Ethereum is gaining momentum: Are fundamentals improving?

On Tuesday, Ethereum (ETH) experienced a 10% gain over 24 hours against the USD. ETH led the broader cryptocurrency market higher amid reports that the Commodity Futures Trading Commission (CFTC) is willing to approve an Ether futures product, provided it meets certain regulatory guidelines.

The so-called world computer cryptocurrency Ethereum has lagged behind Bitcoin (BTC) and the broader market this year amid growing competition for faster and more scalable blockchains. But with the recent news, will price push higher to make yearly highs?

Ethereum futures on the horizon

The decision to approve an ETH-based futures contract wouldn’t be out of the ordinary, as the CFTC has already approved derivatives contracts tied to Bitcoin – its much larger peer. In December 2017, the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) both launched their own version of a Bitcoin futures contract. In more recent news, in March 2019, CBOE announced it does not intend to list any additional Bitcoin futures beyond June, although it didn’t close the door completely on the digital asset class.

By granting an Ethereum-based futures contract, the CFTC hopes to open the door to greater institutional adoption of the current second-largest cryptocurrency. Interest in the CME Bitcoin futures contract has certainly grown over time, but the big mass adoption phase hasn’t happened yet.

One could argue that if the CFTC does pave the way for Ethereum futures, the next step could be the approval of a digital currency exchange-traded fund, most commonly known as an ETF. To get there, fund issuers must satisfy the US Securities and Exchange Commission (SEC), which has refused to grant any crypto ETFs as of yet. So far, no positive signal has been given to any of the proposed ETFs. Last February, there was a new proposal by VanEck and SolidX which later got withdrawn.

Futures markets for Bitcoin were announced on December 1st 2017 and were set to launch on the 18th of the same month. From the 1st to the 17th of December, the value of Bitcoin doubled from $10,000 to $20,000. Then, when the markets finally opened, the price of Bitcoin tanked.

Could we see a similar thing happen with Ethereum?

News on Casper, PoS, and sharding

If Ethereum is to become Web 3.0, it must have a good number of developers working on the infrastructure. In the best case scenario, the altcoin should have a large number of developers working on its core protocol (Ethereum) in addition to a number of developers contributing code to Ethereum’s repositories. Fortunately, Ethereum gives us the best of both worlds as it is ahead of all cryptocurrencies in both categories.

Research of developer activity from January 2018 to February 2019 conducted by Electric Capital shows that Ethereum is king in terms of developer activity, with better results than Bitcoin. It has the largest developer team in the crypto space.

An average of 216 developers contribute code every month to Ethereum’s repositories. The study also emphasised that this count is conservative as developers from ecosystem projects like Truffle, Remix, or other Ethereum-related products like sidechains were not included.

On top of infrastructure developments, Ethereum is also making huge changes that will affect both miners and investors. On February 28th 2019, Ethereum finally implemented the Constantinople hard fork which featured several improvements and changes to the core protocol. The most controversial change was the proposed shift from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) model.

Constantinople introduces a proposed mining model change that not only reduces ETH supply in the market, but also makes the Ethereum network stronger. With a PoS implementation, we could see a greater incentive for ETH holders as well.

The protocol implementation that will bring Casper (Ethereum’s PoS consensus mechanism) to life is currently being developed by two research projects:

• Casper the Friendly Finality Gadget (FFG)
• Casper the Friendly GHOST: Correct-by-Construction (CBC)

The aim is to add a PoS system with the ability to shard, as in the ability to horizontally partition data within a database. More generally, the database is broken into little pieces called ‘shards’ that when aggregated together form the original database. In Ethereum’s case, the database is the main blockchain, and the shards are smaller blockchains (sidechains) connected to the main chain.

There are many advantages of both PoS and sharding, but the most important are:

1. Increased energy efficiency, as PoS is much less energy intensive than PoW.
2. Increased scalability, because PoS allows for much faster transactions as consensus is quicker and sharding allows for blockchain partitioning, meaning smaller blockchains are created for specific purposes.

When both technologies are fully adopted, I can imagine a truly world computer being used by hundreds of dApps with multiple purposes.

Let’s hope that future arrives soon.