Is Ethereum too expensive?

I’m not referring to the Ethereum token (EYH), but to the gas fees associated with using the Ethereum blockchain, the main ‘go-to’ for DeFi. Will Gottsegen in a fine opinion piece for Coindesk quotes a crypto investor named Zhu Su who pulled no punches last weekend, when he tweeted, “Yes Ethereum has abandoned its users despite supporting them in the past. The idea of sitting around jerking off watching the burn and concocting purity tests, while zero newcomers can afford the chain, is gross.”

Before we go any further, Gottsegen says we should be aware of the fact that Su is a founder of investment firm Three Arrows Capital, which is betting big on an Ethereum competitor called Avalanche. So there is an agenda behind Su’s attack on Ethereum, but he may have a point about the gas fees.

If you want to use dapps, explore DeFi protocols, or get in on the NFT (non-fungible token) trend, you will eventually come up against Ethereum’s fees which – at this point in the development of the blockchain – can be shockingly high, as Gottsegen says. He points out that minting an NFT on Ethereum will generally cost between $60 and $250, depending on the time of day and the stress on the network. And the more users there are competing to get their transactions through, the higher the fees go.

Gottsegen describes his own experience when he tried to swap “about six cents worth of ETH for 50 Pisscoin”, the latter being an Ethereum-based token he was researching for a story, only to be told “I would need to pay an additional $616.10 for a transaction that might clear in about 40 minutes.” What is more, if the transaction failed the fees would be lost forever, as is the case with crypto.

Of course, Ethereum has its many defenders. Crypto venture capitalist Chris Dixon, whose company, Andreessen Horowitz, is heavily invested in the Ethereum ecosystem replied to Su’s tweet suggesting that the network is still in its infancy, and that infrastructure may eventually make things cheaper and easier to use.

But at the moment infrastructure is minimal. Polygon, a so-called “layer 2″ scaling product built on top of Ethereum, is designed to make fees a little cheaper. Other networks, like Solana, are betting that users may just ditch Ethereum altogether.

Gottsegen concludes by saying, “As it’s now set up, Ethereum is like a poker table with a high buy-in. Everyone else will have to wait for a cheaper option.”

Kraken grabs ‘top influencer’ spot for 2021

According to a recently published study from Utility Bidder , the fintech sector is set to surpass $382 billion in 2027. It also estimates that blockchain-specific fintechs are likely to be worth in excess of $67.4 billion in the same timeframe. The report also had good news for Kraken, which it named the most influential blockchain company of 2021.

The Utility Bidder study analysed 50 fintech firms selected from the Forbes’ Fintech 50 report. They used four factors to assess each firm: total funds raised, the latest known valuation, number of Twitter followers, and the global searches stemming from Google Ads Keyword Planner between August 2020 and July 2021. Each one was given a score out of 10 for each factor, and as the report’s results show, Kraken was a very clear winner with a total influence score of 5.64.

Kraken is one of the largest cryptocurrency exchanges in the world and also was the most followed fintech company on our list, with a Twitter following of over 780,00, far more than the majority of other fintechs Utility Bidder looked at. It is now available in over 170 countries around the world, with over 70 cryptocurrencies available for trade Kraken also recently became the first crypto exchange in the United States to be granted a special purpose depository institution (SPDI) charter.

Gemini, in second place, only managed to achieve 2.33, while the others in the top 10 didn’t even manage to score 2 – Alchemy at the eight spot only scored 1.10. It is interesting to note that Kraken has a valuation of $20 billion, whilst Gemini’s valuation is around $5 billion. Alchemy has a valuation of only $505 million.

Robinhood is another winner

In terms of financial technology as a whole, the top five fintech firms include Robinhood, Stripe, Kraken, Klarna, and Wise. Robinhood clocked up a score of 7.22 for being the “most searched for” fintech on this list, with over 28 million searches in the last twelve months, and they’ve also raised the greatest VC funding with $5.6 billion. As the report says, Robinhood is one of the big boys of the fintech world, with over 13 million users using the app to invest in stocks and funds commission-free.

Stripe, the software as a service company that has changed the game when it comes to payments, with no monthly or setup fees and no hidden costs scored 6.07. Started by two brothers in Ireland, Stripe is now worth an estimated $95 billion having experienced rapid growth and it is now investing in other start-ups such as Monzo.

Thinking about crypto as money

There are a number of people in the financial world who make derisory remarks about cryptocurrencies ever becoming accepted as ‘real money’. Their arguments point to its volatility, which they say makes it impossible “for cryptocurrencies to serve what traditional economics describes as the three functions of money: 1) a medium of exchange, 2) a store of value, and 3) a unit of account,” as Michael J. Casey writes at Coindesk.

Casey suggests that this argument doesn’t work if “the three functions framework is based on a flawed, or overly narrow, definition of money.” He points us towards a book by Felix Martin ‘Money: The Unauthorized Biography’, in which the author says that historically people have had a flawed view of money as a “thing”, i.e. a banknote, but he says that it is really “a socially invented governance system for tracking transfers of property and clearing debt in a commonly trusted manner.” Martin believes we have “fetishized” money as something to be owned and accumulated, rather than seeing it as a means to an end.

In Martin’s view a nationally accepted currency, such as the dollar, is merely a tool that makes it easier to carry out transactions “across a community of otherwise untrusting strangers.” Casey says this makes cash similar to a decentralized, peer-to-peer record-keeping device. Still, it is difficult to challenge the dominant thinking about national currencies, which are effectively a system of social organization and control in sovereign states. But is this the only way to think about money?

Cryptocurrrencies do challenge the sovereign state narrative about money, simply because they are “censorship-resistant, geography-agnostic value transfer systems.” They provide rules and a framework of trust for users without needing to draw their authority from governments, although as Casey mentions, crypto users still have to follow the laws of their governments around cryptocurrencies.

Casey also argues that while some see Bitcoin as a replacement for the dollar, there is a bigger picture to consider, and that is the potential of digital assets to dispense with the need for universal common currencies altogether. As he correctly says, we are a long way from that happening. However, if interoperability protocols and transaction processing can be scaled in a properly decentralized manner, allowing cross-chain atomic swaps in mass numbers without having to trust intermediaries, something like a global system of fractionalized digital value exchange could be realised.

According to Casey, central banks in Singapore and the United Arab Emirates are already exploring interoperability solutions for their central bank digital currencies (CBDCs). This is a move that threatens the status of the dollar as the world’s reserve currency. If this happens, crypto could become a universal unit of account. Casey concludes by pointing out that if the dollar’s role is diminished then “the role of bitcoin, ether, NFTs and other digital assets could increase.” And how we think about money will have changed as well.

Is Bitcoin Evergrande’s hostage?

After the excitement of bitcoin breaking through $68k to reach a new ATH, we were all brought back to earth again on 10th November, as the price dropped and it looked as though there had been a minor bloodbath in the crypto world, with so many tokens showing red. Why did it happen? One theory is that conflicting announcements about Evergrande, the Chinese property giant caused the wobble due to questions about whether or not it would default on its overdue loan payments.

Evergrande Group is China’s second-largest property developer and has debts of $300 billion, a significant amount for sure, and there is a fear that if it defaults it could cause a collapse across the world’s financial markets. According to Cointelegraph: “Two minutes after Evergrande’s payment was due, the Deutsche Markt Screening Agentur (DMSA) issued an announcement on Nov. 10 at 4 p.m. UTC stating that it was preparing bankruptcy proceedings against Evergrande.” Shortly after that, bitcoin’s price fell to $62,800 over the course of several hours.

Another media outlet also published information saying Evergrande had defaulted, supposedly confirming the approach of disaster, and it wasn’t until  Bloomberg issued a story saying that it hadn’t that the price of BTC started climbing again. Eventually, the price started to stabilise around $64,500 when Allison McNeely of Bloomberg tweeted “contrary to what you may have heard ~on the internet~ Evergrande did not default today.”

A collective sigh of relief reverberated around the globe amongst bitcoin owners, but the spectre of Evergrande has not gone away. William Fong, senior trader at Australian crypto-asset investment platform Zerocap, commented that whilst Evergrande had not defaulted, he does not believe it will be bailed out any time soon, because “Chinese regulators were the initiators of a cap aimed at over-expansion in developer’s leverage.” He added, “This has created potential contagion risk across the entire property developer space and has expanded towards financial institutions and industries dependent on the sector as well.”

A stock market meltdown is another fear in the cryptosphere, and there are questions about the amount of Tehther’s exposure in terms of ‘commercial paper’, which is a corporate debt note with a short expiration date, usually under a year. Tether says it doesn’t have any in Evergrande, but the fact that Tether has about fifty percent of its reserves in commercial paper valued at $30 billion is making some rather nervous, especially as some of this commercial paper is in Chinese companies.

There will always be fears around markets, but we must hope that we’re not all forced to hold our breath every time Evergrande has to make a payment, or bitcoin and its owners will be held like hostages every month.