• Digital Assets

    Ethereum: Crypto’s Evolutionary Platform

    Martijn Rozemuller, CEO – Europe
     

    Growing positive momentum is driving the Ethereum platform and its Ether currency forward.

    When the artist known as Beeple sold a digital artwork in early March through Christie’s for $69.3m, he used non-fungible token (NFT) technology lodged on the Ethereum platform. Following the success of his experiment, British artist Damien Hurst and others are set to follow, bringing a new dimension to the art world.

    The Beeple collage ‘Everydays: the First 5,000 Days’ was a single composite jpeg file of digital images sketched every day for more than 13 years. As an NFT, it’s a one- of-a-kind asset that cannot be interchanged. The token is a certificate of ownership.

    Just as the art world experiments with its future on Ethereum, so the crypto platform is establishing itself as the place where a range of old-world sectors are discovering, through trial and error, where they fit in the new digital world. Most commonly, the finance sector is leveraging it to tokenise assets on the blockchain, exploring a new digital frontier.

    Cumulative Return of Ethereum (31 Dec 2015 – 31 Mar 2021)

    Cumulative Return of Ethereum

    Source: VanEck. Data as of 31 March 2021. Past performance is no guarantee of future results.

    Technically speaking, Ethereum is a decentralised, open-source blockchain technology and software platform that enables peer-to-peer, or ‘smart’, contracts as well as decentralised applications. For those wishing to play the rise of Ethereum, its Ether currency is gaining value in the cryptocurrency world as the platform gains ground.

    For the period from December 2015 to March 2021, the Ether appreciated by an annualized 273%, albeit with the volatility that one expects of a cryptocurrency. For comparison, Bitcoin was up just under 180% on an annualized basis.

      Annualized Return Standard Deviation Sharpe Ratio
    Ethereum 273% 184% 1.35
    Bitcoin 179% 85% 1.61

    Source: VanEck. Data for the period 31 December 2015 – 31 March 2021. Past performance is no guarantee of future results. Ethereum is represented by the MVIS CryptoCompare Ethereum PR USD Index, Bitcoin is represented by the MVIS CryptoCompare Bitcoin PR USD Index.

    Gaining Market Share

    Compared with Bitcoin, Ethereum and its Ether currency are relatively young. Bitcoin was unveiled in 2008, at the time of the global financial crisis, while Ethereum was only launched in 2015. They have very different purposes – Bitcoin is designed as the base layer for a new monetary system, while the Ethereum blockchain technology can make computations in its own right.

    What’s more, Bitcoin’s supply is limited – hence it’s dub-bed ‘digital gold’ due to its attractions for some investors as an inflation hedge. Ethereum’s ability to allow smart contracts to run on decentralised applications has caused many to think of it as the ‘world computer’.

    In addition to the Ether, 9 of the top 20 crypto coins by market capitalisation are (partly) based on Ethereum’s platform (as of 16 April 2021). When combined with the numerous other applications, they have lifted Ethereum’s market share from 7% in 2019 to 12% in 2021, giving it a market capitalisation of $278bn in April 2021, second only to Bitcoin. Looked at another way, by number of transactions processed on the blockchain, Ethereum trumped Bitcoin since 2017.

    # Coin Market
    Capitalization
    Based on
    Ethereum
    1 Bitcoin $ 1,141 bn  
    2 Ethereum $ 278 bn Yes
    3 Binance Coin $ 79 bn Yes
    4 XRP $ 71 bn  
    5 Dogecoin $ 49 bn  
    6 Tether $ 47 bn Yes*
    7 Cardano $ 44 bn  
    8 Polkadot $ 40 bn  
    9 Uniswap $ 19 bn Yes
    10 Litecoin $ 18 bn  
    11 Chainlink $ 17 bn Yes
    12 Bitcoin Cash $ 16 bn  
    13 Theta Network $ 15 bn Yes
    14 Stellar $ 13 bn  
    15 Filecoin $ 12 bn Yes
    16 USD Coin $ 12 bn  
    17 VeChain $ 11 bn Yes
    18 TRON $ 10 bn  
    19 Wrapped Bitcoin $ 9 bn Yes
    20 EOS $ 7 bn  

    *Tether USD is issued on Omni (Bitcoin Sidechain), Tron and Ethereum Source: coingecko.com on 16 April 2021.

    Three Types of Application

    Although still in its infancy, Ethereum may prove to be the innovation that allows blockchain technology to fulfil its true potential. Broadly speaking, it hosts three types of application.

    Decentralized Applications

    These run on a peer-to-peer network of computers, in contrast to a normal app where the code runs on a centralised server. The CDP (“Collateralized Debt Position”) of MakerDAO is an example of a DApp.

    Decentralized Finance

    This application aims to democratise finance by removing the middle men from transactions, giving access to everyone. It can be used for decentralised trading exchanges. A prime example would be the Uniswap protocol to trade and create liquidity in ERC-20 tokens

    Decentralized Anonymous Organisations

    These are new types of organisations, again more democratic than today’s. They use blockchain technology to remove the need for central authority, leading to a flat organisation without the bottlenecks created by hierarchy. Token holders govern this “DAO” and vote for decisions in a decentralised fashion. MakerDAO, the issuer of ETH-backed stablecoin DAI is such a decentralised autonomous organisation.

    Flourishing Ecosystem

    An ecosystem is evolving on and around Ethereum. There are now more than 3,000 applications and the number is growing steadily. Notably, it’s an ecosystem full of experimentation, where some apps have thrived and others have not.

    It’s best known as a platform for finance, where trading, lending and investment applications are becoming established. However, there are also social networks, advertising apps and prediction markets. Another well-known application is games, with digital collecting crazes like CryptoKitties taking the place of their old physical equivalents.

    Testifying to the potential the business world sees, some leading organisations have formed the Ethereum Enterprise Alliance dedicated to developing its use in their daily business. To name just a few, members include companies such as Accenture, Bank of New York Mellon, EY, Intel, JP Morgan Chase Bank, Microsoft, SAP and Standard Chartered Bank.

    The ‘world computer’s gathering momentum What’s clear is that Ethereum’s ‘world computer’ has become an ecosystem where businesses, artists and others are experimenting with blockchain’s new opportunities, seeking to learn from and collaborate with one another. As in the theory of natural evolution developed by English naturalist Charles Darwin, the fittest will survive and prosper.

    For Ethereum and the Ether currency, that adds up to growing positive momentum.


    Index Definitions

    All indices are unmanaged and include the reinvestment of all returns but do not reflect the payment of transactions costs or expenses that are typically associated with digital assets portfolios. Indices were selected for illustrative purposes only and are not securities in which investments can be made. The returns of actual accounts investing in digital assets are likely to differ from the performance of each corresponding index. In addition, the returns of accounts will vary from the performance of the indices for a variety of reasons, including timing and individual account objectives and restrictions. Accordingly, there can be no assurance that the benefits and risk/return profile of the indices shown would be similar to those of actual accounts managed. Performance is shown for the stated time period only.

    The MVIS CryptoCompare Bitcoin VWAP Close Index measures the performance of a digital assets portfolio, which invests in Bitcoin. The MVIS CryptoCompare Ethereum VWAP Close Index measures the performance of a digital assets portfolio, which invests in Ethereum.

    Important Disclosures

    For informational and advertising purposes only. This information originates from VanEck (Europe) GmbH, Kreuznacher Strasse 30, 60486 Frankfurt am Main. It is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. Views and opinions expressed are current as of the date of this information and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. VanEck makes no representation or warranty, express or implied regarding the advisability of investing in securities or digital assets generally or in the product mentioned in this information (the “Product”) or the ability of the underlying Index to track the performance of the relevant digital assets market.

    The underlying Index is the exclusive property of MV Index Solutions GmbH, which has contracted with CryptoCompare Data Limited to maintain and calculate the Index. CryptoCompare Data Limited uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the MV Index Solutions GmbH, CryptoCompare Data Limited has no obligation to point out errors in the Index to third parties.

    MV Index Solutions (MVIS®) develops, monitors and markets the MVIS Indices, a focused selection of pure-play and investable indices designed to underlie financial products. They cover several asset classes including hard assets and the internal equity markets as well as fixed income markets. MVIS is the index business of VanEck, a U.S. based investment management firm.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.

    © VanEck (Europe) GmbH.


  • Important Disclosure

    For informational and advertising purposes only.

    This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.

    All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KIID before investing.

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    © VanEck (Europe) GmbH

     

  • Authored by

    Martijn Rozemuller
    CEO – Europe

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