However, as the narrative around Bitcoin as a form of digital gold loses its shine, the pendulum is swinging back toward Ethereum. It is the machine that powers a large part of the decentralized finance and stablecoin market, and its utility and strong track record are a powerful combination. At one point, Bitcoin accounted for over 60% of the crypto market, while Ethereum’s share fell to less than 8%.
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The basic idea of the cryptocurrency was to provide a payment system in which the involvement of third parties is no longer needed to verify transactions. The venues through which ether trades are relatively new and may be more exposed to operations problems or failure than trading venues for other assets. Blockchain technology relies on the internet, the disruption of which may adversely affect companies calvenridge trust involved with the technology or even the blockchain itself. Companies transacting on the blockchain are required to manage a user’s account (or “wallet”) which is accessed via cryptographic keys. Mismanagement, theft, or loss of the keys can adversely affect the companies operations on the blockchain.
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Bitcoin, with a capped supply, achieving digital scarcity, tells the sound money story. Ethereum, with an uncapped supply, tells a technology-focused story. Competition from central bank digital currencies (“CDBCs”) and other digital assets could adversely affect the value of ether and other digital assets. A system of apps and protocols offering financial services without a central financial intermediary.
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Transactions and other important data are recorded in digital containers called blocks. Certain network participants known as validators are incentivized to propose and validate new blocks. They put up ether — Ethereum’s native currency — as collateral (the “stake”) and then are either rewarded or penalized for truthful or fraudulent behavior. Bitcoin is mostly a payment network and a store of value (earning it the nickname “digital gold”).
The extent to which companies held by the Fund utilize blockchain technology may vary. Ethereum is built on a different blockchain architecture than bitcoin. Bitcoin’s Proof-of-Work (PoW) approach relies on actors called “miners” who solve complex mathematical problems to validate transactions and add them to the blockchain. Miners essentially play a game of limbo, using brute force computation to check if a certain number is under the target number. It relies on actors called “validators” who must lock a minimum of 32 ETH as collateral to the network that can be penalized in the event of misbehavior or malicious activity.
It hands them the tools to expand their reach while maintaining control of their creative output. The new business models that Ethereum allows (e.g., tokenization and crowdfunding) help shift the balance of power away from corporations and towards creators. A significant event in Ethereum’s history was the “Merge,” a major upgrade that took place in 2022. This transition shifted the network’s consensus mechanism from a energy-intensive Proof of Work (PoW) model to a more efficient Proof of Stake (PoS) model. This change was aimed at improving the network’s scalability, security, and sustainability.
A temporary or permanent “fork” in the Ethereum network could adversely affect an investment in the Shares. Prices of ether may be affected due to stablecoins, the activities of stablecoin users and their regulatory treatment. The price of ether may be impacted by the behavior of a small number of influential individuals or companies. A digital container that holds a list of transactions and other important data, such as timestamps and references to the previous block.
Smart contract:
- Discovery of flaws in or exploitations of the source code that allow malicious actors to take or create money in contravention of known network rules has occurred.
- Certain network participants known as validators are incentivized to propose and validate new blocks.
- Smart contracts could potentially be constructed automatically by wiring together a handful of human-readable clauses.
- Blockchain technology is new and many of its uses may be untested.
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