The Power and Utility of ETH

ETH is the most useful cryptocurrency ever

0xjim

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Coinmonks

7 min readApr 25, 2021

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Disclaimer: This article is made for educational purposes. Hopefully, people find these updates helpful in keeping up with the breakneck pace of progress happening in crypto these days.

This is not financial advice; always do you own due diligence on coins :)

A few weeks ago, Balaji Srinivasan, a well known entrepreneur and crypto advocate, went on the Tim Ferriss Show to talk about the future of Bitcoin.

When asked about how he would spend $100 million dollars as a crypto investor, he said the simplest thing to do was “50/50 Bitcoin and ETH”.

At the time, Bitcoin was trading in the high $50,000s and Ether was trading around the $2300 range.

Today, after two record-setting dumps in a span of five days, Bitcoin is trading at $49,000 and Ether at $2300.

Take away from that what you will.

Truth be told — Bitcoin didn’t interest me initially.

All this talk about a permissionless finance network that dis-intermediating the global banking system seemed a little too farfetched and tinfoil-hatty for my pragmatic, second-semester-senior-year-of-college brain to handle.

No, it was learning about Ethereum that really enticed me down the crypto rabbit hole.

The world’s computer, capable of running programs and apps by leveraging thousands of computers around the world.

An infinity network, where anyone can build anything they want from anywhere in the world — leveraging each other’s code to supercharge innovation.

Programmable money with DeFi. Programmable media with NFTs. Programmable laws with DAOs.

Far more interesting than a peer-to-peer payments system.

And reflecting back to its initial concept, the vision of Ethereum is being realized in a rapid clip.

No other platform can even come close to the number of active developers and number of applications that are built on Ethereum.

Seemingly every week, Ethereum is breaking all-time highs in an array of metrics: daily transactions, total value locked, price of Ether, unique addresses, etc.

There’s so much good news about Ethereum that I could frankly write an entire essay on why I’m so bullish on Ethereum as a technology.

However, today I’ll constrain myself to talking about Ether, Ethereum’s native currency and why it has the potential to be even greater than Bitcoin — because of the sheer usefulness of the asset.

Utility as a Commodity

Ether is the native asset of the Ethereum platform — meaning it’s used in order to process any transaction or state change on the blockchain.

Users and developers use Ether as “gas” in order to “fuel” the applications that run on Ethereum; this “gas” is sent to the miners as a reward for validating the transaction.

Each computation has a set gas price — meaning the more complex the transaction, the more expensive it’ll be.

For example, sending Ether from one wallet to another is relatively inexpensive compared to doing a flash loan to take advantage of a DEX liquidity pool arbitrage opportunity.

Since Ether is used as gas for the network, it intrinsically has utility vs. a pure currency / store of value like Bitcoin.

Thus, people want to hold Ether — similarly how people want to hold oil in order to power machinery.

As the Ethereum network is used more and more, the demand for Ether will increase. And as I mentioned previously, the network is constantly breaking ATHs in terms of network traffic and transactions.

Daily transactions and daily gas (i.e., Ether) used over time. Source: Etherscan.io

Utility in Applications

More than gas, Ether can have a myriad of purposes through decentralized finance applications (I’ll call them ‘dapps’ or ‘DeFi apps’ interchangeably).

Take Maker for example. Through Maker, users can collateralize Ether into a stablecoin pegged to the U.S. Dollar called Dai.

And more interestingly, other dapps like Compound or Aave allow users to collateralize their Dai or their ETH to take out loans or to put them into a “savings accounts” to earn yield.

There’s even far interesting applications of Ether in DeFi that I won’t dive into in this piece for the sake of brevity.

To recap, ETH turns into a yield-bearing asset, or an asset that gives users access to more capital — through DeFi.

You can actually do things with ETH — outside of holding it, sending or receiving.

And this use case of ETH is incredibly popular — with more than $50 billion of assets being used (called ‘locked’) in DeFi applications.

And the best part? There are ten of thousands of insanely smart developers working on making Ether even more fun and more useful to have.

Utility as a Base Pair

A large reason for Bitcoin’s run up in 2017 was due to it being the only base pair with other altcoins. Back then, there were few fiat on-ramps, so investors had to purchase Bitcoin and then swap with the other coin that they actually wanted.

Note: I’m blanking on the source for this statement, but I assure you from lots of people that this was indeed the case in 2017. Maybe I’ll try to look at the historic listings that Binance had — although it’s been hard to find.

When looking at DeFi — especially DEXes on Ethereum like Uniswap and Sushiswap — the main trading pair of these new ERC20 tokens is still with ETH.

The most traded pairs on Uniswap all have something in common… Source: info.uniswap.org

The implication is that for nearly everyone who is trying to trade on a DEX, or trying to get access to a new coin that isn’t listed on centralized exchanges like Coinbase or Binance — they have to first hold ETH before swapping, if they want access to the most liquidity and thus the least amount of slippage (i.e., the ‘cheapest’ way to get that coin).

Utility as a Store of Value

Of course, it stands within reason that — with the inherent utility of ETH and the loads of upcoming news about improving Ethereum — people would see Ether as an attractive store-of-value investment in order to capitalize on the potential growth of the Ethereum platform.

In the past few days, we’ve seen Ether ETFs raise hundreds of millions of dollars of capital — with the likes of CI Galaxy and prominent Canadian investment firms getting involved.

Like Bitcoin, institutional investors and laypeople retail investors want to get exposure to an asset that will, in theory, be a hedge against fiat inflation.

Closing Thoughts

ETH is an incredible powerful asset that shakes the boundaries of what we thought money could do.

Is it money? Yes, you can send and receive it.

Is it a commodity? Yes, you have to use it in order to pay fees for transactions on the network.

Is it a yield-bearing asset? Yes. You can lock it for an interest rate, and you can raise debt against it.

However, despite the power of Ether, there’s still a lot of room for improvement. Namely around the Ethereum network’s transaction throughout — especially as it relates to the high cost of transaction fees as the network gets more and more traffic.

I’ll talk more about how the community is solving those issues in a later post :)

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