By Gaurav S. Iyer, IFC Published : January 12, 2018
After drowning in red for a week, cryptocurrency prices picked up steam on Friday morning.
Ethereum had weathered the storm better than most, yet it also climbed on the renewed sense of optimism. ETH prices jumped 4.33% against the U.S. dollar, putting the Ethereum to USD exchange rate at $1,255.57.
Since there is relative calm in the market, I want to use today’s Ethereum news update to talk about an important underappreciated tailwind for ETH. It is known as the “Fat Protocol Theory.”
Bitcoin is often referred to as the forefather of cryptocurrencies, but Ethereum is more aptly described as the foundation layer of cryptos. Hundreds of existing cryptos raised money on the Ethereum platform, and few investors appreciate what this means for ETH prices.
Daily Ethereum Chart
It means that all the decentralized apps that function as branches of Ethereum will eventually feed into its success, driving its price through the roof.
Let me explain…
Consider the Internet as an example. The applications we use every day—”Google,” “Facebook,” “Amazon”—soak up all the value created online. But they weren’t able to create that value by themselves; HTTP and other Internet protocols laid the groundwork.
However, these are considered “thin protocols” because of their invisibility to unwitting users of the Internet.
Blockchain flips this phenomenon on its head.
Rather than value flowing upwards to the application layer, value creation on the blockchain flows down to the core technologies that make it possible. As a result, few of the decentralized applications that raised money through initial coin offerings (ICOs) will ever make money.
Most of the value created will trickle down to the protocol layer, which in this case is Ethereum.
Put another way, Ethereum is a “fat protocol.”
What does this mean for investors? Well, as an investor, you want to go toward the value. For Internet stocks, that means betting on the big apps like Google and Facebook. But on the blockchain, it means you’re better off with platforms like Ethereum and NEM.
“Fat Protocol Theory” is one of the main reasons we love decentralized application blockchains. It is also why we believe ETH is closing in on our $1,500 Ethereum price forecast and will likely reach that level within the first quarter of 2018.