Juan Villaverde is an econometrician and mathematician devoted to the analysis of cryptocurrencies since 2012. He leads the Weiss Ratings team of analysts and computer programmers who created Weiss cryptocurrency ratings.
Some people think that, to divine the destiny of crypto, all they have to do is track market cap. “If market cap is going up,” they say, “that must mean the space is growing. If it’s going down, that must mean the space is shrinking.”
The reality: Market cap is almost entirely a reflection of market price. And price, in turn, is subject to the whims of market cycles and investor psychology.
A far more reliable way to track the industry’s progress is with real-world transactions … which, by the way, are growing by leaps and bounds.
There are two major ways crypto transactions take place:
First, transactions occur on exchanges. These primarily represent activity by investors, speculators and traders. Like price, the volume is cyclical — typically heavy near market tops and lighter near market bottoms.
Second, transactions occur on the cryptocurrency’s ledger itself (called “on-chain” transactions) . This is the real stuff — payments, voting and any actual usage of a distributed application (dapp).
So guess what!
Transactions of the second kind have been growing by leaps and bounds all year long!
EOS has grown its on-chain transactions by a factor of roughly 670-to-1. In the early part of the year, when it was still on the drawing board, its daily transactions averaged no more than about 10,000 per day. Now, its transaction volume has mushroomed to 6.7 million per day.
WAX (a fork of EOS) has grown at a similarly rapid clip. Before it launched, its on-chain transactions were minimal. Now it’s churning through nearly 5.6 million per day.
TRON (another EOS competitor) is smaller, but its growth is also spectacular — from less than 1,000 last year to 600,000 today.
To understand why this is so important, let’s remember how cryptocurrency technology has evolved …
Bitcoin represents merely the paleolithic of cryptocurrencies.
Bitcoin fulfills just the single, relatively narrow purpose of transferring money from point A to point B.
So it wasn’t until Ethereum came along that the space really got interesting.
And this is where most crypto newbies often miss the big picture. They think Ethereum and Bitcoin are simply two breeds of the same animal. Even many crypto veterans misunderstand the radical differences between them. The fact is …
If Bitcoin is like digital money, Ethereum is like digital petroleum.
Money is a medium for exchanging goods.
Commodities are goods themselves.
And among them, petroleum is the most widely traded on Earth. It has greater total value than gold, silver and all other metals combined.
It’s valuable because it has such a broad variety of use-cases: Essential fuel for the 200 million combustion engines produced yearly. The prime material for 300 million tons of plastic created every year. Plus countless other use-cases you’ve probably never heard of.
The global economy is fueled by this essential commodity. Without it, the entire world would come to a screeching halt.
That’s why it’s so valuable. And that’s why Ethereum and its cousins could also be very valuable. They are the fundamental component needed to power the internet of the future.
They are like digital oil. They will support virtually anything you can dream of: mobile apps, social media sites, stock markets, video games, land registries, Fortune 500 companies, even governments.
The global digital network of the future will be fueled by these digital commodities. Without them, the economies of the future will stop dead in their tracks.
That’s because every time an application is created on the Ethereum network, Ether is required. This isn’t arbitrary; it’s what allows the whole thing to function. Without Ether, the Ethereum network runs out of gas.
(One word of explanation before I proceed: Although sometimes interchangeable, the term “Ethereum” is often used to represent the network, while the term “Ether” is reserved for the cryptocurrency itself, the “native token.”)
Ethereum and other networks that emulate its design are global, distributed computers. Think of them as your personal computer chopped up into tiny pieces and scattered across tens of thousands of PCs across the globe: A global supercomputer that anyone can access.
But it’s not free. Whenever I use this supercomputer to perform any kind of task — from writing a few lines of text to signing a contract with my name or buying a piece of property — I need to pay the network.
This latter part is key, because without a native token, what incentive is there for anyone to perform these tasks for me?
Why would someone let anyone else use his or her computer for the benefit of others on the Ethereum network, if he or she has no incentive to do so?
On the Ethereum network, the Ether token is the gas that’s so essential to power the network — to make it run. Thus …
Ether is more akin to a digital commodity with intrinsic value than a greenback or any kind of paper money.
Fiat money has value by decree, based on trust in the issuer.
Digital assets like Ethereum’s Ether have value because they are the essential component that makes the network operational.
If Ethereum is like digital petroleum, then EOS and its cousins are like digital real estate.
Cryptos like EOS provide the equivalent of real estate.
Each EOS token is, in effect, a piece of property you will buy in the virtual nation of the future. The more tokens you hold, the more stuff you can build on the network.
Want to buy a small house? Maybe 400 square meters will be enough. Want to invest in mall construction? You may need a whole block for that. Or perhaps you prefer to lease.
That’s precisely how EOS works. Unlike Ether, EOS isn’t used for paying fees. Instead, each EOS token represents a portion of bandwidth and memory that you quite literally own or rent in the global digital nation that EOS hopes to be.
That digital land is yours and you can build whatever you want on it: A website, a company, a digital community or even a video game like “Space Invaders”!
Bottom line: This is where the big growth is happening. And it’s been happening all year long, even as prices plunged.
Most important, it’s this real-world usage that will ultimately drive up the price of the most widely used cryptocurrencies.