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Another Ethereum milestone

Five years ago, I had a serious concern that Ethereum would simply fail. In early 2019 it was tough to see how the blockchain invented by Vitalik Buterin could fight its way out of the doldrums. Nothing was happening, was the issue, as I recall. The price of Ether had cratered to something like $120 and simply wouldn’t budge. But more than that, as a reporter, I remember thinking it had suddenly gotten hard to find stories about progress in the Ethereum ecosystem. That was strange for such a typically vibrant industry. Wounds were still very fresh, though, from the Ethereum-fueled initial coin offering blitz & scam, when at least $10 billion was stolen from (mostly gullible) investors.

This time is vivid in my memory because I’d just signed a book contract to write the early history of Ethereum, what turned into Out of the Ether. Maybe it was a touch of buyer’s remorse, maybe I was terrified of what I’d just agreed to do, but in January 2019 I didn’t know if my book would end up being a history or an obituary.

Yet Ethereum, as it is wont to do, pulled itself up off the floor and kept chugging. In those five years we’ve seen the advent of crypto-based collateralized lending and yield generation, the introduction of non-fungible tokens, real world assets like overnight loans and Treasury bonds going on chain and infrastructure breakthroughs like layer-2 blockchains and much more sophisticated and user-friendly digital wallets. And of course, the Merge, when teams of Ethereum developers all over the world simultaneously coordinated to switch the protocol from energy-intense proof of work to proof of stake, which they pulled off perfectly.

Now, this week, we’ve got another milestone to add to the list. The final approval and listing on U.S. stock exchanges this week of an exchange-traded fund based on spot Ether is as important to the world’s second-largest blockchain as the Merge. As we’ve written about previously, it’s also an amazing turnaround for the Ethereum world that just six months ago was on high alert that the U.S. Securities and Exchange Commission was going to classify Ether a security. Ether as a security would destroy everything that’s been available to U.S. crypto-heads and drive development out of the country like rats before the Pied Piper.

A quick word on why an ETF is important here. Remember, a Bitcoin ETF was approved earlier this year and became the fastest ever to reach $10 billion. But what’s the big deal? Because an ETF can be bought and sold on an exchange like NYSE, and because they are typically based on assets that are hard for a retail investor to get exposure to – like gold or oil – mom and pop investors can now have a piece of their retirement savings in Bitcoin or Ether. So the folks who should never be anywhere near a digital wallet, those who still can’t program a VCR (oof did I just age myself), is what I’m saying, can now buy crypto just like they’d buy a stock. That’s pretty cool.

Then there are the stodgiest of institutional investors out there that need the SEC imprimatur on a product before they’ll invest. So they’re coming into this market for the first time too.

As of Wednesday, the Ether ETF was holding its own with the Bitcoin ETF. About $852 million in Ether ETFs had traded, compared with $1.1 billion for Bitcoin ETFs, according to Teddy Fusaro, president of crypto-investment firm Bitwise. Fusaro, as well as other crypto analysts, said this was surprising as Ether has always taken a significant back seat to Bitcoin when it comes to price.

It’s also a sweet vindication of a technology -- and the group of people creating it – that’s actually trying to create a better alternative to banking, to online social interactions, to artist-fan connection and a host of other ideas that just want to improve stuff. It’s great to see the SEC lose here. It was overstepping and far too aggressive while refusing to engage with the industry. The politics of lost fundraising coupled with a presidential election caused the Democrats to drop their hostility to crypto, thank the gods, but let’s not discount the fact that Ethereum and other chains are a revolutionary technology that we still don’t scarcely know what to do with.  

SEC approval of the Ether ETF means it considers the underlying cryptocurrency to be a decentralized commodity, and not a security. That removes a tremendous amount of regulatory uncertainty for U.S. developers and crypto startups. Rather than a commodity or security, I think of Ether as money. It’s the underlying currency that makes the Ethereum ecosystem possible and should be thought of as a currency. Simple, right?

Of course, as I’m writing this on July 25, crypto prices are crashing; Ether is down 7.6 percent, Bitcoin has fallen 2.4 percent. That’s the market. Seems like a sell-the-news event to me. Or maybe there’s a way to short cash Ether and go long the ETF that I don’t really understand. No matter what, it’s always a comfort to me to see how much is going on across the vast crypto industry. That’s definitely the case now. The malaise of 2019 was the coldest shiver in that crypto winter, but we’re in summer now and Ethereum is cranking on all cylinders. — Matthew Leising, editor in chief, Decential Media

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.