The Ethereum Iceberg Illusion

Ethereum is the second-largest market capitalization after Bitcoin (or put differently the second most valuable cryptocurrency). We calculate the market capitalization of Ethereum by multiplying the price of Ether (ETH) with the total supply of Ether coins available. The resulting value represents the total worth of Ethereum. Introducing The Ethereum Iceberg Illusion

Let’s clarify some terminologies before proceeding. Ethereum refers to the project, while Ether (short code ETH) is the name of the coin utilized to pay for the Ethereum service.

Unlike many cryptocurrencies that have come and dropped out of the top 10 most valuable crypto projects, Ethereum has remained in the second place almost since it has launched.

In this article, we are going to take a look at ‘The Ethereum Iceberg Illusion’ by diving into Ethereum’s ecosystem to understand why it’s the second-largest cryptocurrency valuation and why it has remained in that spot since its inception in June 2015.

What is Ethereum

A global decentralized open-source computer that utilizes a distributed computing platform is what Ethereum is. It empowers the creation of smart contracts and decentralized applications, commonly known as dapps.

So, what does that mean exactly and why is it so revolutionary? Let’s take the example of Banks. Banks use powerful data centers (computers) to calculate in real-time what the value of their customers’ investment portfolio is.

Bank data centers

The data center used by the Banks can be in-house or outsourced, but either way, they are gigantic computers located in a very cold room with significant protections. To prevent the loss of valuable customer data, Banks will guarantee that the data center they utilize has a backup, often referred to as a recovery site. This backup replicates the data almost in real-time, or at the very least, daily.

This means that if the main data center burnt down, for example, the Bank would simply connect to the recovery site and continue as if nothing had happened from a customer’s perspective. To prevent both data centers from being destroyed simultaneously by a natural disaster such as an earthquake or tsunami, they are typically physically separated by a significant distance.

While it is a reasonable approach, malicious individuals who determine the locations of both data centers for a given Bank could concurrently bomb them, resulting in the loss of all customer data for that bank. The consequences of that could be catastrophic.

Ethereum

Enter: Ethereum and decentralized applications. The Ethereum ecosystem would allow the Bank to run its calculation engine in a decentralized manner. This means that instead of operating in one centralized data center (and its recovery site), it would operate on thousands of computers scattered around the world, making it virtually impossible to stop or destroy.

Participants to the Ethereum ecosystem put their computer (or computing power) at the disposal of the Ethereum customers. And by doing so they are paid in Ethers (ETH). Similarly, in our example, Banks, who want to run their applications in a decentralized manner, have to pay with Ether.

The potential here is enormous because it allows for businesses that run sensitive applications, to ensure they cannot be stopped. To take down a decentralized computer like Ethereum, the hacker would have to disable all the participating computers simultaneously and that is problematic to do.

The Ethereum Iceberg Illusion

So how many projects or applications run on Ethereum? Simply put, a lot! Many people fail to realize that when examining Ethereum, hundreds of other cryptocurrencies are built using Ethereum at their core.. Meaning that instead of creating a new blockchain for each new cryptocurrency service, most companies use the Ethereum blockchain/ecosystem.

But how many exactly? Well, if we look at the above diagram, it highlights only the biggest project currently running in Ethereum! But that’s only the tip of the iceberg… By visiting etherscan.io, you can precisely determine the number of tokens that are based on ETH. There are, at the time of this article, more than 380,000 tokens created based on Ethereum. Yes, you read that correctly, 380,000.

All those tokens have to use Ether (ETH) to pay the fees to operate on the Ethereum platform. Some individuals argue that we should add their respective capitalization to that of Ethereum to gain an understanding of ETH’s actual value or scale.

This also explains why Ethereum is now suffering from high fees. Its network is in such high demand that the fees have skyrocketed. The good news is that Vitalic Buterin (co-founder of Ethereum) and his team are working on ETH 2.0 that will address the fee issues and make the platform more scalable. But more on that in a future article.

 

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