Why Ethereum Is Insanely Valuable!

The ethereum cryptocurrency has been on an absolute tear over the past few weeks, and this has attracted a lot of new eyeballs into the space, and many people are trying to understand like why this is happening.

Why is ethereum so valuable? Well in this video, i want to lay out legitimate reasons as to why ethereum is actually valuable as a crypto asset and why people would want to hold it. I'm, going to explain that as a blockchain developer, who works this technology on a daily basis.

So if you're new around here, hey i'm gregory and on this channel i turn you into a blockchain master. So if that's, something you're interested in then smash that, like button down below for the youtube algorithm and subscribe to this channel, and if you want to become a blockchain master step by step, start to finish.

Then, head on over to dap university.com for slash bootcamp to get started today and last but not least, i hate these disclaimers. This is not financial advice. Nothing! I'm saying this. Video is designed to tell you to buy or sell any cryptocurrency and there's.

Lots of scammers down in the comment section below just ignore them. I'll, never give you my phone number or ask you to invest with me. So let's. Talk about why ethereum is valuable in the first place, and so really quickly.

I'm. Going to talk about ether is actually the asset itself, the cryptocurrency that's kind of an important distinction to make. I know i say ethereum and the video titles and all that kind of stuff, that's, because what people are searching for online, but ether is actually the cryptocurrency and ethereum is the blockchain that it runs on top of and ethereum.

The actual technology is very sophisticated and a sense of it does a lot more than what bitcoin does. It allows smart contracts where you can write programs that run on top of a blockchain and that's, giving birth to this new industry of decentralized finance or d5.

Over the last year, we're talking about more that in a minute, but first and foremost, when i'm talking about eth being valuable, i mean actually ether the cryptocurrency itself. Now let's, talk about where the actual value comes from, because this can confuse a lot of people, because cryptocurrencies don't work exactly like stocks or commodities or other things that people would normally value in traditional financial markets.

But there are some layers that i'm gonna talk about in this video, but we can first and foremost, you know distill it down to a key principle that the value comes from the supply and demand. Just like anything else.

When the demand increases relative to the supply, that means the prices go up. You see that in the stock market you see the real estate markets and the same is true for the crypto markets. But let's. Talk about some key things that would actually make people demand to hold ethereum or ether the asset itself.

So these reasons aren't in any particular order. We're, just going to go through them one by one, but the first reason why people might want to buy ether and therefore make the price go up, is really just financial speculation.

We're, seeing a lot of positive momentum for ether, and some people just want to catch that wave because they have a good feeling that the price is going to go up. I think a lot of the users we've, seen flow into the space of the past.

You know few weeks to a month are definitely here predominantly for that reason, but let's. Talk about a lot more reasons that will give ether long-term value, okay, so the next one is store of value.

So this is the hypothesis that people have been sort of testing out over the past year. So bitcoin has adopted this narrative as being a store of value, a hedge against inflation. It has a you know, capped uh supply of 21 million bitcoins.

Well, ether has a very similar value proposition. You know as a store of value uh to where people can put money into it, and it can see that appreciation over time it doesn't. Have the finite supply cap like bitcoin, does but has a different economic policy that could potentially be better than bitcoins and actually be deflationary.

We'll talk about that more here in a minute, but that's. Another reason that people buy ether want to hold on to in the first place is a store of value, so the next reason people want to buy ether is to pay for transactions on the ethereum network.

So i talked earlier before about how ethereum is a world computer, a smart contract platform. We've, seen the birth of a brand new industry on top of the ethereum network, called decentralized finance or defy, and this has a pretty good chance of stealing market share from the traditional financial system it's also got the promise Of a brand new landscape of financial infrastructure that we can build upon for the future, and so when users want to do anything on this network in terms of creating new transactions, they have to hold ether in their wallet to pay the fees.

And so, if anybody wants to do anything, they have to buy ether first before they do this, and that actually does put by pressure on the asset itself potentially affecting the price. So the next reason that people want to hold ether is to stake it.

So this is a unique advantage of ether over bitcoin, so how ethereum works whenever we move to ethereum 2.0, fully, which we're, not there. Yet we're on a transition period from east 1.0 to east 2.0, but whenever e 2.

0 fully releases, then you'll, be able to stake your cryptocurrency on the network. You can actually do it now. You just can't, get it back until the release happens. So what does this mean? Well right now we have a proof of work on bitcoin, which is mining also the same thing for ethereum, that's, how it works.

Now we have miners, but in ethereum 2.0 these miners are going to get replaced by validators. They help run the network and in order to run a validator, you stake your ether to it and you can earn a passive income reward for doing that.

So there'll, be lots of people who are holding ether in order to stake it to earn this passive income reward on top of the price appreciation. This has a ton of tax advantages for people who bought youth early watch.

It rise in price, don't have to sell it and can just earn residual income on top of that kind of like a dividend paying stock. So another reason that people are buying ether is to use it in decentralized finance or defile.

Like i was talking about a second ago, there are lots of different d5 apps out there, where ether is a very valuable asset. One of the most popular d5 apps right now is uniswap, where you can. Actually, you know trade cryptocurrencies in a decentralized way it's called a decentralized exchange or dex, and eth plays a huge role in the liquidity pools on this application.

It's, the common pair. So if you want to supply liquidity to this defy app and you have to hold ease in order to add your tokens to the protocol, we're, seeing other decentralized finance applications like maker dow that controls the die stable coin.

We're, seeing lots of eth uses collateral in those applications to mint a stable coin. On the ethereum network, i mean you can use ether collateral in so many different default applications, and i'm, really just scratching the surface on these use cases, but that's.

Another big reason we're, seeing eth actually get locked up into d5 protocols, and this is another reason why people would demand the cryptocurrency itself and not sell it, and so of all these reasons on this list, some of them have a lot of Long-Term value, in reasons why people want to hold eth long term and not sell it, because it can actually turn it into a productive asset.

So, like i was talking about d5, they can send it lock it up into d5, make more money with it. They can stake it on the ethereum network to earn passive income that way and they can use it as a store of value to just capture that long-term price appreciation and you don't have to just take my word for this type of thing.

You can actually validate it on the blockchain itself. This is one thing that also makes the theorem really valuable. It's transparent. You can see what's happening and you can help. You know create your own investment thesis just based on publicly available data, so i '

Ve got a website. A glass node here pulled up where you can track the balance of ethereum on exchanges versus supply and smart contracts, and you ' Ll. See the trend uh for exchange balances basically places where people want to hold ethereum in order to sell it.

It's, leaving centralized exchanges and it's going up into smart contracts, which is a pretty good indicator of. You know heath that's, getting used for defy, and you can see that you know almost a quarter of the entire supply of ether is being held in smart contracts, and so you could derive that.

You know at least a quarter of the supply is being productive right now and then you can compare that and actually add the numbers up for the total amount of each that's been sent to the deposit contract for each 2.

0 staking, and this Is a huge number, so the data shows at least on the short to midterm, that a large part of the e-supply people, just don't, intend on selling it because they actually see value in it.

For the reasons that i just talked about - and so these are the reasons that ether is actually valuable, then how do you value it? How do you even arrive at a close price point for what the fair market value of each should be? Because again, this is still challenging it doesn't work like a stock.

You don't, have the same uh. You know metrics, like price to earnings that you would in the stock market. You can't use the same models that work over here and just apply them directly to cryptocurrencies.

But there are some things that you can look at to determine like whether the assets overvalued or undervalued, especially relative to other cryptocurrencies, and so i'm talking about those right now. So one metric that people can use to kind of determine the value of a cryptocurrency network compared to other cryptocurrencies is a price to fees ratios.

This is kind of like a price to earnings ratio in the stock market, but slightly different, okay, so really what it does is it uh tries to look at the number of fees paid to a cryptocurrency network like ethereum versus bitcoin or even decentralized finance apps, like Uniswap, for example, and we look at the number of fees that get paid to the actual protocol itself.

So this is an indicator. People's, demand uh for the actual network and to do things with it. So, basically, you can see ethereum's, uh daily fees right here compared to like bitcoin's. Daily fees, i mean people are spending way way way way more money to use ethereum network than bitcoin network.

So this leads people to think that the bitcoin that ethereum is undervalued relative to bitcoin in terms of its market caps and as like the unit price. But the actual market cap itself, which means people, think that ethereum can potentially be worth more than bitcoin uh and actually become the leader, because the number one cryptocurrency by market cap based on this price to revenue model.

Here and even in this case, you can see that an app like uni swap uh, the decentralized cryptocurrencies i was talking about a minute ago - has generated more fees than bitcoin the past day here and pretty close to it on the past seven days now, of course, There'll, be counter points to that people will say: hey well, people don't use the bitcoin network in the same way they buy bitcoins and store value to hold it.

They don't want to pay for things. So you wouldn't, see transaction fees being as high, so it's, not a perfect metric, but it's. One way that you can see there's, a lot more activity and innovation happening on top of the ethereum network than something like bitcoin, for example, and you can use this as a benchmark to try to compare the two cryptocurrencies and say hey.

Why is this one more valuable than this? Should this one should this, be? You know repriced in some way, and it's, really just a tool that you can add to your tool belt. It's, not it doesn't. Give you a formula to determine that hey.

This is the exact fair market value for this, but it can help you kind of get close in relative terms compared to what the market says right now. Another evaluation model is using metcalfe's law, so this is something they got really popular in the dot-com boom.

Where we're. Talking about you, know the value of telecommunications networks being proportional to the square of the number of users. On the network, so you can see that illustrated here. Uh, like you, see a telephone network.

If it has two phones there's, one connection: if there's, five phones, there's. You know 25 connections, it's, the square right and you have more phones. You just keep squaring that number so uh. This is people are applying this to actual cryptocurrency networks and saying that this value actually applies to the assets itself that you start to see this uh.

You know correlation and the history supports that thesis, and so, if you look at you know the number of active addresses on something like the bitcoin network, so that's. Ethereum here's bitcoin. You can see this going up like this, and you can see what the price is doing relative to that.

You can also see here on the ethereum network. Okay - and this is something else you can use to compare other cryptocurrencies to one another. To try to determine are they undervalued or overvalued relative to one another, and you can even lay these metrics on top of one another and see the address growth of the bitcoin network compared to the address growth of the ethereum network? And you can see uh.

You know the trend uh changing here. You can see that the ethereum growth is starting to be parabolic compared to bitcoins, which is kind of plateauing out here, and so these are some different metrics that you can use to actually evaluate the price of cryptocurrency projects.

Again, these aren't formulas. You don't just like plug these numbers in and do this special math to find the exact price that it's supposed to be. But they are metrics that actually indicate the demand for the networks themselves and that that demand can actually accrue to the value of the asset itself based upon the supply and demand economics that i talked about earlier, and this can kind of get you in the ballpark.

For relative terms of whether you know cryptocurrencies are overvalued or they're undervalued, especially compared to other cryptocurrency projects and the huge beauty of blockchain technology. Is you can actually audit all this stuff on the chain yourself? It's fully transparent.

You can see this stuff drive the metrics and clearly see you know what's happening so that's, an overview of why ether is so valuable why people want to demand in the first place again. A lot of this is based upon just simple supply and demand economics, the more reasons that people want to hold it relative to the supply.

Then the price you know goes up and with eth we got some really exciting developments coming down the pike uh with the network upgrade that's happening in july, where part of each is going to get burned whenever new transactions are created, and so This can actually cause eth to be deflationary at times and potentially even by nature.

If there's enough activity on the ethereum network, which very well could happen, if really does become, you know the global sediment layer for a brand new financial system, and this would cause you know, east - to be net negative issuance compared to bitcoin's, you know hard cap supply, which is another reason why, if you, you know affect the supply side of things.

Basically, if there's, no ease to buy or there's less east to buy and the demand even just stays the same or plateaus, then that alone could cause a price to go up. But if you add both of these things together, you know increasing demand, decreasing supply and that's, potentially the formula for an explosive eath price, especially over the long term.

So, as always, not financial advice, there's, no guarantee that these things are going to happen, but these are some real fundamental things that are affected by the technical aspects of the blockchain itself.

That you need to know about so hope. You like this video, as always smash that, like button down below for the youtube algorithm subscribe to this channel, if you haven't already, that really helps these videos out.

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