👋 Note: Originally published on Jan 20, 2021 on Medium.

Ethereum is the digital frontier.

Because it is open and programmable, Ethereum offers a vast uncharted expanse filled with opportunity.

Over the last few years, this frontier has attracted its first major settlements. The freewheeling bazaar of decentralized finance (“DeFi”) has grown into a sector that is beginning to compete with Silicon Valley. This year, a second ecosystem began to put down roots: the creator economy of cryptoart, music, and media.

Meanwhile, the Ethereum community is poised to adopt the most significant changes to the core protocol in its short history. The frontier is finally paving its busy roads.

Like in 2018 and 2019, our goal is to zoom out and show you the bigger picture. This blog post is not comprehensive — writing a comprehensive roundup about Ethereum is nearly impossible. Instead, we focus on a handful of trends we believe were most significant.

In our view, these were the biggest developments of 2020:

1. Bigger than Bitcoin. Ethereum eclipsed Bitcoin as the blockchain with the most valuable blockspace, and the blockchain used to transfer the most value.

2. Ethereum’s Creator Economy. Artists, musicians, and creators of all types exit to Ethereum, where they control the value of their work.

3. DeFi: Revenge of the Dex …and more! Decentralized exchanges changed the way the crypto industry traded, reaching a high of 16% of centralized trading volume.

4. Ethereum’s scaling upgrades are underway. The first of the Eth2 upgrades — the beacon chain — went live on December 1, kicking off a multi-year process that will see Ethereum grow into the world’s settlement layer.

In 2020, Ethereum reached a critical mass. From a high enough vantage point, it’s clear that the weight in the industry has shifted. This year will be remembered as the year that the entire crypto industry began orbiting Ethereum.

What is the world’s most popular blockchain?

For the first time in history, the answer is not “Bitcoin”.

The answer is: “well… according to which metrics?”

In 2020, Ethereum passed Bitcoin on two of the most important metrics we have to compare blockchains. First, Ethereum was used to transfer the most value:

Ethereum transferred ~$1.6 trillion USD worth of assets, 60% more than Bitcoin’s ~$1 trillion.

Ethereum’s most successful application — the stablecoin — is the primary driver of Ethereum’s growing transaction volume. Stablecoins are cryptocurrencies that hold a fixed fiat value (usually dollars), and so are more useful as a store of value or medium of exchange than a volatile asset like BTC or ETH.

Ethereum’s volume grew throughout the year, and since July, has consistently been settling more value than Bitcoin.

Second, another key metric used to compare and measure the real use of cryptocurrencies are total transaction fees. Every time someone uses Ethereum or Bitcoin (to send money, or use an application), they pay a small fee. Fees are a useful metric because they show real demand from paying users.

In 2019, total fees paid to use Bitcoin was 4x the fees paid to use Ethereum.

In 2020, that flipped. Fees paid to use Ethereum were nearly double Bitcoin’s.

Another way to frame this is in terms of the value of blockspace. Every blockchain has a limited capacity. Over the whole year, there’s only so much “block space” that can be used for transactions. In 2020, Ethereum’s blockspace was worth about twice as much as Bitcoin’s blockspace.

If we look at cumulative fees across 2020, there is a clear shift in August when demand for Ethereum increased and fees began to rise.

Remarkably, even applications built on Ethereum have — momentarily — had more paying use than the entire Bitcoin blockchain. On August 10, fees paid to use Uniswap were tied with fees paid to use Bitcoin, and since then have occasionally exceeded 24h BTC fees.

Of course, Bitcoin still leads by other metrics.The marketcap of Bitcoin is still higher than the marketcap of all Ethereum-based assets. And, Bitcoin has greater name recognition with people outside of crypto.

But when you look at real use of these platforms, Ethereum has taken a clear lead over Bitcoin, and no other blockchain is within several orders of magnitude.

Beeple is a digital artist. His real name is Mike Winkelmann.

His work ranges from concert visuals (where he’s worked with One Direction, Eminem, Justin Bieber, and many others), to 3D / Motion Design work for clients like Apple, Nike, Activision, and others.

For 13 years, Beeple has created and published a piece of 3D art every single day as a way to hone his skills and build a large following on instagram.

He first heard about Ethereum in 2017, but didn’t look very closely at it. Then this summer, he noticed some artists who work in his industry start to sell art on Ethereum.

These artists were selling unique digital artwork in the form of “non-fungible tokens” (NFTs). And they were making good money doing it. In July, Trevor Jones sold a piece of digital art for $55,555, at the time a record amount. Beeple decided to try it out for himself.

Up until this point, Beeple’s “everyday” pieces didn’t pay well, or at all. Instead, Beeple’s art made money for Instagram and Twitter, who sell ads to his millions of followers. You could say that on these platforms, Beeple — and every other artist — just gets paid in exposure.

Ethereum gave Beeple an exit from that system. On Ethereum, 13 years of art stopped being an asset just for Instagram & Twitter, and became an asset for Mike. He was able to put his work on an open market, and find out what it was worth.

In December, Beeple sold a set of his everydays for a combined 3.5 million, setting a new record for cryptoart sales. During this sale, he sold three editions of artwork for a total of $582,000 in five minutes.

2020 was the year Ethereum’s creator economy reached a critical mass. If ICOs were Ethereum’s first breakout application, and DeFi is the second, then the creator economy is quickly becoming the third.

The same tools that helped Beeple take ownership of his art are being used by other artists, musicians, fashion designers, writers, and more. But it was cryptoart where the growth was the most obvious. Over the last year, monthly volume of people buying and selling crypto art exploded:

In total, cryptoart volume was about $23 million in 2020. While this is small in comparison to the broader crypto markets, it’s not insignificant compared to other platforms for creators. To give a sense of scale, this early cryptoart volume on Ethereum is about 5% of the $500 million Patreon paid out to creators in 2019.

What makes the creator economy notable isn’t the absolute volume, but the incredible relative value offered to artists. For Beeple, cryptoart wasn’t just marginally better than the way he worked before. It was a zero-to-$3.5 million moment.

That’s why most of the artists who are exiting to Ethereum are not long-time crypto adherents. They’re established artists with pre-existing followings, who are drawn to what Ethereum offers: a better way to monetize their work, and an unexplored canvass for experimentation.

To name a few: Murat Pak, who might best be known as the artist behind the Archillect twitter account, has recently started creating & selling NFTs — and explaining them in detail to their followers (Pak’s Niftygateway). Pak’s NFTs have brought in more than $1 million USD in 2020. Mario Klingemann, who uses AI & machine learning to create bizarre and surprising generative art, has also gotten in to the NFT game (Mario’s Superrare). Or Joanie Lemercier, whose work ranges from large light protection installations, to climate activism, to silkscreen prints (Joanie’s Nifty gateway).

The same toolkit that makes Ethereum a frontier for art also offers a better model to musicians. In the last 6 months alone, musicians sold more than $1M of NFTs and social tokens.

One of the most outspoken musicians to embrace Ethereum is RAC, aka André Anjos. In October, André released a fan token called $RAC. The token was distributed to his existing fanbase to retroactively reward them. People received tokens if they had previously bought merch, or subscribed to RAC on various platforms. $RAC gives its holders access to exclusive perks, access to new work, and more. Other artists, like 3LAU, Tokimonsta, and Portugal. The Man are experimenting with similar ideas.

Behind the scenes, the creator economy’s growth is being enabled by a new generation of platforms, tools, and markets.

Over the last few years, a large number of creator-economy marketplaces have sprung up. Some act as platforms for any type of NFT (Rarible, Niftygateway, Opensea), whereas others specialize in a certain type (for cryptoart: AsyncArt, KnownOrigin, MakersPlace, Foundation, and Superrare) or a certain aesthetic, acting almost like a brand or label (Zora). Recently launched Mirror aims to be a user-owned publishing platform, and Cent is trying to tokenize and sell tweets. Audius, a crypto based music-streaming platform, grew to have more than 1 million monthly users in October.

For most of its history, the crypto space has been synonymous with money. But Ethereum’s frontier is much larger than finance. At the same time, the creative web is at a turning point, as artists, musicians, writers, and creators of every type are increasingly dissatisfied with the platforms that exclude them, censor them, control their relationships with their audience, and extract fees for that privilege.

Ethereum’s digital frontier is an exit from those systems.

In 2018, many had concluded Decentralized Exchanges (Dexes) were a failed experiment.

In our review of that year, we included a short note about Uniswap, a new dex which had launched in November. In 2019, Uniswap grew substantially — daily volume went up by 6,000%.

In 2020, Uniswap was used to trade more than $58 billion worth of assets. In September, Uniswap was briefly doing more volume than Coinbase. This growth isn’t limited to Uniswap — dex volume is increasing across the board:

In October, combined dex volume reached a high of 16% of all centralized exchange (CEX) volumes.

It was another year of incredible growth in DeFi, Ethereum’s financial system. DeFi is a network of connected financial services & protocols being built on the internet, expanding access to basic financial services to everyone on earth. Today, you can use DeFi applications to save money, take out a loan, make payments around the world, earn interest on your assets, or speculate on crypto markets.

In February, DeFi hit the milestone of $1 billion in total value locked within DeFi protocols. By the end of December, that had grown to $15 billion.

And in November, the number of unique addresses that have ever used DeFi protocols surpassed 1 million.

It’s impossible to sum up everything that happened in DeFi this year, but four developments are worth calling out in particular:

1. In January, Aave introduced flash loans. Flash loans let anyone borrow an asset, do something with that asset, and then repay the original loan all in the space of a single Ethereum transaction. In effect, this makes it possible to offer unsecured loans. The lender’s risk is protected by the fact that the loan and the repayment happen, in effect, at the same time — if the borrower can’t repay the loan, then the loan was never made in the first place.

This is the decentralization of arbitrage. On Ethereum, if you find a market inefficiency and have some technical savvy, then you can profit from it. You don’t need to be an institution with many millions of dollars to take advantage of that arbitrage.

2. This summer, Compound introduced liquidity mining — kicking off a protocol arms race. Compound introduced a governance token, $COMP, which users could earn (“mine”) in exchange for adding liquidity to Compound, or borrowing from it. This tactic was quickly copied by other protocols, especially very new ones who had no depositors, and needed to quickly gain marketshare by offering high rates to “liquidity miners.”

Lost in the noise was this: protocols learning how to use the tools that Ethereum offers them to bootstrap themselves into existence, competing against established protocols in a brutal free market.

3. Uniswap kicked off a trend of rewarding past-users with tokens. When Uniswap introduced a token ($UNI) and its own “liquidity mining” incentives, it also distributed 15% of all $UNI to early users of the protocol. This included users who previously provided liquidity, and anyone that had ever used Uniswap — even once.

Distinct from liquidity mining, this is something new. Imagine if AirBnB or Uber had given 15% of their equity to early hosts, drivers, and users. Crypto protocols like Uniswap are experimenting with new models, that blur the lines between user and owner. What would the world be like, if our most valuable marketplaces were owned by the people who use them?

4. Bitcoin gets a new life as a wrapped token on Ethereum. A Bitcoin is “wrapped” when it is locked somewhere (into a protocol like TBTC, or by a custodian like BitGo), and then an IOU token is issued on Ethereum, which can be redeemed back on the Bitcoin blockchain.

Why are Bitcoin holders moving their Bitcoin onto Ethereum? Because on Ethereum, you can do things with your Bitcoin besides hold it. You can use your Bitcoin as collateral for a loan, or lend it out and earn interest on it. At the beginning of the year there were about 1,000 wrapped Bitcoin on Ethereum, and by November there were ~154,000, nearly 1% of the total Bitcoin supply, being put to work on Ethereum.

After years of research, planning, development, and testing, the Ethereum community laid the foundation for the multi-year, multi-step Eth2 upgrades.

This marks the beginning of a new phase. Over the next few years, the Ethereum community plans to make multiple inter-dependent upgrades to the core protocol, radically expanding the capacity and security of the network.

You’ve probably heard this project referred to as “Eth2”, but this has always been a bad name. “Eth1” and “Eth2” are not sequential versions of a thing, but rather two components of a whole — Ethereum — that will be merged together. The broader project is really a set of separate, but related, upgrades. The first of these upgrades — the Beacon chain — launched on December 1, 2020.

The beacon chain is the backbone of Ethereum’s new Proof of Stake consensus mechanism. Today, the beacon chain isn’t being used by the Ethereum protocol — it’s just running smoothly, while the community fine-tunes and hardens it, in preparation for supporting a hundred-billion dollar network.

Ethereum’s Proof of Stake consensus system is unique. No other blockchain community has prioritized decentralization — the ability for anyone, even with consumer hardware, to run a node — to the same degree as Ethereum.

What happens next? There are two major tasks in the near future. One is to merge the Eth1 chain with Eth2, swapping out Proof of Work for the beacon chain’s Proof of Stake. The other, is to add data shards, which will open a new route to immediate scalability through rollups.

In October, Vitalik proposed an adjustment to Ethereum’s roadmap. This plan would prioritize expanding use of rollups to give the Ethereum ecosystem massive scalability gains in the near future.

Rollups are a layer 2 scaling technology. The idea is that we can keep data on-chain, while moving execution “off-chain”, to an environment that can handle faster performance, while still preserving the characteristic safety guarantees of “on-chain” Ethereum transactions. For a detailed explanation, check out Vitalik’s guide.

The key to the rollup-centric roadmap is that rollups become even more powerful when combined with a specific Eth2 upgrade: data shards. Data shards allow anyone to pay transaction fees to post data to several different sharded chains. Today (without data shards) rollups give Ethereum a 3000 transaction per second throughput capacity, but with data shards that throughput reaches more than 100,000 transactions per second.

We have rollups live on mainnet today (though they don’t yet use Eth2 data shards). Loopring, Fuel and zkysnc already have ETH and token transfers enabled. All are capable of doing thousands of transactions per second with similar security assumptions as transacting on the Ethereum mainnet.

2020 also saw optimistic rollups launch testnets with Solidity/EVM support. In 2021, we will see developers begin to port their applications to optimistic rollups (in fact, this blog post is late enough that we’ve already begun to see it). As a result, transaction fees for end users will be lower, even as demand for Ethereum blockspace continues to grow.

If you want to read more about how Rollups fit into Ethereum’s roadmap, we recommend this recent post by Ben Edgington.

As the beacon chain launch grew closer, a community of hobbyist stakers grew up around it. This is a direct result of the Ethereum community’s decision to prioritize a PoS consensus mechanism that made it viable to participate with consumer hardware.

Communities like this used to exist in the early days of PoW mining, before ASICs centralized mining in the hands of large companies. Readers who were around in 2014–2016 will remember that being able to contribute to the network’s consensus on an individual basis was an important part of the crypto ethos, which has since been mostly lost. Now, Ethereum is bringing it back.

It’s another example of what makes the Ethereum community great. There was a need for education, resources, and tech support to help people learn how to set up their clients and stake successfully. The largest of these communities is Ethstaker, a community of about 6,000 people on Discord. If you’re interested in staking, this is the right place to start.

Ethereum is growing up.

Ethereum’s digital frontier is no longer an experiment, no longer a blank canvass. It’s an economy, a growing city-state. Still rough around the edges, sure. But that’s always been part of the charm.

Since 2015, Ethereum has always been the underdog. But 5 years later, it’s the protocol with the largest volume and the most valuable blockspace. There are still other metrics to conquer — but you can feel the Ethereum community’s goals expanding beyond simple comparisons to digital gold.

Being the most-used cryptocurrency isn’t worth much if crypto itself fails, if it doesn’t solve real problems, or if it can’t scale. Ethereum’s next challenges will be bigger, because they will be the whole crypto market’s challenges.

So, what are you waiting for? Winter is over, and we’ve got work to do. The frontier doesn’t build itself.

— Josh Stark & Evan Van Ness

Thank you to George Trotter, Jacob Horne, Mike Winkelmann, Superphiz, Richard Chen, and Danny Ryan.