkt. In fact, on Bakkt, the daily trade volume was upwards of $80M for the past week, while the Open Interest has been consistently above $10M.
All of these factors are highlighting a shift in derivatives traders’ strategy, while also underlining increased activity on derivatives exchanges. The race to the tipping point has begun – An increase in aggregate trading volume on physically-settled Futures contracts or CME may trigger the much-awaited domino effect.
Tron, Synthetix, VeChain Price Analysis: 19 September
Tron was observed to have hit a strong zone of resistance, before being rejected and pushed to the downside, at the time of writing. In fact, such bearish momentum appeared likely to continue for TRX. At a time when Ethereum was increasingly being criticized for high Gas fees and a congested network, it could have been Tron’s moment to shine, but things didn’t pan out that way at all.
TRX was seeing oversold conditions a few days ago when its RSI hit a low of 23, before ascending just past 50. However, the RSI was unable to remain above 50, and its drop beneath the level highlighted the fact that TRX’s recent 12% surge from $0.263 to $0.296 was merely a bounce.
TRX found a zone of strong resistance at $0.3 and looked likely to drop towards the support at $0.265.
Interestingly, a recent Reddit post has raised questions about JustSwap’s vetting process, claiming that the Tron Foundation has whitelisted a DeFi project that has since pulled a $2 million exit scam. This, despite DappRadar listing the project as “high-risk.”
Synthetix underlined the possibility of dropping lower on the charts. The Directional Movement Index did not yet show a strong trend, but ADX (yellow) was inching towards 20 and could move further north. Also, the rising -DMI (pink) denoted a bearish trend.
Over the past week, every SNX bounce off the level of support has been overwhelmed by selling pressure. This can be expected to continue. With the price registering lower highs, the way down remained the path of least resistance for SNX.
The next level of support after $4.23 lay at $3.36, representing a 20% depreciation.
VeChain showed bullishness in the market after a period of consolidation. The Bollinger Bands expanded to indicate heightened volatility, while the price broke out towards the upper band. At the time of writing, the price was staying above the 20-period moving average, a moving average that could be tested as support as VET steadily climbs toward its resistance around the $0.158 zone.
The breakout was also accompanied by high trading volumes, legitimizing the breakout.
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