The killer app of Bitcoin has been said to be speculation. The killer app for Ethereum is the synergies from a rich, diverse dapp ecosystem.
Ethereum exists as a platform to create dapps, decentralized applications that are native to and run on the Ethereum blockchain itself. These dapps can be businesses that interact with the real world like Digix Global, a digital gold custodian operation, or businesses that are purely digital and exist only on the blockchain like a decentralized exchange. In order to run on the Ethereum blockchain, these dapps need fuel in the form of Ether (called "gas" here). These dapps also benefit from being able to use Ether as a lingua franca (reserve) currency to make things work more smoothly within the ecosystem.
This is the highly synergistic design of Ethereum:
- Create Ethereum, a programmable blockchain for dapps to run on.
- Those dapps use Ether which makes Ether more valuable (supply/demand).
- Those dapps bring in more users into the ecosystem which makes Ethereum as a whole more valuable (network effects).
- 3 and 4 combine to stimulate more dapp development and a richer, more interconnected of dapps and users.
- Return to step 2.
- Profit.
This is and has been my thesis for owning Ethereum since the 2014 ICO. If ETH works, it's so highly synergistic that the ecosystem will reflexively (Soros style) build on itself as will the value of both ETH and the successful dapps. If Ethereum and its dapps are collectively successful enough at this and get enough critical mass, there's the potential that ETH will additionally have the hashing power/blockchain security and social network effects to also displace as the reserve cryptocurrency. I am more a believer in the first part of my thesis than the second as Bitcoin is great and has a dominant advantage over all other pure currency-focused cryptocurrencies but you never know.
https://ipfs.pics/ipfs/QmYqd2sTpfNDCoVnSxUuQAcpGKVc7EtGzhiwvYBHFwApAX
Right now there are about a dozen legitimate, major ETH dapps some that are a year or more into development. Here are some: Digix, Maker, Colony, AKASHA, ROULΞTH, Plutus, REIDAO, vDice, SingularDTV, Braveno, Etheropt, otlw, Etherdelta, Swarm, Gnosis, Augur, Velocity, FreeMyVunk, RealityKeys, Golem, EOL, ConsenSys, ICONOMI, EthSlurp, Decibel.LIVE, cPay, Rex, DinarDirham, Embark, Dindle, Ownage, Sphere10 Software, KingOfTheEther. I would go on in depth about many of these projects and how exciting they are but that is beyond the purview of this article. Suffice to say there are far more dapp projects now than I would have expected by this time when I participated in the ETH ICO 2 years ago. It's incedibly exciting to be part of it.
The above thesis supports owning ETH today. A valuation I did last week backs into a $23 price or $1.9 billion market cap for ETH, double today's $11 price. This is not without risks and that piece actually assumes that it is more likely than not that Ethereum fails altogether. One way it could fail is if either no dapps end up existing on Ethereum or no dapps are ever successful. In that situation, Ethereum really has little reason to exist and ETH has little reason to have value. It would be Yet Another Crypto Currency (YACC) and it would be insufficiently differentiated from Bitcoin to matter. Its value would be somewhere between $0 million and Litecoin's value ($184 million as I write this). I personally would not be an ETH holder in that situation and Ethereum would be on its way to the dust heap as an ambitious, failed experiment.
Which brings us to ETC. After Monday's and Wednesday's (2nd link is just 1 of many "I am 100% ETH" posts across the Ethereum sub) declarations by all major dapp developers of their firm commitment to ETH and not ETC regardless of market cap or hash rate, ETC is just Ethereum without all that which makes Ethereum valuable. So what exactly is that? Is there more there or not? With my Ethereum investment thesis as a jumping off point and as a follow-up to last week's ETC valuation, I will explore what kind of experiment ETC, the dapp-less Ethereum chain, is in my next piece.
Disclosure: I do hold ETH and have since the ICO. I actively evaluate almost all the projects in the Ethereum space and the decentralized consensus space in general and hold tokens for some dapps listed above. I hold no ETC but I do have a 444 ETH buy order for ETC @ .00555 ETH/ETC (0.555%), which is where there is enough margin of safety.
"...or no dapps are ever successful."
Being a DGD, REP and MKR hodler, that right there is my fear.
You have to think long-long-term though and remember that the truly amazing and successful dApps probably haven't even been thought up yet.
Agree with that, nobody knows what will work best and we're in uncharted waters.
Great stuff and I generally agree.
There are big open-ended questions not addressed in the piece though, around the money-supply and consensus algo. What makes ETH still very high risk now and what's suppressing price IMO is the pending switch to proof-of-stake. If this is pulled off succesfully, I think the market will view that very favorably and the price will increase.
Agree but it's also a huge risk. It just might not work at all.
Of coming Dapps I'm waiting for development of Gnosis http://gnosis.pm/ . They are going to start crowdsale in Aug - Sept. Augur is already working on testnet, but Gnosis is getting more support from EF it seems to me. Regretfully almost all releases were delayed after TheDAO mess.
DEVCON-2 will show many interesting things.
As for ETC, if you hold ETH, you should get the same sum in ETC now. I dumped my ETC on the first Poloniex day, have lost a bit, of course... I really don't see any use for ETC but speculations. As to that DAO story there's great post of avsa (Mist author) on Medium https://medium.com/@avsa/the-truth-about-the-fork-fd040c7ca955#.fasfrira7
Thanks for sharing that link, a very thoughtful piece.
I'm also looking forward to Gnosis. I am a big fan of Koppelmann, its founder.
I think genuinely so that community is treasure and synergy of Ethereum and Dapps is the key to growth.
Thanks for posting this, I have heard ETH is cool and now I see why. All those dapps will probably generate lots of data, is blockchain bloat a problem?
And how hard is for a dapp to switch from ETH to ETC before it is launched? (assuming no incompatible changes to protocols and VM)