Worldcoin, the Orwellian nightmare marketed as a cutting-edge cryptocurrency given away “for free” by scanning your eyes and face, recently captured the world's attention by dropping their $WLD tokens if users signed up for their “unique identity.” Privacy and security aside, the innovation came with significant costs, as evidenced by Worldcoin's expenditure of $500k in gas fees over a mere 40-day period. To date, that's $4.5 million annually in gas fees. This financial thorn proves the emerging importance of Ethereum in the digital landscape, with companies and individuals likely needing to hoard ETH in the same way they stockpile essential commodities like oil to be a major player in the digital future of the world of Web3, gamefi, tokenization, and other growing sectors. As the phrase goes, the early bird gets the multi-trillion-dollar worm.
This may seem like a stretch now, but with the world becoming increasingly digital and AI surpassing humans at several tasks and new tasks (see chart below), the parallel between Ethereum block space and oil is becoming increasingly apparent as both serve as vital resources powering their respective domains. Just as oil has been the lifeblood of the industrial world, Ethereum is fast becoming an indispensable commodity in the burgeoning digital economy.
Presently, oil is used all around the world for a plethora of reasons. Besides their damaging effects on the micro and the macro, there is no denying that oil usage is essential in running the present world, from transportation to manufacturing, and energy production, which we will touch on last and move into similarities with Ethereum.
Three biggest sectors that heavily rely on oil:
Transportation: Oil is the primary fuel source for cars, trucks, buses, airplanes, ships, and other modes of transportation. It powers the global movement of people and goods, making it essential for daily life and international trade.
Industrial Manufacturing: Oil is used as a fuel and a raw material in various industrial processes. It's essential for producing chemicals, plastics, synthetic materials, and other products integral to manufacturing across numerous industries.
Energy Production: Oil is a key component in producing electricity and heat. Many power plants burn oil to generate energy, and it's also used in residential and commercial heating systems. This sector ensures a steady energy supply to homes, businesses, and public facilities.
As we know, Ethereum’s platform enables the creation of smart contracts and DApps. Think Uniswap, Opensea, and t2 🙂 ETH is used to pay for transactions and computational services on the network.
Now Ethereum block space refers to the space available in each block on the Ethereum blockchain for transactions and smart contract execution. Users must pay gas fees in ETH to have their transactions included in a block, and these fees vary based on network demand. As we saw with the Worldcoin experience, the more transactions and complex operations there are, the more block space is required and, thus, higher gas fees. If you were around during the last bull run, we saw extremely high fees across Dexes, NFT platforms, and transfers, all of which were happily paid because of the euphoria everyone was feeling. With almost everyone gone, fees are low, but only when there isn’t a reason to fill up block space, like when oil is scarce, the price goes up.
The correlation between Ethereum and oil can be understood in the following ways:
Essential Resource: Just as oil is vital for powering industries and transportation, Ethereum is essential for powering decentralized applications and smart contracts. Both are foundational to their respective ecosystems.
Supply and Demand Dynamics: Ethereum block space, like oil reserves, is finite in the short term. The demand for block space (for transactions and computations) and the demand for oil (for energy and manufacturing) can lead to fluctuations in price. High demand for either resource can lead to higher costs.
Strategic Importance: Companies and countries hoard oil as a strategic reserve to ensure a stable supply. Similarly, companies operating on the Ethereum network may need to hoard ETH to ensure they can pay for transactions and computational services, especially during high demand. (see the chart below)
The accumulation of these top 10 addresses, growing from owning 11.2% to 34.6% of the total available coin supply, can be likened to the strategic hoarding of oil by major corporations and governments. Just as oil is a vital commodity that powers industries, transportation, and energy production, Ethereum is becoming an indispensable resource in the digital world, powering decentralized applications, smart contracts, and various blockchain-based innovations. These top addresses may hoard Ethereum to ensure they have sufficient reserves to fuel their operations, hedge against potential price volatility, and position themselves advantageously in a rapidly evolving digital landscape.
As reported in March 2022, a group of 35 shareholders of Ethereum giant ConsenSys AG (CAG) filed for a special audit of a 2020 deal that allowed JPMorgan Chase to acquire an influential stake in two of ConsenSys's flagship products, MetaMask and Infura, both critical to the Ethereum ecosystem.
Looking forward to the next 5 to 10 years, this accumulation strategy by these major players could serve multiple purposes. The Ethereum network will continue to grow, and its use cases will expand, thus, the demand for ETH to pay for transactions and computational services will likely increase, potentially driving up the price. The rub: you have to pay to play, or you have to spend money to make money and thus gain control, as these top 10 wallets are likely doing.
By holding significant reserves of ETH, these top addresses can ensure they have the necessary resources to continue their operations, regardless of market fluctuations. They can influence the market and strategic developments within the Ethereum ecosystem by controlling a substantial portion of the available supply. This hoarding of Ethereum, much like the strategic oil reserves, reflects a long-term vision and an understanding of the resource's fundamental importance in current and future technological, economic, and strategic landscapes. Not to mention, Ethereum’s supply is constantly burning. (see below)
Ethically, this is problematic regarding decentralization and control, but with the advancements of Layer 2’s like Base, Arbitrum, and Polygon, scaling Ethereum means one wouldn’t necessarily have to hoard ETH to use future dapps. We are already well on our way in terms of Ethereum completely changing the digital landscape regarding every aspect of Web3 (NFTs, gamefi, decentralized exchanges, tokenization, etc.). Being a millennial, I can only equate Ethereum to the early days of Facebook (now META), where no one knew what they had and only that they wanted to be a part of it once the true utility of the asset, or in this case, the commodity, was truly revealed with time. In any case, I think the future of Ethereum and everything it offers the world is only beginning.