As Ethereum Surpasses $100 Billion, Can Powerful Decentralized Applications Justify its Market Cap?
Ethereum, the smart contracts protocol that supports decentralized applications, has surpassed $100 billion in market valuation for the first time in its two-year history.
Over the past three months, Ethereum has seen the emergence of some of the most popular decentralized applications in the market such as digital kitten breeding and trading platform CryptoKitties, and peer-to-peer cryptocurrency exchange EtherDelta.
While it is easy to dismiss the significance in the growth rate of CryptoKitties given that it is an entertainment platform and a collectibles game, as experts like Andreessen Horowitz (A16Z) partner Balaji Srinivasan stated, CryptoKitties holds much more value and potential than a simple online game. It has shown the possibility of seamless digital asset trading using a decentralized marketplace. The token, which is the digital cartoon kitten in the case of CryptoKitties, could be replaced with any digital asset and the platform can operate as a digital asset trading platform, like a stock market.
EtherDelta and other decentralized exchanges like 0x are similar in concept, as they are capable of processing digital asset trades between investors on a peer-to-peer basis. The global stock market is a multi-trillion industry and the total addressable market of the Ethereum blockchain network and decentralized applications on it is truly massive.
However, it is highly impractical and inaccurate to provide a market valuation of an asset or a platform based on its total addressable market (TAM). If assets are valued based on their TAM, then every cryptocurrency in the market could have a multi-trillion dollar market cap and it could be justified.
Considering that Ethereum is a network designed for decentralized applications, only the platforms launched on top of the Ethereum network can provide an accurate market valuation for the Ethereum network. Apps like CryptoKitties, EtherDelta, 0x, Augur, and SALT can justify the market valuation of Ethereum.
Evidently, although the Ethereum network is processing more than 1.5 million transactions per day, more than all of the other cryptocurrencies in the market combined, an argument can be presented on the overvaluation of Ethereum. But, relative to the market valuation of other cryptocurrencies, the current market valuation of Ethereum is fair.
While EtherDelta and 0x are processing a high amount of trades on a daily basis, they are not processing as many as centralized exchanges like Binance and Bittrex. The failure of the two apps to process as much trades as leading exchanges links back to the scalability issue of Ethereum, which is being worked on by Ethereum developers through innovative solutions like Casper, Sharding, and Plasma.
Once scaling solutions on the Ethereum network are fully implemented, the flexibility of decentralized applications will increase and the capacity of the network will expand.
In the short-term, there are a few developments being worked on, including an upgrade to the current ERC 20 token standard, which ICOs use to launch their tokens on top of the Ethereum protocol.
Aragon co-founder Jorge Izquierdo tweeted his optimism for the new token standard, explaining how this will benefit Ethereum:
ERC777 has potential to be the new, much more powerful ERC20.
– Token transfers can trigger actions in smart contracts ?
– Can be backwards compatible with ERC20
– Will prevent token losses
– Based on EIP672
– Led by @jbaylina instead of an ETC trollhttps://t.co/XZWiziGyKt
— Jorge Izquierdo (@izqui9) January 4, 2018
Omise founder and CEO Jun Hasegawa also emphasized that given the rapid development of the Ethereum network (ERC 777 and scaling), it is beneficial for both Ethereum and decentralized applications on the protocol to build real products instead of competing.
— JUNΞ (@JUN_Omise) January 4, 2018