Investors need to understand the impact of Ethereum (ETH) as an asset. A precise valuation or price prediction is important for investment purposes.
The store of value narrative of cryptocurrencies like BTC, ETH, and other Altcoins is beginning to go mainstream, and more individuals and investors are finally investing in Bitcoin.
When it comes to Ethereum Network and its native asset ETH, the understanding of the nature of the asset type is still convoluted. The narratives around ETH are so hard that even those working full time around cryptocurrency have a difficult time comprehending and communicating the intricacies of the asset type.
Ethereum Network is described as the “World Computer,” and ETH is known as gas. Do investors need to have a clear understanding of what the “world computer” is good for? They need to comprehend further whether ETH is a consumable commodity, capital asset, or programmable collateral/money? And they need to understand how does ETH accrues value?
There is no universal single narrative crystallized for ETH. Newer narratives for ETH are emerging. Investors are working hard to understand what they are probably betting on when they invest their money into ETH.
In simple terms, Ethereum is compared to a distributed operating system with a native token. The costs for computing are transacted using the ETH. The block reward and the transaction fees contribute to the compensation for the computation resources facilitated by the miners.
The ETH block rewards are designed in a way to establish an activist monetary policy than Bitcoin. The ETH holders bear the cost of inflation of ETH. Users pay the transaction cost using Ethereum. The demand for ETH from the users of Ethereum based applications is more than the rate of inflation through the block rewards. Notably, the rate of fluctuation has changed wildly throughout the history of Ethereum.
Thus, the Ethereum network can be used as an Economy. A popular economic analysis of ETH is to look at the Network’s total value as GDP based on the equation of exchange PQ = MV, whereby the price times quantity (total output) should be equal to the money supply multiplied by the velocity (turnover) of money.
Thus, the total value of the Ethereum network is equal to the total amount of ETH in circulation multiplied by the turnover of ETH. Looking forward in conjecture, the GDP of the Ethereum network will go up reasonably but not massively.
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