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An Introduction to Ethereum

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An Introduction to Ethereum ( an-introduction-ethereum )

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More Grayscale research papers and investment theses are available at: www.grayscale.co/insights 12|19 Potential Advantages to Ethereum The design of the Ethereum protocol leads to three potential advantages when compared to traditional financial institutions, payment channels, and other digital currency networks: 1. Pioneering smart contract capability: Ethereum was the first digital currency network to incorporate a platform for smart contracts. Given this functionality, real-world use cases are already beginning to emerge and sustain value (e.g., Decentralized Finance or DeFi). Considering Ethereum’s position as the second largest digital currency network over the past several years, it’s important to recognize its influence within the digital asset class and on traditional finance. 2. Active developer community: Ethereum is one of the most popular digital currency networks across all metrics for Github activity, including number of commits, total contributors, total project watchers, and total stars.30 3. Institutional and enterprise support: The Enterprise Ethereum Alliance (EEA) is an organization dedicated to promoting Ethereum adoption and usage for both companies and individuals. It also seeks to build enterprise blockchain solutions and potentially private, federated versions of Ethereum’s blockchain to address previously unmet business needs.31 It is made up of over 450 multinational companies, including Microsoft, JP Morgan, Toyota, and Intel. The growing number of firms joining the EEA is representative of a trend where established firms are now exploring the value of blockchain technology and investing significant time and resources towards related initiatives. Potential Risks of Ethereum There are important trade offs to consider when choosing between different digital currency networks to use and invest in. Selection will often depend on the one that best satisfies the needs of the user. Below we outline four key risks related to investing in Ethereum: Scalability Problems Like many of its digital currency counterparts, Ethereum faces limitations in terms of scalability. Currently, the network can only process an average of 15 transactions per second, compared to traditional payment channels such as VISA, which handles approximately 1,700 transactions per second (and claims to have the capacity to handle more than 24,000 per second).32 Ethereum 30. “Cryptocurrency Development Activity and Ranking.” CoinCodeCap. As of February 12, 2020. https:// coincodecap.com/. 31. Enterprise Ethereum Alliance. https://entethalliance.org/. 32. Visa. February 12, 2020. https://usa.visa.com/run-your-business/small-business-tools/retail.html. PLEASE REVIEW IMPORTANT DISCLOSURES & OTHER INFORMATION AT THE END OF THIS PAPER. ©2020 Grayscale Investments, LLC

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